ABSTRACT This paper characterizes the function relating the number of new shares issued by a firm to the resulting change in the firm's stock price, when insiders are asymmetrically informed. We show that, in equilibrium, the stock price will be a decreasing function of the issue size; moreover, the rate of decrease can be so rapid to cause “equity rationing.” We also show that there will be underinvestment relative to the symmetric information case.
The Journal of Finance – Wiley
Published: Mar 1, 1986
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