Capital Structure under Heterogeneous Beliefs*

Ownership Structure, Incentives, and Asset Prices

“…L's net benefit flow from holding Θ captures the trade-off between expected payoff, which is reduced by the effort cost solely borne by L in the owner-manager case, and the cost of the risk that she bears from her ownership stake in the firm. The function G, defined by (22), is L's certainty equivalent payoff from holding the firm's shares that is useful to obtain L's optimal trading policy.…”

Equity Valuation with Heterogeneous Beliefs

“…Numerous theoretical models and empirical evidences have discussed the effects of heterogeneous beliefs on asset pricing and corporate decisions. For instance, Gilchrist et al [10] analyzed the effect of stock price bubbles, which is caused by dispersion in investor beliefs and short-selling constraints, on corporate investment decisions; Smith [11] expounded the effect of lower and higher disagreement in financial markets on corporate investment; Buraschi et al [12] described the effect of heterogeneous perceptions of aggregate consumption growth on bond and stock returns; Baker et al [13] explained the speculation and aggregate investment under disagreement; Siganos et al [14] discussed stock trading with divergence of sentiment; Curatola [15] assessed the optimal portfolio choice and consumption-investment problem of heterogeneous loss averse investors; Borovička [16] found the interaction between risk sharing, speculative behavior and consumption-saving choice of agents with heterogeneous beliefs under recursive preferences; Pohl et al [17] proved that heterogeneous beliefs lead to time-varying consumption, which can help explain several asset pricing puzzles; [18][19][20][21][22][23] investigated corporate financing, capital structure, investment, acquisitions, dividend and managerial incentives under heterogeneous beliefs; etc.…”