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Yves here. So now it's clear: some companies and their law firm enablers see their right to profit, even in the face of the Covid-19 pandemic, as more important than human lives. This has been an underlying theme of investor-state dispute settlement suits (which we've written about extensively), but it's never been as crass as here. On top of everything else, these actions will deplete government coffers, adding to public distress. The only upside is this sort of thing should kill incorporating meaningful investor-state dispute settlement provisions into future trade deals.

We study the classical problem of raising capital under asymmetric information. Following Myers and Majluf, we consider firms endowed with assets in place and riskier growth opportunities. When asymmetric information is concentrated on assets in place (rather than growth opportunities), equity-like securities are more likely to be optimal. In contrast, when asymmetric information falls on growth options, debt is optimal. Intuitively, this happens because when the asset with greater volatility is less affected by asymmetric information, issuing a security with greater exposure to upside potential (such as equity) can be less dilutive than issuing a security lacking such exposure (such as debt). Our results suggest that equity is more likely to dominate debt for younger firms with larger investment needs, endowed with riskier, more valuable growth opportunities. Thus, our model can explain why high-growth firms may prefer equity over debt, and then switch to debt financing as they mature.