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Acency Costs and Asset Pricing

Final Report Summary - ACAP (Acency Costs and Asset Pricing)

This research project studies how financial contracting deals with agency costs resulting from informational asymmetries between agents. The first part of the project is devoted to dynamic models of the firm. I study the impact of agency costs on firm size and investment and show that, in combination with external financing costs, they can contribute to explain why stock issued by firms are more volatile when their value is low than when it is high. The second part of the project is devoted to nonexclusive contractual relationships on markets with differently informed participants. I show that the informed agents’ ability to credibly communicate their private information is severely limited when they can simultaneously and privately contract with several trading partners. As a result, nonexclusive competition leads to a major market breakdown. These results may shed light on the role played by structured financial products in the recent financial crisis. In recent work, I started to investigate which forms of regulatory intervention could help improve the efficiency of such nonexclusive markets.