Abstract

http://ssrn.com/abstract=1983500
 
 

Citations (3)



 
 

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Smart Buyers


Mike Burkart


Swedish House of Finance; Stockholm School of Economics - Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); London School of Economics - Financial Markets (FMG) Group

Samuel Lee


New York University (NYU) - Leonard N. Stern School of Business; European Corporate Governance Institute (ECGI)

September 20, 2013

LSE FMG Discussion Paper No. 696
ECGI - Finance Working Paper No. 326/2012

Abstract:     
In many bilateral transactions, the seller fears being underpaid because her outside option is better known to the buyer. We rationalize a variety of observed contracts as solutions to such smart buyer problems. The key to these solutions is to grant the seller upside participation. In contrast, the lemons problem calls for offering the buyer downside protection. Yet in either case, the seller (buyer) receives a convex (concave) claim. Thus, contracts commonly associated with the lemons problem can equally well be manifestations of the smart buyer problem. Though, the two information asymmetries have opposite cross-sectional implications.

Number of Pages in PDF File: 41

Keywords: Bilateral trade, asymmetric information, royalties, cash-equity offers, debt-equity swaps, contingent value rights, commissions, lemons problem

JEL Classification: D82, D86

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Date posted: January 12, 2012 ; Last revised: January 26, 2014

Suggested Citation

Burkart, Mike and Lee, Samuel, Smart Buyers (September 20, 2013). LSE FMG Discussion Paper No. 696; ECGI - Finance Working Paper No. 326/2012. Available at SSRN: http://ssrn.com/abstract=1983500 or http://dx.doi.org/10.2139/ssrn.1983500

Contact Information

Mike C. Burkart
Swedish House of Finance ( email )
Drottninggatan 98
111 60 Stockholm
Sweden

Stockholm School of Economics - Department of Finance ( email )
P.O. Box 6501
Sveavagen 65
SE-113 83 Stockholm
Sweden
+46 8 736 9678 (Phone)
+46 8 31 6422 (Fax)
HOME PAGE: http://www.hhs.se/Finance/People/ShowPerson.htm?personid=54
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
HOME PAGE: http://www.cepr.org/default_static.htm
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http://www.ecgi.org
London School of Economics - Financial Markets (FMG) Group
Houghton Street
London WC2A 2AE
United Kingdom
HOME PAGE: http://www.lse.ac.uk/collections/finance/facultyAndStaff/profiles/mikeBurkart.htm
Samuel Lee (Contact Author)
New York University (NYU) - Leonard N. Stern School of Business ( email )
44 West 4th Street
New York, NY NY 10012
United States
European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
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