Corporate Finance Under Asymmetric Information

Author : Ejike Ezejiofor
Publisher : GRIN Verlag
Page : 21 pages
File Size : 48,7 Mb
Release : 2014-11-18
Category : Business & Economics
ISBN : 9783656841449

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Corporate Finance Under Asymmetric Information by Ejike Ezejiofor Pdf

Seminar paper from the year 2014 in the subject Economics - Finance, , course: MBA and Engineering, language: English, abstract: The specter of decreased economic activities, financial crisis, unbecoming ethical standards have in the recent past and fore going, characterized asymmetric information on corporate finance. The consequences normally have a ricochet effect and can be generally catastrophic to normal economic activities to mention the least. This paper considers scenario’s where information asymmetry was prevalent or may have had its effects play out. The typical investor mindset and the opportunity cost associated with the preferred capital structure of the capitalizing process were mentioned. A basis for proper appreciation of the concept – Corporate finance under asymmetric information was initiated here, with a detailed explanation of corporate finance and its components, this was succeeded by a summary of scenarios were asymmetric information were prevalent and an intelligent look was also taken at asymmetric information between insiders and investors and the concomitant lemon problem, where the effects were carefully highlighted in a progression to the level of severity - Market breakdown and costly signaling. The fact that asymmetric information has been widely recognized as bad and generally viewed in a negative light must warrant it being viewed with a high level of seriousness. It is widely known that while lot of effort have been put into stemming the tides of the consequences of asymmetric information, a lot of effort too, have been dedicated to innovation and risk assessment, to capture the interest of investors, who have been affected by the consequences of asymmetric information. These may have formed a veritable platform for a recent paper by Pierre Barbaroux (2014), that elucidated the rise of innovation and innovative entrepreneurs based on the management of asymmetric information. An attempt has in any case, been made here to suggest efforts at marginalizing the negative impacts of asymmetric information and also remedies at reducing the far reaching impacts on the lenders and the aggregate economic activity in general.

Author : R. Glenn Hubbard
Publisher : University of Chicago Press
Page : 354 pages
File Size : 40,9 Mb
Release : 2009-05-15
Category : Business & Economics
ISBN : 9780226355948

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Asymmetric Information, Corporate Finance, and Investment by R. Glenn Hubbard Pdf

In this volume, specialists from traditionally separate areas in economics and finance investigate issues at the conjunction of their fields. They argue that financial decisions of the firm can affect real economic activity—and this is true for enough firms and consumers to have significant aggregate economic effects. They demonstrate that important differences—asymmetries—in access to information between "borrowers" and "lenders" ("insiders" and "outsiders") in financial transactions affect investment decisions of firms and the organization of financial markets. The original research emphasizes the role of information problems in explaining empirically important links between internal finance and investment, as well as their role in accounting for observed variations in mechanisms for corporate control.

Author : Vipin K Agrawal,Ramesh K S Rao
Publisher : World Scientific
Page : 176 pages
File Size : 49,6 Mb
Release : 2015-08-24
Category : Business & Economics
ISBN : 9789814551328

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Corporate Policies in a World with Information Asymmetry by Vipin K Agrawal,Ramesh K S Rao Pdf

A corporate manager typically oversees several ongoing projects and has the opportunity to invest in new projects that add wealth to the stockholders. Such new projects include expanding the corporation's existing business, entering into a new line of business, acquiring another business, and so on. If the firm does not have sufficient internal capital (cash) to finance the initial investment, the manager must enter into a transaction with outside investors to raise additional funds. In this situation, the manager of a public corporation faces two key decisions: Should he transact with outside investors and raise the necessary capital to invest in the project? The answer to this question determines the firm's investment policy.If the manager decides to raise external capital how should the investment be financed — with debt, with equity, or with some other security? The answer determines the firm's financing policy. 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. They provide a unified framework that yields new theoretical insights and explains many empirical anomalies documented in the literature. Contents:IntroductionBasic Setup:Firm and Its Capital NeedsOutside Investors and SecuritiesRaising CapitalRaising Capital When There is Symmetric Information:Information and Decision-Making with Symmetric InformationOptimal Capital-Raising Decisions and Their Implications for Firm PoliciesRaising Capital with Information Asymmetry:Information and Decision-Making with Information AsymmetryOptimal Capital-Raising Decisions and Their Implications: Any Security SpaceAdditional Implications Specific to the Debt-Equity Security SpaceNumerical Illustrations of Key Financing Policy Results Under the Debt–Equity Security SpaceEmpirical Predictions and Implications for Practitioners: Debt–Equity Security SpaceConcluding RemarksAppendix Readership: Master and doctoral level students in finance, academic researchers and financial managers. Keywords:Information Asymmetry;Financing Decisions;Capital Structure;Dividend PolicyKey Features:Proposes a unified framework that contains all existing models as special casesExplains many empirical anomalies in the literature and provide guidance for better empirical tests

Author : Mr.George C. Anayotos
Publisher : International Monetary Fund
Page : 28 pages
File Size : 55,5 Mb
Release : 1994-07-01
Category : Business & Economics
ISBN : 9781451955781

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Information Asymmetries in Developing Country Financing by Mr.George C. Anayotos Pdf

This paper assesses the impact of information asymmetries on developing country financing and considers alternative techniques to reduce the adverse implications of such asymmetries. Following an introduction, Section II examines in general terms the role of information in financial markets and analyzes the incentive and risk sharing properties of alternative financial contracts. Information asymmetries which are present in domestic finance are more prevalent in international finance, in particular in developing country financing. Section III reviews measures aiming to resolve information asymmetries. Borrowing and creditor country regulations and policies, as well as innovative contractual agreements help to resolve a range of issues related to information asymmetries. However, despite their contribution, residual problems remain unresolved. The international financial institutions, and in particular the Fund, have an important role to play in alleviating information asymmetries.

Author : Ricardo N. Bebczuk
Publisher : Cambridge University Press
Page : 176 pages
File Size : 45,7 Mb
Release : 2003-08-21
Category : Business & Economics
ISBN : 0521797322

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Asymmetric Information in Financial Markets by Ricardo N. Bebczuk Pdf

Asymmetric information (the fact that borrowers have better information than their lenders) and its theoretical and practical evidence now forms part of the basic tool kit of every financial economist. It is a phenomenon that has major implications for a number of economic and financial issues ranging from both micro and macroeconomic level - corporate debt, investment and dividend policies, the depth and duration of business cycles, the rate of long term economic growth - to the origin of financial and international crises. Asymmetric Information in Financial Markets aims to explain this concept in an accessible way, without jargon and by reducing mathematical complexity. Using elementary algebra and statistics, graphs, and convincing real-world evidence, the author explores the foundations of the problems posed by asymmetries of information in a refreshingly accessible and intuitive way.

Author : Paul Asquith,Lawrence A. Weiss
Publisher : John Wiley & Sons
Page : 499 pages
File Size : 54,5 Mb
Release : 2016-03-28
Category : Business & Economics
ISBN : 9781119207436

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Lessons in Corporate Finance by Paul Asquith,Lawrence A. Weiss Pdf

A discussion-based learning approach to corporate finance fundamentals Lessons in Corporate Finance explains the fundamentals of the field in an intuitive way, using a unique Socratic question and answer approach. Written by award-winning professors at M.I.T. and Tufts, this book draws on years of research and teaching to deliver a truly interactive learning experience. Each case study is designed to facilitate class discussion, based on a series of increasingly detailed questions and answers that reinforce conceptual insights with numerical examples. Complete coverage of all areas of corporate finance includes capital structure and financing needs along with project and company valuation, with specific guidance on vital topics such as ratios and pro formas, dividends, debt maturity, asymmetric information, and more. Corporate finance is a complex field composed of a broad variety of sub-disciplines, each involving a specific skill set and nuanced body of knowledge. This text is designed to give you an intuitive understanding of the fundamentals to provide a solid foundation for more advanced study. Identify sources of funding and corporate capital structure Learn how managers increase the firm's value to shareholders Understand the tools and analysis methods used for allocation Explore the five methods of valuation with free cash flow to firm and equity Navigating the intricate operations of corporate finance requires a deep and instinctual understanding of the broad concepts and practical methods used every day. Interactive, discussion-based learning forces you to go beyond memorization and actually apply what you know, simultaneously developing your knowledge, skills, and instincts. Lessons in Corporate Finance provides a unique opportunity to go beyond traditional textbook study and gain skills that are useful in the field.

Author : Bruno Biais,Marco Pagano
Publisher : Oxford University Press, USA
Page : 396 pages
File Size : 51,8 Mb
Release : 2002
Category : Business & Economics
ISBN : 0199243239

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New Research in Corporate Finance and Banking by Bruno Biais,Marco Pagano Pdf

This text is a reflection of research carried out by European scholars into financial economics. Topics discussed include asset pricing in the context of perfect markets, take-over bids, and the interplay between banks and financial markets.

Author : Lewis Gaul,Viktors Steburnovs
Publisher : CreateSpace
Page : 32 pages
File Size : 52,8 Mb
Release : 2015-01-01
Category : Electronic
ISBN : 150531030X

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Ownership and Asymmetric Information Problems in the Corporate Loan Market by Lewis Gaul,Viktors Steburnovs Pdf

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.

Author : Jeremy Edwards
Publisher : Cambridge University Press
Page : 257 pages
File Size : 47,8 Mb
Release : 1986-09-11
Category : Business & Economics
ISBN : 9780521329644

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Recent Developments in Corporate Finance by Jeremy Edwards Pdf

Papers covering financial issues during the late 1970s and early 1980s including the importance of informational asymmetries and taxation.

Author : Markus Konrad Brunnermeier
Publisher : Oxford University Press, USA
Page : 264 pages
File Size : 47,5 Mb
Release : 2001
Category : Business & Economics
ISBN : 0198296983

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Asset Pricing Under Asymmetric Information by Markus Konrad Brunnermeier Pdf

The role of information is central to the academic debate on finance. This book provides a detailed, current survey of theoretical research into the effect on stock prices of the distribution of information, comparing and contrasting major models. It examines theoretical models that explain bubbles, technical analysis, and herding behavior. It also provides rational explanations for stock market crashes. Analyzing the implications of asymmetries in information is crucial in this area. This book provides a useful survey for graduate students.

Author : H. Kent Baker,Gerald S. Martin
Publisher : John Wiley & Sons
Page : 516 pages
File Size : 47,5 Mb
Release : 2011-05-03
Category : Business & Economics
ISBN : 9780470569528

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Capital Structure and Corporate Financing Decisions by H. Kent Baker,Gerald S. Martin Pdf

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.

Author : Xuewen Liu
Publisher : Unknown
Page : 0 pages
File Size : 42,9 Mb
Release : 2007
Category : Academic theses
ISBN : OCLC:1435975809

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Essays on corporate finance under information asymmetry by Xuewen Liu Pdf

Author : B. Espen Eckbo
Publisher : Elsevier
Page : 558 pages
File Size : 44,5 Mb
Release : 2007-05-21
Category : Business & Economics
ISBN : 0080488919

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Handbook of Corporate Finance by B. Espen Eckbo Pdf

Judging by the sheer number of papers reviewed in this Handbook, the empirical analysis of firms’ financing and investment decisions—empirical corporate finance—has become a dominant field in financial economics. The growing interest in everything “corporate is fueled by a healthy combination of fundamental theoretical developments and recent widespread access to large transactional data bases. A less scientific—but nevertheless important—source of inspiration is a growing awareness of the important social implications of corporate behavior and governance. This Handbook takes stock of the main empirical findings to date across an unprecedented spectrum of corporate finance issues, ranging from econometric methodology, to raising capital and capital structure choice, and to managerial incentives and corporate investment behavior. The surveys are written by leading empirical researchers that remain active in their respective areas of interest. With few exceptions, the writing style makes the chapters accessible to industry practitioners. For doctoral students and seasoned academics, the surveys offer dense roadmaps into the empirical research landscape and provide suggestions for future work. *The Handbooks in Finance series offers a broad group of outstanding volumes in various areas of finance *Each individual volume in the series should present an accurate self-contained survey of a sub-field of finance *The series is international in scope with contributions from field leaders the world over

Author : Peter-Jan Engelen
Publisher : Intersentia nv
Page : 4 pages
File Size : 42,7 Mb
Release : 2005
Category : Securities
ISBN : 9789050954846

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Remedies to Informational Asymmetries in Stock Markets by Peter-Jan Engelen Pdf

Like many other markets, stock markets are characterised by asymmetric information. If investors cannot distinguish high-quality from low-quality securities, they will value all securities as average resulting in the well known market for lemons. This decreases the allocative efficiency and social welfare by guiding resources to the least good investment opportunities. How can high-quality listed companies communicate with stock markets to distinguish themselves from low-quality listed companies? Although proponents of mandatory disclosure rules in securities markets will answer this question with far-reaching governmental regulation, it is jumping to conclusions and skipping devices that signal the true quality of the investment opportunities to the stock market. This book analyses the functioning of stock markets, in particular the dissemination of price-sensitive information on these markets. In order to evaluate the legal rules governing the dissemination of information from an economic perspective, an operational framework is needed to assess the current disclosure regulation with respect to allocative efficiency. The book replaces vague legal goals of securities regulation, such as investors' protection, by financial economic concepts, such as market efficiency and market liquidity. To enhance allocative efficiency, the book analyses the relevancy of mandatory disclosure rules, the use of trading halts in disseminating information during the opening hours of a stock exchange, the use of selective disclosure and the regulation of insider trading.

Author : Peter D. Spencer
Publisher : OUP Oxford
Page : 286 pages
File Size : 54,5 Mb
Release : 2000-10-12
Category : Business & Economics
ISBN : 9780191586866

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The Structure and Regulation of Financial Markets by Peter D. Spencer Pdf

Aimed at advanced undergraduate and graduate students in economics, banking, and finance, this is a core textbook for the financial markets, institutions, and regulation option of courses in financial economics. It integrates modern theories of asymmetric information into the analysis of financial institutions, relating the theory to current developments. The text begins with an analysis of adverse selection in retail financial products like life assurance before looking at open capital markets where trades and prices provide information. It then progresses to the more complex areas of corporate governance and financial intermediation in which information is concealed or confidential and moral hazard and verification problems become important. These chapters study the various mechanisms that the financial markets have developed to allow investors to delegate the management of their assets to others. This analysis is used to show how regulation can reduce the risk of financial failure and how legal, accounting, and regulatory mechanisms can help shape a country's corporate and financial architecture. These difficult theoretical concepts are conveyed through the careful use of numerical illustrations and topical case studies. Each chapter ends with a set of exercises to test and reinforce students' comprehension of the material. Worked solutions are provided for the numerical exercises.