Economics, Econometrics and Finance
4 years ago

Entrepreneurs' Firm Value Soars with Personal Investment, Revolutionizing Financial Structure.

SSRN Electronic Journal
Information Asymmetries, Financial Structure, and Financial Intermediation
David H. Pyle, Hayne E. Leland

Paper Summary

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The essay explains how a firm's value is linked to the entrepreneur's share in the company. It shows that financial structure is connected to a firm's value. Financial intermediaries play a role in validating information due to information gaps. They help in recouping the cost of information gathering. The model suggests that investment projects undertaken are the same as those that would be chosen with direct information transfer.