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Efficient Financing under Asymmetric Information

Efficient Financing under Asymmetric Information ABSTRACT This paper characterizes the conditions under which the adverse‐selection problem, which may prevent a firm from issuing securities to finance an otherwise profitable investment, may be costlessly overcome by an appropriate choice of financing strategy. The conditions are specialized when the information asymmetry may be characterized by either a first‐degree‐stochastic‐dominance or a mean‐preserving‐spread ordering across possible distributions of firm earnings. Possible financing strategies that resolve the information asymmetry are discussed, and the results are related to recent empirical findings concerning security issues. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

Efficient Financing under Asymmetric Information

The Journal of Finance , Volume 42 (5) – Dec 1, 1987

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References (21)

Publisher
Wiley
Copyright
1987 The American Finance Association
ISSN
0022-1082
eISSN
1540-6261
DOI
10.1111/j.1540-6261.1987.tb04363.x
Publisher site
See Article on Publisher Site

Abstract

ABSTRACT This paper characterizes the conditions under which the adverse‐selection problem, which may prevent a firm from issuing securities to finance an otherwise profitable investment, may be costlessly overcome by an appropriate choice of financing strategy. The conditions are specialized when the information asymmetry may be characterized by either a first‐degree‐stochastic‐dominance or a mean‐preserving‐spread ordering across possible distributions of firm earnings. Possible financing strategies that resolve the information asymmetry are discussed, and the results are related to recent empirical findings concerning security issues.

Journal

The Journal of FinanceWiley

Published: Dec 1, 1987

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