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Abstract

If financial markets are perfect, the choice of the sources of finance does not influence investment decisions. However, financial markets are considered to be far from perfect. This review concentrates on the role of information asymmetry in determining real investment decisions. Despite the theoretical plausibility of a relationship between capital market imperfections and real investments, the empirical literature has found it difficult to identify this channel. Overall, more research is needed to identify a method that will not be subject to criticisms related to the use of cash-flow in the investment equation and will be based on the data that are relatively available across countries and over time.

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Bibliographic Info

Article provided by Institute of Public Finance in its journal Financial Theory and Practice.

Volume (Year): 34 (2010)
Issue (Month): 4 ()
Pages: 407-434

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Handle: RePEc:ipf:finteo:v:34:y:2010:i:4:p:407-434

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Keywords: investment; asymmetric information; capital markets imperfections;

References

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