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The Private Placement of Debt and Outside Equity as an Information Revelation Mechanism

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  • Habib, Michel A
  • Johnsen, D Bruce

Abstract

We view debt and outside equity as serving to elicit credible information from different specialists about the value of an enterprise in its various uses. The equity valuation specialist provides a price forecast for equity that reveals information about the value of the enterprise in its primary use. The debt valuation specialist provides a price forecast for debt that reveals information about the value of the enterprise in its alternative use. The prices forecast by the valuation specialists credibly reveal their private information because they are required to buy the associated claims at the forecast prices, thereby bonding their valuations. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Suggested Citation

  • Habib, Michel A & Johnsen, D Bruce, 2000. "The Private Placement of Debt and Outside Equity as an Information Revelation Mechanism," The Review of Financial Studies, Society for Financial Studies, vol. 13(4), pages 1017-1055.
    • Handle: RePEc:oup:rfinst:v:13:y:2000:i:4:p:1017-55
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    Cited by:

    1. Roman Inderst, 2008. "'Irresponsible Lending' With A Better Informed Lender," Economic Journal, Royal Economic Society, vol. 118(532), pages 1499-1519, October.
    2. Dong, Gang Nathan & Gu, Ming & He, Hua, 2020. "Invisible hand and helping hand: Private placement of public equity in China," Journal of Corporate Finance, Elsevier, vol. 61(C).
    3. Catherine Casamatta & Carole Haritchabalet, 2014. "Dealing with Venture Capitalists: Shopping Around or Exclusive Negotiation," Review of Finance, European Finance Association, vol. 18(5), pages 1743-1773.
    4. Roland Strausz, 2009. "Entrepreneurial Financing, Advice, and Agency Costs," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(3), pages 845-870, September.
    5. Axelson, Ulf, 2005. "Security Design with Investor Private Information," SIFR Research Report Series 37, Institute for Financial Research.
    6. Banerji, Sanjay & Errunza, Vihang R., 2005. "Privatization under incomplete information and bankruptcy risk," Journal of Banking & Finance, Elsevier, vol. 29(3), pages 735-757, March.
    7. Catherine Casamatta & Carole Haritchabalet, 2014. "Dealing with Venture Capitalists: Shopping Around or Exclusive Negotiation," Review of Finance, European Finance Association, vol. 18(5), pages 1743-1773.

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