LSF Lunchtime Seminar: Risk-Taking, Rent-Seeking, and Investment when Financial Markets are Noisy Christian Hellwig* – Toulouse School of Economics Abstract We analyze investment and risk-taking by firms and identify a new distortion due to market imperfections and shareholder incentives. First we show that noisy information aggregation introduces a rent-shifting motive and leads to inefficient investment. These inefficiencies are particularly severe if upside risks are coupled with near constant returns to scale. Second we consider four applications of our model that give rise to excess leverage, negative welfare effects of transparency, excess sensitivity of investment to stock prices, and dynamically inconsistent firm behavior. Our third contribution is to evaluate various welfare improving policy interventions. * Co-authors: Elias Albagli – Central Bank of Chile Aleh Tsyvinski – Yale University Thursday 21 May 2015 1:00 – 2:00 pm Location Luxembourg School of Finance 4, rue Albert Borschette L-1246 Luxembourg nd 2 floor, Modigliani Miller Auditorium Langue English Registration - Free seminar - Registration by e-mail to [email protected] (please specify full name and institution) before 18 May 2015 - Lunch is planned for registered participants Contact Sophie Lux Tel: +352 46 66 44 6335
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