Stock Price Movements in Response to Stock Issues under Asymmetric Information

Stock Price Movements in Response to Stock Issues under Asymmetric Information 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

Stock Price Movements in Response to Stock Issues under Asymmetric Information

The Journal of Finance, Volume 41 (1) – Mar 1, 1986

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Publisher
Wiley
Copyright
1986 The American Finance Association
ISSN
0022-1082
eISSN
1540-6261
DOI
10.1111/j.1540-6261.1986.tb04493.x
Publisher site
See Article on Publisher Site

Abstract

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.

Journal

The Journal of FinanceWiley

Published: Mar 1, 1986

References

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