Capital flows with debt- and equity-financed investments: equilibrium structure and efficiency implications, Issues 98-159
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agency problem asymmetric information average productivity capital investment choose to equity-finance cutoff level debt and equity debt market debt-equity ratio debt-equity structure debt-finance new investment denoted domestic investment economy-wide efficient level equation equity market fails equity-financed firm existing capital expected value finance investment financing decisions firm conditional firm's insiders firms that choose firms with realized Foreign direct investment fund-suppliers group of firms implementation information asymmetry intertemporal resource constraint investment and financing investment i.e. investment rules left-hand side lemon level of investment lump-sum subsidies managers observe marginal firm marginal productivity marginal value market allocation market failure market is efficient market to finance market value medium-productivity firms occur with probability order conditions possibility of default predetermined level Private Capital Flows probability distribution productivity firms realized values representative household represents the expected represents the market resource constraint 11 retained earnings right-hand side small open economy stock of capital unconventional