Optimal Capital Structure with Stock Market Feedback*

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dc.contributor.authorMachado, Caio
dc.contributor.authorPereira, Ana Elisa
dc.date.accessioned2025-01-20T20:21:00Z
dc.date.available2025-01-20T20:21:00Z
dc.date.issued2023
dc.description.abstractThis article studies optimal capital structure when firms learn from financial markets. We present a tractable model of stock market feedback with imperfect information aggregation. Debt issuance affects speculators' incentives to trade both directly, by changing the payoff structure of equity holders, and indirectly, through an asset substitution effect. We show that issuing debt can increase market informativeness and firm value, and may eliminate a coordination failure equilibrium with no provision of market information. We derive the optimal capital structure in this setting and present novel empirical predictions regarding the relationship between market frictions, market informativeness, and capital structure. Once the effect of debt on market informativeness is considered, risky debt does not necessarily lead to risk shifting.
dc.fuente.origenWOS
dc.identifier.doi10.1093/rof/rfac056
dc.identifier.eissn1573-692X
dc.identifier.issn1572-3097
dc.identifier.urihttps://doi.org/10.1093/rof/rfac056
dc.identifier.urihttps://repositorio.uc.cl/handle/11534/92608
dc.identifier.wosidWOS:000848903000001
dc.issue.numero4
dc.language.isoen
dc.pagina.final1371
dc.pagina.inicio1329
dc.revistaReview of finance
dc.rightsacceso restringido
dc.subjectInformation aggregation
dc.subjectFinancial markets
dc.subjectFeedback effect
dc.subjectCapital structure
dc.titleOptimal Capital Structure with Stock Market Feedback*
dc.typeartículo
dc.volumen27
sipa.indexWOS
sipa.trazabilidadWOS;2025-01-12
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