IDEAS home Printed from https://ideas.repec.org/a/oup/rfinst/v36y2023i9p3693-3737..html
   My bibliography  Save this article

Designing Securities for Scrutiny

Author

Listed:
  • Brendan Daley
  • Brett Green
  • Victoria Vanasco
  • Itay Goldstein

Abstract

We investigate the effect of scrutiny (e.g., credit ratings, analyst reports, or mandatory disclosures) on the security design problem of a privately informed issuer. We show that scrutiny has important implications for both the form of security designed and the amount of inefficient retention of cash flows. The model predicts that issuers will design informationally sensitive securities (i.e., levered equity) when scrutiny is sufficiently intense. Otherwise, issuers opt for a standard debt contract. Scrutiny increases efficiency by decreasing issuers’ reliance on retention to signal quality and, perhaps counterintuitively, decrease price informativeness.

Suggested Citation

  • Brendan Daley & Brett Green & Victoria Vanasco & Itay Goldstein, 2023. "Designing Securities for Scrutiny," The Review of Financial Studies, Society for Financial Studies, vol. 36(9), pages 3693-3737.
    • Handle: RePEc:oup:rfinst:v:36:y:2023:i:9:p:3693-3737.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/rfs/hhad013
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:rfinst:v:36:y:2023:i:9:p:3693-3737.. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://edirc.repec.org/data/sfsssea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.