The Journal of Finance

FIRM VALUATION, CORPORATE TAXES, AND DEFAULT RISK

Published: 12/01/1975   |   DOI: 10.1111/j.1540-6261.1975.tb01053.x

David P. Baron

Investment Policy, Optimality, and the Mean‐Variance Model

Published: 03/01/1979   |   DOI: 10.1111/j.1540-6261.1979.tb02081.x

DAVID P. BARON

A Model of the Demand for Investment Banking Advising and Distribution Services for New Issues

Published: 09/01/1982   |   DOI: 10.1111/j.1540-6261.1982.tb03591.x

DAVID P. BARON

This paper presents a theory of the demand for investment banking advising and distribution services for the case in which the investment banker is better informed about the capital market than is the issuer, and the issuer cannot observe the distribution effort expended by the banker. The optimal contract under which the offer price decision is delegated to the better‐informed banker in order to deal with the adverse selection and moral hazard problems resulting from the informational asymmetry and the observability problem is characterized. The model demonstrates a positive demand for investment banking advising and distribution services and provides an explanation of the underpricing of new issues.

FIRM VALUATION, CORPORATE TAXES, AND DEFAULT RISK

Published: 12/01/1975   |   DOI: 10.1111/j.1540-6261.1975.tb01053.x

David P. Baron

Tender Offers and Management Resistance

Published: 05/01/1983   |   DOI: 10.1111/j.1540-6261.1983.tb02237.x

DAVID P. BARON

The Investment Banking Contract For New Issues Under Asymmetric Information: Delegation And The Incentive Problem

Published: 12/01/1980   |   DOI: 10.1111/j.1540-6261.1980.tb02199.x

DAVID P. BARON, BENGT HOLMSTRÖM

In placing a new security issue, an investment banker has an opportunity to obtain private information by conducting preselling activities during the registration period. The task of the issuer is to design a contract that both induces the banker to use this information to the issuer's advantage and provides a disincentive for the banker to price the issue too low in order to reduce the effort required to sell the issue. This paper characterizes the class of price response functions that the issuer can induce the banker to choose under a delegation scheme and demonstrates that delegating the pricing decision to the banker can be optimal.