A Theory of Negotiated Equity Financing

A Theory of Negotiated Equity Financing

We examine the sale of equity within the context of a model of negotiation between a firm and a less well informed purchaser. We introduce a simple form of negotiation by allowing the firm to set the price of the issue and by assuming that the purchaser is a financier-underwriter who acts strategica...

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Veröffentlicht in:The Review of financial studies 1988-10, Vol.1 (3), p.265-288
Hauptverfasser: Giammarino, Ronald M., Lewis, Tracy
Format: Artikel
Sprache:eng
Schlagworte:
Competition
Equilibrium
Equity
Equity financing
Financial investments
Financial securities
Financiers
Game theory
Investment strategies
Investments
Investors
Market equilibrium
Market prices
Negotiations
Net present value
Pricing policies
Sales
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container_title The Review of financial studies
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creator Giammarino, Ronald M.
Lewis, Tracy
description We examine the sale of equity within the context of a model of negotiation between a firm and a less well informed purchaser. We introduce a simple form of negotiation by allowing the firm to set the price of the issue and by assuming that the purchaser is a financier-underwriter who acts strategically. This transaction is analyzed as a noncooperative game, and we identify sequential equilibria that are consistent with observed behavior: namely, that negotiations occasionally fail, that market reactions to equity offers are not uniformly negative, and that equity placements are often underpriced.
doi_str_mv 10.1093/rfs/1.3.265
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source Jstor Complete Legacy; Oxford University Press Journals Digital Archive Legacy; Periodicals Index Online; EBSCOhost Business Source Complete
subjects Competition
Equilibrium
Equity
Equity financing
Financial investments
Financial securities
Financiers
Game theory
Investment strategies
Investments
Investors
Market equilibrium
Market prices
Negotiations
Net present value
Pricing policies
Sales
title A Theory of Negotiated Equity Financing
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