We examine the impact of ambiguity, or Knightian uncertainty, on the capital structure decision, using a static tradeoff theory model in which agents are both ambiguity and risk averse. The model provides the well-known result that greater risk---the uncertainty over outcomes---leads firms to...

We examine the importance of ambiguity, or Knightian uncertainty, in the capital structure decision. We develop a static tradeoff theory model in which agents are both risk averse and ambiguity averse. The model confirms the usual idea that increased risk—the uncertainty over known possible...

A Principal-Agent model in which the principal and the agent are ambiguity averse is examined. A novel role for the optimal contract is to induce a speci c partition of the state space for the agent as a means of manipulating the ambiguity he faces, thereby providing more efficient contracting....

We examine the importance of ambiguity, or Knightian uncertainty, in the capital structure decision. We develop a static tradeoff theory model in which agents are both risk averse and ambiguity averse. The model confirms the usual idea that increased risk--the uncertainty over known possible...

The new issues market is used to examine the impact of ambiguity and ambiguity aversion on the pricing of financial assets. An IPO process is modeled assuming ambiguity regarding the returns on financial assets and risk and ambiguity aversion on the part of agents. Theoretically, the underwriter...