Small, high-growth companies often sell common shares to cover repeated cash needs. This is surprising, as the classical theory predicts debt in such environments. We present a model in which the firm's owner, in anticipation of several liquidity shocks, designs securities to sell to outsiders and her private signal about the firm's cash flows. We show that it is optimal to use common equity as an ATM: as shocks arrive, the owner covers them by selling common shares. Under an optimal signal, selling common shares does not hurt the liquidity of future share issues, which is generally not true for other securities.

An asset owner designs an asset-backed security and a signal about its value. After experiencing a liquidity shock and privately observing the signal, he sells the security to imperfectly competitive buyers. With flexible information design, security's informational sensitivity is a blessing, not a curse. Among double-monotone securities, the issuer prefers to simply sell the asset in combination with an appropriate signal rather than design more complex securities. Within the class of monotone securities, live-or-die securities are optimal and strictly dominate asset sales. When signals are restricted to be sufficiently informative about the upside, debt and additional-tier-1 debt become optimal.

How much information about financial institutions' balance sheets should regulators pass on to the market? To prevent inefficient default, the optimal disclosure policy imposes transparency for firms with weak fundamentals and opacity, otherwise. Strategic complementarities are exacerbated by financial constraints and induce a preference for granular disclosures. Transparency increases with the volume of nonperforming assets, the maturity mismatch between assets and liabilities, and the deterioration of liquidity buffers. Interestingly, the anticipation of future disclosures can backfire and prove worse than laissez-faire. The optimal policy is robust to investors' adversarial coordination, asymmetric information, and to the firm's strategic reaction to regulation.

The nature of Environmental and Social (ES) corporate investments, characterized by the long-term horizon of managerial actions, exacerbates the agency conflicts between CEOs and shareholders. Due to the incentive misalignment, the information available to investors (carbon footprints, ESG scores) is crucial for market discipline to be effective. Enhancing the quality of the available information amplifies the sensitivity of the stock price to ES outcomes, thereby fostering ES effort even if it may adversely affect shareholders. We show that the dispersion of investors' ES preferences affects CEOs' incentives. We find that a more polarized shareholder base endogenously leads to less ES corporate investment. We demonstrate that whether or not ES investment leads to smaller expected returns crucially depends on the nature of the agency conflict and provide sufficient conditions for each case. Overall, we provide a theoretical framework to study the economics of ES investing, and how the information available to market participants and the heterogeneity of investors' ES preferences affect managerial incentives.

A liquidity-constrained asset owner screens an informed investor using financial securities. Information-insensitive securities reduce the investor’s information rents. The optimal screening mechanism consists of a monotone debt menu where more optimistic investor types purchase larger amounts of debt. Interestingly, the issuer may benefit from trading with a better informed investor. For any monotone debt menu, as the asset’s cash flows more accurately describe the investor’s private information (Lehmann, 1988), the trade surplus unambiguously increases. Further, fixing the optimal debt menu, when the investor’s private information originates from location experiments, increasing accuracy decreases (increases) information rents for low (high) types. We provide sufficient conditions that guarantee that the issuer strictly benefits from trading with a better informed investor. Our results imply that selling debt is an effective approach to raise funds in financial markets even when investors hold superior private information and provide a novel rationale for the emergence of venture debt.

We study flexible public information design in global games. In addition to receiving public information from the designer, agents are endowed with exogenous private information and must decide between two actions (invest and not invest), the profitability of which depends on unknown fundamentals and the agents' aggregate action. The designer does not trust the agents to play favorably to her and evaluates any policy under the “worst-case scenario.” First, we show that the optimal policy removes any strategic uncertainty by inducing all agents to take the same action, but without permitting them to perfectly learn the fundamentals and/or the beliefs that rationalize other agents' actions. Second, we identify conditions under which the optimal policy takes the form of a simple “pass/fail” test. Finally, we show that, when the designer cares only about the probability the aggregate investment is successful, the optimal policy need not be monotone in fundamentals but then identify conditions on payoffs and exogenous beliefs under which the optimal policy is monotone.