Bargaining Power Effects in Financial Contracting: A Joint Analysis of Contract Type and Placement Mode Choices (Lecture Notes in Economics and Mathematical Systems Book 577)

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. This work was accepted as a dissertation by the University of Muenster, Germany, in 2004. It was written while I was a teaching and research assistant at the Department of Banking. I own many debts - personal and intellectual - to Professor Dr. Andreas Pfingsten, my doctoral adviser, for his overall support while I was writing my dissertation. This thesis benefited much from his constructive criticism. I am also grateful that Professor Dr. Klaus Roder, Department of Finance, University of Regensburg, Germany, acted as my second advisor. Furthermore, I want to thank Dr. Alistair Milne, Sir John Cass Business School, City University, Great Britain, since he assisted me during a crucial phase of my dissertation project while I was staying as a visiting scholar at the Marie Curie Training Site in Corporate Finance, Capital Markets and Banking at Cass. This five month visit in London was financially supported by the European Commission (Fellowship Ref. No. HPMT-GH-01-00330-04). I am also indebted to my previous colleagues, mainly Dr. Hendrik Hakenes and Dr. Markus Ricke, for their encouragement and helpful discussions throughout my whole dissertation project. The dissertation also benefited from comments on a first working paper about the dissertation's topic by participants of research seminars at the Universities of Constance, Tuebingen and Osnabrueck, Germany, and at the 2003 Annual Meeting of the European Economic Association, Stockholm, Sweden. 3540344950......Page 1 Lecture Notes in Economics and. Mathematical Systems 577......Page 2 Bargaining Power Effects in Financial Contracting......Page 3 Preface......Page 5 Contents Overview......Page 6 Contents......Page 8 Symbols / Notation......Page 12 Abbreviations......Page 15 1 Introduction......Page 17 2 A Review of Related Research......Page 24 A Model to Analyze Bargaining Power Effects......Page 49 Extending the Model by an Ex-ante Informational Asymmetry About Contractual Partners' Opportunities......Page 123 5 Discussion of the Adopted Approach......Page 263 6 Conclusion......Page 271 A Consistency Checks of Bargaining Power Effects (EM,PCI)......Page 278 B Derivation of Contract Type / Placement Mode-Choicesfor PC2 and PCS (EM)......Page 285 C Robustness Checks of Bargaining Power Effects Derivedfor PCI - Propositions 2 to 10 (EM)......Page 317 References......Page 331 List of Figures......Page 341 List of Tables......Page 343 The primary objective of this book is to demonstrate that a firm's financing decisions depend among other things on bargaining power considerations, and to illustrate potential causes for this dependency. Based on a principal-agent analysis where a lender (principal) and a firm (agent) bargain over the financing of the firm’s risky project, the author illustrates and analyzes the importance of bargaining power on finance decisions. Demonstrates that a firm's financing decision depends among other things on bargaining power considerations and illustrates potential reasons for this dependency. This work is based on a principal-agent analysis where a lender (principal) and a firm (agent) bargain how to finance the firm's risky project