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Informational Asymmetry, Sustainable Growth, Exploitation and Obligation Risks

Author

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  • Dumitra Stancu

    (Universitatea Tehnica de Constructii Bucuresti)

  • Ion Stancu

    (Academy of Economic Studies, Bucharest)

Abstract

Our paper starts from the relationship, apparently contradictory, between the better informed economic agents (managers, bankers) and the agents less informed than the first to be mentioned (the investors: shareholders and creditors). The asymmetric information concerns the company’s performance (or of its investment projects) and the company’s ability to put up with different manifestations of the risk associated with this kind of performance. Based on this asymmetric information, the better informed agents can profit, to their own advantage, from the others’ lack of information. Consequently, the signals should be sent so as to allow a clear distinction of profitable companies from unprofitable ones, signals which cannot be copied by the managers with an underperforming management: a. The sustainable growth based on retained earnings financing and also co-financed by managers; b. The degree of operational leverage to be proportional with the increase of modernizing managerial and technological expenses; c. The degree of financial leverage to be proportional with the volume of debts.

Suggested Citation

  • Dumitra Stancu & Ion Stancu, 2006. "Informational Asymmetry, Sustainable Growth, Exploitation and Obligation Risks," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 10(10(505)), pages 15-18, December.
  • Handle: RePEc:agr:journl:v:10(505):y:2006:i:10(505):p:15-18
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