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Acency Costs and Asset Pricing

Objective

The main objective of this research project is to contribute at bridging the gap between the two main branches of financial theory, namely corporate finance and asset pricing. It is motivated by the conviction that these two aspects of financial activity should and can be analyzed within a unified framework. This research will borrow from these two approaches in order to construct theoretical models that allow one to analyze the design and issuance of financial securities, as well as the dynamics of their valuations. Unlike asset pricing, which takes as given the price of the fundamentals, the goal is to derive security price processes from a precise description of firm’s operations and internal frictions. Regarding the latter, and in line with traditional corporate finance theory, the analysis will emphasize the role of agency costs within the firm for the design of its securities. But the analysis will be pushed one step further by studying the impact of these agency costs on key financial variables such as stock and bond prices, leverage, book-to-market ratios, default risk, or the holding of liquidities by firms. One of the contributions of this research project is to show how these variables are interrelated when firms and investors agree upon optimal financial arrangements. The final objective is to derive a rich set of testable asset pricing implications that would eventually be brought to the data.

Call for proposal

ERC-2007-StG
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Funding Scheme

ERC-SG - ERC Starting Grant

Host institution

FONDATION JEAN JACQUES LAFFONT,TOULOUSE SCIENCES ECONOMIQUES
Address
5E Etage, 1 Esp De L'universite
31080 Toulouse
France
Activity type
Research Organisations
EU contribution
€ 1 000 000
Principal investigator
Thomas Mariotti (Dr.)
Administrative Contact
Celine Claustre (Ms.)

Beneficiaries (1)

FONDATION JEAN JACQUES LAFFONT,TOULOUSE SCIENCES ECONOMIQUES
France
EU contribution
€ 1 000 000
Address
5E Etage, 1 Esp De L'universite
31080 Toulouse
Activity type
Research Organisations
Principal investigator
Thomas Mariotti (Dr.)
Administrative Contact
Celine Claustre (Ms.)