Bargaining Power Effects in Financial Contracting: A Joint Analysis of Contract Type and Placement Mode Choices
Kai Rudolph
The primary objective of this book is to demonstrate that a firm's financing decision depends among other things on bargaining power considerations and to illustrate potential reasons for this dependency. Based on a principal-agent analysis where a lender (principal) and a firm (agent) bargain how to finance the firm’s risky project it is e.g. shown that- the advantages of debt financing increase with the firm's bargaining power;- the favorability of private placements in comparison to public offerings increases with a firm's bargaining power;- the firm's contract type and placement mode choice are interrelated and must be treated jointly when determining the firm’s optimal financing decision;- in the presence of an ex-ante informational asymmetry about the firm's financing and the lenders' profit alternatives the contract agreement probability depends (in a non-monotonous way) on the firm's bargaining power.
