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ENRICO C. PEROTTI University of Amsterdam; Centre for Economic Policy Research (CEPR) ERNST-LUDWIG VON THADDEN Universit� de Lausanne - Department of Economics; Centre for Economic Policy Research (CEPR) |
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Abstract: This paper studies optimal financial contracts and product market competition under a strategic transparency decision. When firms seeking outside finance resort to actively monitored debt in order to commit against opportunistic behaviour, the dominant lender can influence corporate transparency. More transparency about a firm's competitive position has both strategic advantages and disadvantages: in general, transparency results in higher variability of profits and output. Thus lenders prefer less information dissemination, as this protects firms when in a weak competitive position, while equityholders prefer more disclosure to maximize profitability when in a strong position. We show that bank-controlled firms will be opaque, while shareholder-run firms prefer more transparency. In fact, we can predict a clustering of attributes: bank dominance, established firms with valuable investment, but also significant assets in place, opaqueness, low variability of profits, somewhat lower average profits, and a reversed pattern for equity-controlled firms. Keywords: Capital Structure, Transparency, Corporate Governance, Imperfect Competition, Outside Finance
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JEL Classifications: G31 |
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Abstract has been viewed 1678 times |
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Go to Download Document Button to download paper from the SSRN Electronic Paper Collection Contact Information for ENRICO C. PEROTTI (Contact Author) [email protected] (Email address for ENRICO C. PEROTTI ) University of Amsterdam Roetersstraat 18 Finance Group Amsterdam 1018 WB Netherlands +31 20 525 4159 (Phone) +31 20 525 5285 (Fax) (No e-mail address available for ENRICO C. PEROTTI ) Centre for Economic Policy Research (CEPR) 90-98 Goswell Road London EC1V 7RR United Kingdom Contact Information for ERNST-LUDWIG VON THADDEN [email protected] (Email address for ERNST-LUDWIG VON THADDEN ) Universit� de Lausanne - Department of Economics DEEP, BFSH 1 Lausanne 1015 Switzerland +41 21 692 3477 (Phone) +41 21 692 3365 (Fax) (No e-mail address available for ERNST-LUDWIG VON THADDEN ) Centre for Economic Policy Research (CEPR) 90-98 Goswell Road London EC1V 7RR United Kingdom |
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