Financing New Investments under Asymmetric Information: a General Approach
AbstractWe study the efficiency of credit market equilibria when financial intermediaries cannot observe the riskiness or the returns of potential investment projects. With loan financing, there is over-instrument in high-return, high-risk projects and under-investment in low-return, low-risk projects relative to the social optimum. If firms have the choice of equity finance, there is unambiguously over-investment under reasonable conditions. The well-known cases of Stiglitz and Weiss and of de Meza and Webb emerge as special cases. Policy implications are considered, and the results are extended to allow for signaling and screening equilibria.
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Bibliographic InfoPaper provided by CIRPEE in its series Cahiers de recherche with number 0407.
Date of creation: 2004
Date of revision:
Credit Markets; Asymmetric Information;
Other versions of this item:
- Robin Boadway & Michael Keen, 2004. "Financing New Investments under Asymmetric Information: A General Approach," Working Papers 1017, Queen's University, Department of Economics.
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ACC-2004-04-25 (Accounting & Auditing)
- NEP-ALL-2004-04-25 (All new papers)
- NEP-CFN-2004-04-25 (Corporate Finance)
- NEP-COM-2004-04-25 (Industrial Competition)
- NEP-ENT-2004-04-25 (Entrepreneurship)
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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