Article1993

THE FINANCING AND INVESTMENT OF A LEVERED FIRM UNDER ASYMMETRIC INFORMATION

12 citations0/0 files storedThe Journal of Financial Research

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Corporate Finance and Governance Financial Markets and Investment Strategies Financial Analysis and Corporate Governance

Abstract

Abstract This research extends the literature on financing and investment under asymmetric information by considering the effect of initial leverage. Because decisions affect the value of outstanding bonds, realistic behaviors arise that are absent in extant unlevered analyses. Leverage may induce social improvements in investment. Further, a stock offering may be a positive signal if lower‐value firms face greater default risk and thus have lower debt values. Conditions that support positive reactions to equity funding appear to be present in the early 1990s.

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1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1984Corporate financing and investment decisions when firms have information that investors do not have 1977Determinants of corporate borrowing 1987Equilibrium Selection in Signaling Games 1986Seasoned equity offerings 1990Bankruptcy resolution 1987Efficient Financing under Asymmetric Information 1991CORPORATE CONTROL AND THE POLITICS OF FINANCE

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