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Investment, Security Design and Information

In: Banking, Capital Markets and Corporate Governance

Author

Listed:
  • Gabrielle Demange
  • Guy Laroque

Abstract

We consider the decisions of a venture capitalist who starts a new project. The prospects for the resale values of the newly created firm(s) are important features of the choice of the project. We assume that they crucially depend on the state of information when the firms are offered on the stock market. Such information is likely to be asymmetric, which typically discourages the general public to invest in the new firms. This market imperfection influences the initial choices of the capitalist: it favours the projects where the asymmetry of information is the least pronounced (or, equivalently in our model, the risks born by the investor are smaller), and projects whose risk characteristics may be useful as a hedge to the market at large.

Suggested Citation

  • Gabrielle Demange & Guy Laroque, 2001. "Investment, Security Design and Information," Palgrave Macmillan Books, in: Hiroshi Osano & Toshiaki Tachibanaki (ed.), Banking, Capital Markets and Corporate Governance, chapter 11, pages 272-288, Palgrave Macmillan.
  • Handle: RePEc:pal:palchp:978-0-230-28814-0_11
    DOI: 10.1057/9780230288140_11
    as

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