The Effect of Leverage on Bidding Behavior: Theory and Evidence from the Fcc Auctions

35 Pages Posted: 11 Nov 2008  

Matthew J. Clayton

University of Virginia - McIntire School of Commerce

S. Abraham Ravid

Yeshiva University - Syms School of Business

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Date Written: December 1999

Abstract

This paper investigates how firms bidding behavior in various auctions is affected by capital structure. A theoretical model is developed where the first price sealed bid and the English auction are examined. We find as debt levels increase, firms tend to decrease their bids. The lower bids give the competition incentives to decrease their bid as well. These results are then investigated empirically using the recent FCC spectrum auctions. Consistent with the theoretical model, larger debt levels of the bidding firm and the competition tend to lead to lower bids. Additional determinants of bidding behavior in these auctions are also analyzed.

Suggested Citation

Clayton, Matthew J. and Ravid, S. Abraham, The Effect of Leverage on Bidding Behavior: Theory and Evidence from the Fcc Auctions (December 1999). NYU Working Paper No. FIN-99-055. Available at SSRN: https://ssrn.com/abstract=1298328

Matthew J. Clayton (Contact Author)

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States
434-243-4043 (Phone)
434-924-7074 (Fax)

S. Abraham Ravid

Yeshiva University - Syms School of Business ( email )

United States

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