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THE FINANCING AND INVESTMENT OF A LEVERED FIRM UNDER ASYMMETRIC INFORMATION
Author(s) -
Raymar Steven
Publication year - 1993
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1993.tb00151.x
Subject(s) - leverage (statistics) , extant taxon , debt , stock (firearms) , equity (law) , external financing , bond , internal financing , business , finance , monetary economics , capital structure , equity value , information asymmetry , enterprise value , economics , financial economics , internal debt , debt levels and flows , mechanical engineering , evolutionary biology , machine learning , computer science , law , political science , engineering , biology
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.