A Fast Literature Search Engine based on top-quality journals, by Dr. Mingze Gao.

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  • Williams, J. T. (1995). Financial and Industrial Structure with Agency. Review of Financial Studies, 8, 431–474.

    A sub game perfect Nash equilibrium is characterized for an industry with dissipative costs of agency. In sequence, firms can enter the industry, raise capital with external debt and/or equity, invest in a capital-intensive technology or dissipate capital in perquisites, and finally produce output. For plausible values of two critical parameters, some, firms forego in equilibrium investments with positive net present values. Although more managers would like their firms to invest in the capital-intensive technology, they cannot raise the required cash in the capital market. In equilibrium, the industry can have both a profitable core of large, secure, capital intensive firms, with some debt but no unique optimal capital structure, and a competitive fringe of small, risky, labor-intensive firms. Even as the cost of entry converges to zero, capital-intensive firms can earn extraordinary profits, while all labor-intensive firms fail. With costly agency, access to capital can become a barrier to entry.

  • Williams, J. T. (1995). Pricing Real Assets with Costly Search. Review of Financial Studies, 8, 55–90.

    Markets for many real assets are characterized by sequential search followed by bilateral bargaining between matched buyers and sellers. For a category of real assets, the joint, intertemporal valuation problems of buyers, owners, and sellers, and the associated Nash pricing function are solved explicitly. In equilibrium, the average transaction price is a noisy, proportional random walk, and the liquidity premium is positive for matched owners. Depending on the values of the parameters, the liquidity premium can be substantial. In a related problem of optimal development with costly search, the optimal exercise point, cost of development, and value of the undeveloped asset are calculated analytically. With search, development can occur sooner and undeveloped assets have lower market values than the standard solution without search.

  • Winton, A. (1995). Costly State Verification and Multiple Investors: The Role of Seniority. Review of Financial Studies, 8, 91–123.

    Many financial claims specify fixed maximum payments, varying seniority, and absolute priority for more senior investors. These features are motivated in a model where a firm's manager contracts with several investors and firm output can only be verified privately at a cost. Debt-like contracts of varying seniority generally dominate symmetric contracts, and, when investors are risk neutral, it is optimal to use debt like contracts where more senior claims have absolute priority over more junior claims. In addition to motivating several features of debt and preferred stock, the model offers an explanation for structures used in leveraged buyouts, asset backed securitizations, and reinsurance contracts.

  • Yermack, D. (1995). Do Corporations Award CEO Stock Options Effectively. Journal of Financial Economics, 39, 237–269.
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