Seminario académico Finanzas y Contabilidad

11 de octubre, 13:00 horas, sala P307, Facultad de Economía y Negocio

Capital structure and information aggregation in financial markets

Expositor: Ana Elisa Pereira

We analyze how the capital structure of a firm affects the information revealed by secondary financial markets. Firms observe prices and quantities of equity and debt claims traded in secondary markets and use this information to guide real investment decisions. We show that when firms have a very high or very low level of debt, financial markets reveal less information, reducing firm value through the feedback from prices to real decisions. Excessively low levels of debt reduce 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. An intermediary level of debt maximizes the value of the firm.