Capital Flows with Debt-And Equity-Financed Invesment: Equilibrium Structure and Efficiency Implications
This paper distinguishes between debt and equity flows in the presence of information asymmetry between the firm’s “insiders” and “outsiders” in a small open economy. It shows the inadequacy of capital investment because its scope is too narrow and the investment each firm makes is too little. An unconventional policy tool is proposed to correct the market failure: lump-sum subsidies to firms that choose to equity-finance their investments.
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Paper provided by Universidad del CEMA in its series CEMA Working Papers: Serie Documentos de Trabajo. with number
136.
| Length: | |
| Date of creation: | Aug 1998 |
| Handle: | RePEc:cem:doctra:136 |
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References listed on IDEAS
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