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Asymmetric Information, Managerial Opportunism, Financing, and Payout Policies

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  • Noe, Thomas H
  • Rebello, Michael J

Abstract

The authors examine corporate issuance and payout policies in the presence of both adverse selection (in capital markets) and managerial opportunism. Their results establish the importance of the locus of decision control in the firm. When shareholders determine policies, debt financing is always optimal in the presence of either adverse selection or managerial opportunism. However, when both of these problems are simultaneously present, equity issuance can become an optimal signaling mechanism. Shareholder's most preferred signaling mechanism is restricting dividends, followed by equity financing and, finally, underpricing securities. When managers determine policies, a reversed hierarchy may be obtained. Copyright 1996 by American Finance Association.

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Bibliographic Info

Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 51 (1996)
Issue (Month): 2 (June)
Pages: 637-60

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Handle: RePEc:bla:jfinan:v:51:y:1996:i:2:p:637-60

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Cited by:
  1. Cumming, Douglas J., 2005. "Agency costs, institutions, learning, and taxation in venture capital contracting," Journal of Business Venturing, Elsevier, vol. 20(5), pages 573-622, September.
  2. Cumming, Douglas J. & MacIntosh, Jeffrey G., 2003. "A cross-country comparison of full and partial venture capital exits," Journal of Banking & Finance, Elsevier, vol. 27(3), pages 511-548, March.
  3. Miglo, Anton, 2012. "Multi-stage investment, long-term asymmetric information and equity issues," MPRA Paper 46692, University Library of Munich, Germany.
  4. Cumming, Douglas J., 2005. "Capital structure in venture finance," Journal of Corporate Finance, Elsevier, vol. 11(3), pages 550-585, June.
  5. Dorin COSMA & Anca-Ramona BOTEZAT, 2012. "Modeling Elements for Correlation the Enterprise’s Capital Cost and Its Financial Structure," Timisoara Journal of Economics, West University of Timisoara, Romania, Faculty of Economics and Business Administration, vol. 5(17), pages 79–95.
  6. Cumming, Douglas J. & MacIntosh, Jeffrey G., 2001. "Venture capital investment duration in Canada and the United States," Journal of Multinational Financial Management, Elsevier, vol. 11(4-5), pages 445-463, December.
  7. Miglo, Anton, 2010. "The Pecking Order, Trade-off, Signaling, and Market-Timing Theories of Capital Structure: a Review," MPRA Paper 46691, University Library of Munich, Germany, revised 2013.
  8. Nishihara, Michi & Shibata, Takashi, 2011. "The effects of costly exploration on optimal investment timing," Review of Financial Economics, Elsevier, vol. 20(3), pages 105-112, August.

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