More from the Author

• Supplement | HBS Case Collection | 2012

  Aqua Bounty Courseware

  Lucy White and Steve Burn-Murdoch

  Valuation of a pre-revenue biotech company at IPO using probability trees and real option techniques. Company is based in Massachusetts and lists in London on AIM. Products are genetically-modified fast-growing salmon for fish farmers and disease-prevention drugs and diagnostic kits for farmed shrimp.

  Keywords: IPO; valuation; real options; decision tree; biotech; genetically modified; salmon; Entrepreneurship; Finance; Agriculture and Agribusiness Industry; Biotechnology Industry; North and Central America; Europe; South America;

  Citation:

  White, Lucy, and Steve Burn-Murdoch. "Aqua Bounty Courseware." Harvard Business School Spreadsheet Supplement 213-701, October 2012.

  CiteView Details

  Related

• Article | Journal of Banking & Finance | December 2011

  Deposit Insurance and Subsidized Recapitalizations

  Lucy White and Alan Morrison

  The 2007–2009 financial crisis saw a vast expansion in deposit insurance guarantees around the world and yet our understanding of the design and consequences of deposit insurance schemes is in its infancy. We provide a new rationale for the provision of deposit insurance. In our model the banking sector exhibits both adverse selection and moral hazard, which implies that the social benefits of bank monitoring must for incentive reasons be shared between depositors and banks. Consequently, socially too few deposits are made in equilibrium. Deposit insurance—or, equivalently, bank recapitalization—corrects this market failure. We find that deposit insurance should be funded not by banks or depositors but out of general taxation. The optimal level of deposit insurance varies inversely with the quality of the banking system. Hence, when the soundness of the financial sector is uncertain, governments should consider supporting deposit insurance schemes and undertaking subsidized recapitalizations.

  Keywords: Financial Crisis; Banks and Banking; Insurance; Taxation; Business and Government Relations; Banking Industry;

  Citation:

  White, Lucy, and Alan Morrison. "Deposit Insurance and Subsidized Recapitalizations." Journal of Banking & Finance 35, no. 12 (December 2011): 3400–3416.

  CiteView DetailsFind at Harvard

  Related

• Other Unpublished Work | 2011

  Good Cop, Bad Cop: Monitoring and Liquidation Incentives in Corporate Finance

  Lucy White and Alexander Guembel

  In this paper we examine how the quantity of information generated about firm prospects can be improved by splitting a firm's cash flow into a `safe' claim (debt) and a `risky' claim (equity). The former, being relatively insensitive to upside risk, provides a commitment to shut down the firm in the absence of good news. This commitment provides the latter a greater incentive to collect information than a monitor holding the aggregate claim would have. Thus debt and equity are shown to be complementary instruments in firm finance. We show that stock markets can play a useful role in transmitting information from equity to debt holders. This provides a novel argument as to why information contained in stock prices affects the real value of a corporation. It also allows us to make empirical predictions regarding the relation between shareholder dispersion, market liquidity and capital structure.

  Keywords: Borrowing and Debt; Capital Structure; Cash Flow; Equity; Financial Liquidity; Financial Markets; Information; Motivation and Incentives;

  Citation:

  White, Lucy, and Alexander Guembel. "Good Cop, Bad Cop: Monitoring and Liquidation Incentives in Corporate Finance." May 2011.

  CiteView DetailsRead Now

  Related