We analyze the choice between fixed-price offerings and auctions in IPOs and privatizations. We model a firm going public by selling equity in the IPO market. Firm insiders have private information about intrinsic firm value, but outsiders can produce information about this value before bidding for shares. Inducing information production is beneficial for higher intrinsic value firms, because this information, reflected in secondary market prices, yields higher equity prices. We show that auctions and fixed-price offerings have different properties for inducing information production, solve for the equilibrium IPO mechanisms for firms with different characteristics, and explain the “IPO auction” puzzle. Received July 3, 2012; Editorial decision July 14, 2018 by Editor Paolo Fulghieri

We analyze a firm’s choice between dividends and stock repurchases under heterogeneous beliefs. Firm insiders, owning a certain fraction of equity, choose between paying out cash available through a dividend payment or a stock repurchase, and simultaneously choose the scale of the firm’s project. Outsiders have heterogeneous beliefs about project success and may disagree with insiders. In equilibrium, the firm distributes value through dividends alone, through a repurchase alone, or through a combination of both. In some situations, the firm may raise external financing to fund its payout. We also develop results for long-run stock returns following dividends and repurchases. (JEL G32, G35) Received June 2, 2020; editorial decision November 3, 2020 by Editor Andrew Ellul.

We study an environment with short-sale constraints and heterogeneous beliefs among outsiders and between insiders and outsiders. Firm insiders choose between equity, debt, and convertible debt to raise external financing. We analyze two settings: one in which heterogeneous beliefs is the only market imperfection and another in which there are significant security issue and financial distress costs. Our model generates a pecking order of external financing different from asymmetric information models, and new predictions for capital structure, sequential tranching of securities, the price impact of security issues, and long-run stock returns. We also provide a new rationale for convertible debt issuance.