Security Design With Investor Private Information ∗

@inproceedings{Axelson2002SecurityDW,
  title={Security Design With Investor Private Information ∗},
  author={Ulf Axelson},
  year={2002}
}
I argue that an important friction in the issuance of financial securities is that potential investors may be privately informed about the value of the underlying assets. I show how security design can help overcome this friction. In the single asset case, I show that debt is often an optimal security when the number of potential investors is small, while equity becomes optimal as the degree of competition increases. In the multiple asset case, debt backed by a pool of assets is optimal if the… CONTINUE READING
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