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Corporate financing with loss aversion and disagreement

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  • Niu, Weining
  • Zeng, Qingduo

Abstract

We build an equilibrium model to analyze the effect of loss aversion and disagreement on capital structure and stock price effect. It identifies that loss aversion has negative relation with capital structure and stock price effect without disagreement. However, in the case of disagreement between manager and outside investors, under different scale of probability of value gain, capital structure has different relation with loss aversion and disagreement level, and stock price effect has negative relation with loss aversion but has positively related with disagreement level. The numerical simulation results verify our theoretical findings to some extent.

Suggested Citation

  • Niu, Weining & Zeng, Qingduo, 2018. "Corporate financing with loss aversion and disagreement," Finance Research Letters, Elsevier, vol. 27(C), pages 80-90.
    • Handle: RePEc:eee:finlet:v:27:y:2018:i:c:p:80-90
    DOI: 10.1016/j.frl.2018.02.021
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    Cited by:

    1. Wolfgang Breuer & Ji Cao & Marc Oliver Rieger & K. Can Soypak, 2019. "Capital Structure Decisions, Loss Aversion, and Equity Premium," Working Paper Series 2019-04, University of Trier, Research Group Quantitative Finance and Risk Analysis.
    2. Ji Cao & Marc Oliver Rieger, 2019. "A Cautionary Note on Niu and Zeng (2018)," Working Paper Series 2019-03, University of Trier, Research Group Quantitative Finance and Risk Analysis.
    3. Li, Qianwen & Qian, Tingyu & Zhang, Xufeng & Long, Ruyin & Chen, Hong & Huang, Han & Liu, Lei & Zhu, Licai & Jiang, Huikang & Zhu, Hanyi, 2023. "How does stakeholder loss aversion affect the promotion of green housing?," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 647-668.

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    More about this item

    Keywords

    Loss aversion; Disagreement; Capital structure; Stock price effect;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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