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Asymmetric Information Debt Capacity And Capital Structure
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Book Synopsis Asymmetric Information, Debt Capacity, and Capital Structure by : Michael L. Lemmon
Download or read book Asymmetric Information, Debt Capacity, and Capital Structure written by Michael L. Lemmon and published by . This book was released on 2016 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present a tradeoff theory of capital structure in which costs associated with asymmetric information are the sole friction. By considering both the amount of debt as well as the restrictiveness of the associated debt covenants a more complete characterization of debt structure is examined than is considered in the standard tax/bankruptcy cost tradeoff model. The leverage choice, the restrictiveness of the associated debt covenants, and the renegotiation of the covenants are examined and empirical implications are developed.
Book Synopsis A Theory of Capital Structure Under Moral Hazard and Asymmetric Information by : Yul Wha Lee
Download or read book A Theory of Capital Structure Under Moral Hazard and Asymmetric Information written by Yul Wha Lee and published by . This book was released on 1989 with total page 136 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Capital Structure Choice, Information Asymmetry and Debt Capacity by : Surenderrao Komera
Download or read book Capital Structure Choice, Information Asymmetry and Debt Capacity written by Surenderrao Komera and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the relevance of the pecking order theory of capital structure among emerging market firms in the light of their debt capacity concerns. We consider the financing choices of all public listed Indian firms during 1992 to 2011 for the empirical analysis. The estimated annual pecking order coefficients range from 0.23 to 0.56, rejecting the argument that sample firms follow the pecking order while making their financing choices.We find that the pecking order theory fares poorly among firms that face higher asymmetric information costs. It is found to be performing relatively better among firms without debt capacity concerns. We also report an improvement in the pecking order coefficient once the concave nature of the relationship between debt issuances and financial deficit is considered. However, the pecking order approach when nested in the conventional leverage regression model, adds abysmally small amount of explanatory power. Overall, we argue that the pecking order theory fails to explain sample firms' financing choices.
Book Synopsis Preserving "debt Capacity" Or "equity Capacity" by : Roman Inderst
Download or read book Preserving "debt Capacity" Or "equity Capacity" written by Roman Inderst and published by . This book was released on 2014 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: In a dynamic model of optimal security design, we show when firms should preserve "equity capacity" through choosing high target leverage or "debt capacity" through choosing low target leverage. Thereby, firms reduce a problem of underinvestment or overinvestment when they must raise future financing under asymmetric information. Which problem arises depends on whether additional financing is raised at competitive terms or whether there is a lock-in with initial investors. Firms initial (or target) capital structure matters as it affects the "outside option" of both insiders and outside investors. Our theory also entails implications for start-up and venture capital financing.
Book Synopsis The Debt/equity Choice by : Ronald W. Masulis
Download or read book The Debt/equity Choice written by Ronald W. Masulis and published by . This book was released on 1988 with total page 168 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Capital Structure, Risk and Asymmetric Information by : Nikolay Halov
Download or read book Capital Structure, Risk and Asymmetric Information written by Nikolay Halov and published by . This book was released on 2012 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper argues that firms may not issue debt in order to avoid the adverse selection cost of debt. Theory suggests that since debt is a concave claim, it may be mispriced when outside investors are uninformed about firms' risk. The empirical literature has however paid little attention the caveat that the ldquo;lemonsrdquo; problem of external financing first identified by Myers (1984) only leads to debt issuance, i.e. a pecking order, if debt is risk free or, if it is risky, that it is not mispriced. This paper examines whether and for what firms the adverse selection cost of debt is more than a theoretical possibility and how this cost relates to other costs of debt such as bankruptcy. Absent any direct measure of something that is unknown to investors and thus cannot be in the econometrician's information set, we present extensive strong and robust evidence in a large unbalanced panel of publicly traded US firms from 1971 to 2001 that firms avoid issuing debt when the outside market is likely to know little about their risk.
Book Synopsis Financing the Deficit by : Xin (Simba) Chang
Download or read book Financing the Deficit written by Xin (Simba) Chang and published by . This book was released on 2005 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: If Pecking Order behavior of financing choice is mitigated by debt capacity concerns, then Tradeoff and Pecking Order theories are difficult to distinguish empirically. In this paper, we extend the Myers and Majluf (1984) model to derive new testable implications of the interaction between adverse selection costs and debt capacity constraints. Our model predicts that the probability of debt issuance will be a non-monotonic function of the size of the financing deficit. The probability of debt issuance will initially increase in the size of the deficit as adverse selection costs of issuing equity outweigh the costs due to loss of debt capacity, then decrease as costs due to loss of debt capacity become more important, and finally increase again as the deficit becomes very large. Our empirical tests on a sample of firms from COMPUSTAT from 1971-1998 classified into five size groups demonstrate that, even after allowing for the possible endogeneity of the financing deficit, the predicted non-monotonicity prevails for all size group of firms. Even for those firms in the smallest size group for which debt capacity is not a dominant concern, the initial range over which the relationship between the deficit size and the probability of debt issue is significantly positive includes as much as 67% of all issues. Consistent with the predictions of the model, the intermediate range between the two turning points (over which the probability of debt issue decreases in the size of the deficit and debt capacity concerns dominate) is larger for smaller and younger firms. It is also larger for firms with lower past profitability, and firms with higher growth opportunities. We also find that the probability of debt issue is lower (higher) for firms that are above (below) an estimated target debt ratio, and higher for firms with higher past profitability, lower market-to-book, and poor recent stock price performance. Aside from demonstrating the relevance of both adverse selection costs and debt capacity constraints for firms' financing decisions, our results also show that firms exhibit target-reverting behavior and time the market.
Author :Vipin K. Agrawal Publisher :World Scientific Publishing Company Incorporated ISBN 13 :9789814551304 Total Pages :159 pages Book Rating :4.5/5 (513 download)
Book Synopsis Corporate Policies in a World with Information Asymmetry by : Vipin K. Agrawal
Download or read book Corporate Policies in a World with Information Asymmetry written by Vipin K. Agrawal and published by World Scientific Publishing Company Incorporated. This book was released on 2015-06 with total page 159 pages. Available in PDF, EPUB and Kindle. Book excerpt: To raise the necessary capital to finance the initial investment for the firm, a manager must enter into a transaction with outside investors to raise the additional funds. In this situation, the manager of a public corporation faces three key capital acquisition decisions: The investment decision: Should the manager transact with outside investors and raise the necessary capital to invest in the project? The financing decision: If the manager decides to raise external capital, how should the investment be financed with debt, with equity, or with some other security? The dividend decision: How much of the firm's available cash should the manager pay out in dividends? Modern corporate finance theory, originating with the seminal work of Merton Miller and Franco Modigliani, has demonstrated that these decisions depend on the information that the manager and investors have about the firm's future cash flows. In this book, the authors examine these decisions by assuming that the manager has private information about the firm's future cash flows and provides a unified framework that explains many empirical anomalies in the literature, one that provides guidance for better empirical tests.
Book Synopsis Debt vs. Equity and Asymmetric Information by : Linda Schmid Klein
Download or read book Debt vs. Equity and Asymmetric Information written by Linda Schmid Klein and published by . This book was released on 2017 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent Nobel Prizes to Akerlof, Spence, and Stiglitz motivate this review of basic concepts and empirical evidence on information asymmetry and the choice of debt vs. equity. We first review the literature that holds investment fixed. Then we review capital structure issues related to the adverse investment selection problem of Myers-Majluf. Finally, we discuss the timing hypothesis of capital structure. Empirical studies do not consistently support one theory of capital structure under information asymmetry over the others. Thus, the review suggests that additional theoretical contributions are needed to help understand and explain findings in the empirical literature.
Book Synopsis Equity, Bonds, and Bank Debt by : Patrick Bolton
Download or read book Equity, Bonds, and Bank Debt written by Patrick Bolton and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper proposes a model of financial markets and corporate finance, with asymmetric information and no taxes, where equity issues, bank debt, and bond financing coexist in equilibrium. The relationship banking aspect of financial intermediation is emphasized: firms turn to banks as a source of investment mainly because banks are good at helping them through times of financial distress. This financial flexibility is costly since banks face costs of capital themselves (which they attempt to minimize through securitization). To avoid this intermediation cost, firms may turn to bond or equity financing, but bonds imply an inefficient liquidation cost and equity an informational dilution cost. We show that in equilibrium the riskier firms prefer bank loans, the safer ones tap the bond markets, and the ones in between prefer to issue both equity and bonds. This segmentation is broadly consistent with stylized facts.
Book Synopsis Empirical Capital Structure by : Christopher Parsons
Download or read book Empirical Capital Structure written by Christopher Parsons and published by Now Publishers Inc. This book was released on 2009 with total page 107 pages. Available in PDF, EPUB and Kindle. Book excerpt: Empirical Capital Structure reviews the empirical capital structure literature from both the cross-sectional determinants of capital structure as well as time-series changes.
Book Synopsis Islamic Corporate Finance by : M. Kabir Hassan
Download or read book Islamic Corporate Finance written by M. Kabir Hassan and published by Routledge. This book was released on 2019-06-04 with total page 189 pages. Available in PDF, EPUB and Kindle. Book excerpt: Most existing texts covering topics in Islamic finance discuss the potential of Islamic banking; very few talk about other forms of financing and the investment activities of Islamic firms from the standpoint of owners and managers. This book fills this gap by looking at the traditional as well as non-traditional financing and investment activities of shariah-compliant companies. The chapters in this edited text offer a full range of topics on corporate finance for Islamic firms, including global comparisons of shariah screening, dividend policy and capital structure of Islamic firms, details of global Islamic equity markets, trends and performance of sukuk markets, and a brief account of derivative securities that can be used in Islamic finance. This is a useful reference for anyone who wishes to learn more about the performance of shariah-compliant companies vis-à-vis conventional firms. The book includes both technical and non-technical information that would be suitable for classroom teaching as well as a reference for postgraduate research students.
Book Synopsis Ownership and Asymmetric Information Problems in the Corporate Loan Market by : Lewis Gaul
Download or read book Ownership and Asymmetric Information Problems in the Corporate Loan Market written by Lewis Gaul and published by CreateSpace. This book was released on 2015-01-01 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: In credit markets, asymmetric information problems arise when borrowers have private information about their creditworthiness that is not observable by lenders. If these informational asymmetries do not negatively affect lenders' profitability, then they are irrelevant to lenders.
Book Synopsis Debt Valuation, Strategic Debt Service and Optimal Dividend Policy by : Hua Fan
Download or read book Debt Valuation, Strategic Debt Service and Optimal Dividend Policy written by Hua Fan and published by . This book was released on 1996 with total page 74 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author :Klaus Hammes Publisher :Department of Economics School of Economics and Commercial Law Go ISBN 13 : Total Pages :188 pages Book Rating :4.3/5 (91 download)
Book Synopsis Essays on Capital Structure and Trade Financing by : Klaus Hammes
Download or read book Essays on Capital Structure and Trade Financing written by Klaus Hammes and published by Department of Economics School of Economics and Commercial Law Go. This book was released on 2003 with total page 188 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Corporate Capital Structures in the United States by : Benjamin M. Friedman
Download or read book Corporate Capital Structures in the United States written by Benjamin M. Friedman and published by University of Chicago Press. This book was released on 2009-05-15 with total page 404 pages. Available in PDF, EPUB and Kindle. Book excerpt: The research reported in this volume represents the second stage of a wide-ranging National Bureau of Economic Research effort to investigate "The Changing Role of Debt and Equity in Financing U.S. Capital Formation." The first group of studies sponsored under this project, which have been published individually and summarized in a 1982 volume bearing the same title (Friedman 1982), addressed several key issues relevant to corporate sector behavior along with such other aspects of the evolving financial underpinnings of U.S. capital formation as household saving incentives, international capital flows, and government debt management. In the project's second series of studies, presented at the National Bureau of Economic Research conference in January 1983 and published here for the first time along with commentaries from that conference, the central focus is the financial side of capital formation undertaken by the U.S. corporate business sector. At the same time, because corporations' securities must be held, a parallel focus is on the behavior of the markets that price these claims.
Book Synopsis Capital Structure and Corporate Financing Decisions by : H. Kent Baker
Download or read book Capital Structure and Corporate Financing Decisions written by H. Kent Baker and published by John Wiley & Sons. This book was released on 2011-03-31 with total page 504 pages. Available in PDF, EPUB and Kindle. Book excerpt: A comprehensive guide to making better capital structure and corporate financing decisions in today's dynamic business environment Given the dramatic changes that have recently occurred in the economy, the topic of capital structure and corporate financing decisions is critically important. The fact is that firms need to constantly revisit their portfolio of debt, equity, and hybrid securities to finance assets, operations, and future growth. Capital Structure and Corporate Financing Decisions provides an in-depth examination of critical capital structure topics, including discussions of basic capital structure components, key theories and practices, and practical application in an increasingly complex corporate world. Throughout, the book emphasizes how a sound capital structure simultaneously minimizes the firm's cost of capital and maximizes the value to shareholders. Offers a strategic focus that allows you to understand how financing decisions relates to a firm's overall corporate policy Consists of contributed chapters from both academics and experienced professionals, offering a variety of perspectives and a rich interplay of ideas Contains information from survey research describing actual financial practices of firms This valuable resource takes a practical approach to capital structure by discussing why various theories make sense and how firms use them to solve problems and create wealth. In the wake of the recent financial crisis, the insights found here are essential to excelling in today's volatile business environment.
