Risk-Taking, Rent-Seeking, and Investment when Financial Markets

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 lsf-events@uni.lu
(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