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Capital Structure and dividend Irrelevance with Asymmetric Information Author info | Abstract | Publisher info | Download info | Related research | Statistics Philip H. Dybvig
Jaime F. Zender
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The Modigliani and Miller propositions on the irrelevancy of capital structure and dividends are shown to be valid in a large class of models with asymmetric information. The main assumption is that managerial compensation is chosen optimally. This differs from most recent papers on this topic, which impose by fiat a suboptimal contract. Even when imperfections internal to the firm preclude optimal investment, there is a separation between incentives and financing. We also show that making prices reflect idiosyncratic information more accurately does not make investors better off, thus negating the motivation of many of the signalling models.
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Paper provided by Cowles Foundation, Yale University in its series Cowles Foundation Discussion Papers with number
878.
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Length: 37 pages
Date of creation: Jul 1988Date of revision:
Handle: RePEc:cwl:cwldpp:878Contact details of provider: Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA Phone: (203) 432-3702 Fax: (203) 432-6167 Web page: http://cowles.econ.yale.edu/ More information through EDIRC
Order Information: Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
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Keywords: Capital structure ; dividends ; asymmetric information ; signalling theory ; investment ; Other versions of this item:
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.: Philip H. Dybvig, 1987.
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references Cited by : (explanations , Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.)
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Eckbo, B. Espen & Norli, Øyvind, 2004.
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Andres Almazan & Javier Suarez & Sheridan Titman, 2003.
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Javier Suarez & Andres Almazan & Sheridan Titman, 2004.
"Stakeholders, Transparency And Capital Structure ,"
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[Downloadable!] Almazan, Andres & Suarez, Javier & Titman, Sheridan, 2004.
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[Downloadable!] (restricted) Batabyal, Amitrajeet A., 1995.
"An Agenda For The Study Of Land Use, Wilderness Designation, And Resource Regulation In The American West ,"
Economics Research Institute, ERI Study Papers
28360, Utah State University, Economics Department.
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Other versions: Sundaram, Rangarajan K. & Yermack, David, 2006.
"Pay Me Later: Inside Debt and Its Role in Managerial Compensation ,"
SIFR Research Report Series
43, Institute for Financial Research.
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Oliver Hart, 2001.
"Financial Contracting ,"
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Other versions: John C. Persons, .
"Fully Revealing Equilibria with Suboptimal Investment ,"
Research in Financial Economics
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Zingales, Luigi, 2000.
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