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Corporate Financing: An Artificial Agent-based Analysis

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Author Info
Thomas H. Noe (A. B. Freeman School of Business, Tulane University)
Michael J. Rebello (Robinson College of Business, Georgia State University)
Jun Wang (SAS Institute Inc. and Baruch College)

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Abstract

We examine corporate security choice by simulating an economy populated by adaptive agents who learn about the structure of security returns and prices through experience. Through a process of evolutionary selection, each agent gravitates toward strategies that generate the highest payoffs. Despite the fact that markets are perfect and agents maximize value, a financing hierarchy emerges in which straight debt dominates other financing choices. Equity and convertible debt display significant underpricing. In general, the smaller the probability of loss to outside investors, the more likely the firm is to issue the security and the smaller the security's underpricing. Copyright 2003 by the American Finance Association.

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Publisher Info
Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 58 (2003)
Issue (Month): 3 (06)
Pages: 943-973
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Handle: RePEc:bla:jfinan:v:58:y:2003:i:3:p:943-973

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  1. Peter Wirtz, 2005. "Compétences, conflits et création de valeur:vers une approche intégrée de la gouvernance," Working Papers FARGO 1050501, Université de Bourgogne - Latec/Fargo (Research center in Finance,organizational ARchitecture and GOvernance). [Downloadable!]
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  2. Noe, Thomas H. & Rebello, Michael J. & Wang, Jun, 2004. "The Evolution of Security Designs," SIFR Research Report Series 26, Institute for Financial Research. [Downloadable!]
    Other versions:
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