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Asymmetric Information and Capital Structure

In: Capital Structure in the Modern World

Author

Listed:
  • Anton Miglo

    (Toronto School of Finance)

Abstract

Firms insiders have more information about their firms than outsiders. This chapter begins by discussing the blockchain-enabled platform introduced by NASDAQ and the IPO by Square and the role of asymmetric information in these events. It then presents the most famous asymmetric information-based theory of capital structure: the pecking-order theory according to which firms prefer to use internal funds over debt, and debt over equity. The underpricing of newly issued shares is explained. Another important idea follows: risk-averse entrepreneurs retain larger stakes of equity in their companies to signal their quality. Empirical implications of both theories are presented and a literature review is provided. The chapter ends with a discussion about whether asymmetric information is behind the recent financial crisis.

Suggested Citation

  • Anton Miglo, 2025. "Asymmetric Information and Capital Structure," Springer Books, in: Capital Structure in the Modern World, edition 0, chapter 0, pages 43-65, Springer.
    • Handle: RePEc:spr:sprchp:978-3-031-85459-0_3
    DOI: 10.1007/978-3-031-85459-0_3
    as

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