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research article

Corporate investment and financing under asymmetric information

Morellec, Erwan  
•
Schuerhoff, Norman
2011
Journal of Financial Economics

We develop a dynamic model of corporate investment and financing decisions in which corporate insiders have superior information about the firm's growth prospects. We show that firms with positive private information can credibly signal their type to outside investors using the timing of corporate actions and their debt-equity mix. Using this result, we show that asymmetric information induces firms with good prospects to speed up investment, leading to a significant erosion of the option value of waiting to invest. Additionally, we demonstrate that informational asymmetries may not translate into a financing hierarchy or pecking order over securities. Finally, we generate a rich set of testable implications relating firms' investment and financing strategies, abnormal announcement returns, and external financing costs to a number of managerial, firm, and industry characteristics. (C) 2010 Elsevier B.V. All rights reserved.

  • Details
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Type
research article
DOI
10.1016/j.jfineco.2010.09.003
Web of Science ID

WOS:000286787800002

Author(s)
Morellec, Erwan  
Schuerhoff, Norman
Date Issued

2011

Published in
Journal of Financial Economics
Volume

99

Start page

262

End page

288

Subjects

Asymmetric information

•

Financing decisions

•

Endogenous financing constraints

•

Corporate investment

•

Real options

•

Capital Expenditure Decisions

•

Market Reaction

•

Growth Options

•

Pecking Order

•

Firm Growth

•

Debt

•

Agency

•

Size

•

Stock

Editorial or Peer reviewed

REVIEWED

Written at

EPFL

EPFL units
SFI-EM  
Available on Infoscience
December 16, 2011
Use this identifier to reference this record
https://infoscience.epfl.ch/handle/20.500.14299/74371
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