Seminarios académicos y conferencias
"Debt and information aggregation in financial markets"
29 Noviembre 2018 - 15:00 hrs.
Sala de Posgrado, Facultad de Ciencias Económicas y Administrativas UC
Abstract: We analyze how the capital structure of a firm affects the information revealed by secondary financial markets. Firms use information contained in market activity to guide real investment decisions. We show that, if markets are sufficiently liquid, excessively high or low levels of debt hinder the informativeness of financial markets and reduce firm value through the feedback from prices to real decisions. Very low debt reduces incentives for speculators to trade on their information in debt markets, indirectly affecting agents’ incentives to trade stocks due to strategic complementarities that arise endogenously. In this case, an intermediate level of debt maximizes the value of the firm. When markets are illiquid, intermediate levels of debt dilute incentives for trading on information, and extreme levels of debt are often optimal.