Boleslavsky, R, Hennessy, C and Kelly, D L
(2022)
Markets versus Mechanisms.
Review of Financial Studies, 35 (7).
pp. 3139-3174.
ISSN 0893-9454
Abstract
We establish limitations to the usage of direct revelation mechanisms (DRMs) by corporations seeking decision-relevant information in economies with securities markets. In this environment, posting a DRM increases the informed agent’s outside option: if the agent rejects the DRM, he convinces the market he is uninformed, and he can aggressively trade with low price impact, thereby generating large (off-equilibrium) trading gains. This endogenous outside option may make using a DRM to screen uninformed agents impossible. When screening is possible, solely relying on the market for information is optimal if the increase in outside option is sufficiently large.
More Details
| Item Type: | Article |
|---|---|
| Subject Areas: | Finance |
| Additional Information: |
© 2021 Oxford University Press and Society for Financial Studies. This is a pre-copyedited, author-produced version of an article accepted for publication in The Review of Financial Studies following peer review. The version of record Raphael Boleslavsky, Christopher A Hennessy, David L Kelly, Markets versus Mechanisms, The Review of Financial Studies, 2021; hhab131 is available online at: https://doi.org/10.1093/rfs/hhab131 |
| Date Deposited: | 11 Jan 2022 15:05 |
| Date of first compliant deposit: | 11 Jan 2022 |
| Subjects: |
Financial markets Financial risk Disclosure of financial information |
| Last Modified: | 30 Dec 2024 02:30 |
| URI: | https://lbsresearch.london.edu/id/eprint/2167 |
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