The paper explains why an issuer may wish to raise external capital by selling multiple financial claims that partition its total asset cash flows, rather than a single claim. It is shown that in an asymmetric information environment, the issuer's expected revenue is enhanced by such cash flow partitioning because it makes informed trade more profitable. This approach seems capable of shedding light on corporate incentives to issue debt and equity, as well as on financial intermediaries' incentives to issue multiple classes of claims against portfolios of securitized assets.
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Paper provided by European Science Foundation Network in Financial Markets, c/o C.E.P.R, 53--56 Great Sutton Street, London EC1V 0DG in its series CEPR Financial Markets Paper with number
0020.
Boot, Arnoud W A & Thakor, Anjan V, 1993.
" Security Design,"
Journal of Finance,
American Finance Association, vol. 48(4), pages 1349-78, September.
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