Review of Financial Studies Vol. 1 No. 3 1988
A Theory of Negotiated Equity Financing
Abstract
We examine the sale of equity within the context of a model of negotiation between a firm and a less well informed purchaser. We introduce a simple form of negotiation by allowing the firm to set the price of the issue and by assuming that the purchase is a financier-underwriter who acts strategically. This transaction is analyzed as a noncooperative game, and we identify sequential equilibria that are consistent with observed behavior: namely that negotiations occasionally fail, that market reactions to equity offers are not uniformly negative, and that equity placements are often underpriced.
- DOI
- 10.1093/rfs/1.3.265
- Volume
- 1
- Issue
- 3
- Pages
- 265-288
- Language
- en
- Sources
- openalex crossref