Persuasion in relationship finance

Azarmsa, Ehsan; Cong, Lin William

doi:10.1016/j.jfineco.2020.06.018

Cited by 15 publications

(10 citation statements)

References 53 publications

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“…The insider investor observes the outcome of any experiment done by the entrepreneur to evaluate the project's quality (Diamond (, )). The investor can also generate information by running his own experiments and becoming privately informed (Azarmsa and Cong ()). In a different example, a lobbyist (e.g., an industry association) tries to sway a policymaker's decision and gets involved in the design of scientific studies that he funds.…”

Section: Introductionmentioning

confidence: 99%

“…They showed that these two scenarios admit the same set of implementable decision rules with a binary state space (a single receiver and a binary action space), but the equivalence breaks down with more than two states. Azarmsa and Cong () examined the optimal disclosure by an entrepreneur to a privately informed insider investor, with a focus on information hold‐up and security design.…”

Section: Introductionmentioning

confidence: 99%

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The Interval Structure of Optimal Disclosure

Guo¹,

Shmaya

2019

ECTA

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A sender persuades a receiver to accept a project by disclosing information about a payoff‐relevant quality. The receiver has private information about the quality, referred to as his type. We show that the sender‐optimal mechanism takes the form of nested intervals: each type accepts on an interval of qualities and a more optimistic type's interval contains a less optimistic type's interval. This nested‐interval structure offers a simple algorithm to solve for the optimal disclosure and connects our problem to the monopoly screening problem. The mechanism is optimal even if the sender conditions the disclosure mechanism on the receiver's reported type.

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

The Interval Structure of Optimal Disclosure

Guo¹,

Shmaya

2019

ECTA

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“…Comparing the assumptions and the results of my article to Azarmsa and Cong (2020), my analysis complements their findings. First, when the entrepreneur does not design the security contract in their setting, the results of Azarmsa and Cong (2020) show that the information and investment decision is always inefficient. In their model, the outsider learns the experiment outcome with a nonunit probability.…”

Section: Muratovmentioning

confidence: 61%

“…Of the financial articles, the most closely related is a recent paper by Azarmsa and Cong (2020). They look at the interaction of the three players: the entrepreneur, the insider investor, and the outsider investor.…”

Section: Introductionmentioning

confidence: 99%

Entrepreneur–investor Information Design

Muratov

2023

Int Economic Review

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I consider an environment in which an entrepreneur generates information about the quality of his project prior to contracting with an investor. The investor faces a moral‐hazard problem since the entrepreneur may divert the funding for private consumption. I find that the efficient amount of information is generated if and only if the bargaining power of the entrepreneur is high enough. I interpret this result in terms of investors' tightness, competitiveness, and generosity measures. I also show that the investor prefers not to have all the bargaining power when the project costs are high enough.

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“…In Glode, Opp and Zhang (2018) and in Asriyan, Foarta and Vanasco (2018) agents who choose how much information to disclose forego informational rents to ensure that trade does not break down. Azarmsa and Cong (2018) explore how competition between financiers affects the incentives of an entrepreneur to produce information. These papers do not address the role of endogenous opacity in banking crises, which is one of our main interests of analysis.…”

Section: Introductionmentioning

confidence: 99%

The Hidden Costs of Strategic Opacity

Babus

Farboodi

2020

SSRN Journal

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We explore a model in which banks strategically hold interconnected and opaque portfolios, despite increasing the likelihood they are subject to financial crises. In our framework, banks choose their degree of exposure to other banks to influence how investors can use their information. In equilibrium banks choose portfolios which are neither fully opaque, nor fully transparent. However, their portfolios are interconnected beyond what is beneficial for diversification purposes. Banks can create a degree of opacity that decreases welfare, and makes bank crises more likely. Our model is suggestive about the implications of asset securitization, as well as government bailouts.

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Persuasion in relationship finance

Cited by 15 publications

References 53 publications

The Interval Structure of Optimal Disclosure

The Interval Structure of Optimal Disclosure

Entrepreneur–investor Information Design

The Hidden Costs of Strategic Opacity

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