Learning in Financial Markets: Implications for Debt-Equity Conflicts

• 成果类型: Article
• 署名作者: Davis, Jesse; Gondhi, Naveen
• 署名单位: University of North Carolina; University of North Carolina Chapel Hill; University of North Carolina School of Medicine; INSEAD Business School
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhad083
• 发表日期: 2024
• 页码: 1584
• 关键词: INVESTMENT SENSITIVITY; Price informativeness; corporate-investment; stock-prices; feedback; FIRMS; aggregation; incentives; PRIVATE

摘要

Financial markets reveal information that firm managers can utilize when making equity value-enhancing investment decisions. However, for firms with risky debt, such investments are not necessarily socially efficient. Despite this friction, we show that learning from prices improves investment efficiency. This effect is asymmetric, however, as investors learn less about projects that decrease the riskiness of cash flows: efficiency is lower for diversifying investments than for focusing (risk-increasing) investments. This also implies that investors' endogenous learning further attenuates risk shifting but amplifies debt overhang. Our model provides a novel channel through which learning from financial markets affects agency frictions between stakeholders.