Markets versus Mechanisms

Boleslavsky, R, Hennessy, C and Kelly, D L (2022) Markets versus Mechanisms. Review of Financial Studies, 35 (7). pp. 3139-3174. ISSN 0893-9454 OPEN ACCESS


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.

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Item Type: Article
Subject Areas: Finance
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© 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:

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: 20 Jun 2024 01:49

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