dynamic security design and corporate financing-chapter

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1、CHAPTER2DynamicSecurityDesignandCorporateFinancing*YuliySannikovContents1.Introduction712.InformationalProblemsinStaticModels742.1MoralHazard752.2AdverseSelection823.SimpleSecuritiesinDynamicModels874.OptimalDynamicSecurityDesignunderMoralHazard904.1OtherModelsthatInvolveDynamicMoralHazard

2、1025.AsymmetricInformationinDynamicSettings1115.1StaticContractsinDynamicSettings1115.2OptimalDynamicContractswithAdverseSelection117References1211.INTRODUCTIONModiglianiandMiller(1958),hereafterMM,arguethatundercertainidealizedassump-tionsfirmcapitalstructureisirrelevant,i.e.itdoesnotaffe

3、ctfirmvalue.Thesecondi-tionsinclude:1.Therearenotaxesorbankruptcycosts.2.Therearenoagencyproblems.3.Therearenodifferencesininformationbetweeninsidersandoutsideinvestors.4.Capitalmarketsarefrictionless,i.e.marketparticipantsareperfectlycompetitiveandhavenomarketpower,andthereisnosecuritymis

4、pricing.Ofcourse,weknowthattheseidealizedconditionsclearlyfailinpractice.TheimportantmessageoftheModigliani–Millertheoryisthatitrulesoutcertaincom-monlyusedargumentsaboutcapitalstructureasincorrectorincomplete.Thesearguments*IammostgratefultoMiltonHarrisforhisgenerousguidanceandextensivesu

5、ggestionsduringthepreparationofthismanuscript.IwouldalsoliketothankNengWang,BrettGreen,BrendanDaley,AlexeiTchistyi,andThomasMariottiforhelpfulcomments.HandbookoftheEconomicsofFinance©2013ElsevierB.V.http://dx.doi.org/10.1016/B978-0-44-453594-8.00002-1Allrightsreserved.7172YuliySannikovtypi

6、callyfailtotakeintoaccountthattheriskinessofsecuritiesusedincapitalstructure,andthustheirrequiredreturn,dependonthecapitalstructureitself.Herearesometypicalexamples:A.Anargumentagainsthighercapitalrequirementsforbanks:becauseequityhasahigherrequiredreturnthandebt,requiringbankstoholdmoreeq

7、uityintheircapi-talstructuretoabsorbriskwillmakebankslessprofitable.Thisargumentfailstotakeintoaccountthatadecreaseinleveragemakesequitylessrisky,andthuslowersthecostofequity.1B.Anargumentthatcallsontechnologyfirms,suchasApple,topayouttheircashholdings,because