Asymmetric Information Corporate Finance and Investment

Asymmetric Information  Corporate Finance  and Investment
Author: R. Glenn Hubbard
Publsiher: University of Chicago Press
Total Pages: 354
Release: 2009-05-15
Genre: Business & Economics
ISBN: 9780226355948

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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.

Corporate Finance Under Asymmetric Information

Corporate Finance Under Asymmetric Information
Author: Ejike Ezejiofor
Publsiher: GRIN Verlag
Total Pages: 21
Release: 2014-11-18
Genre: Business & Economics
ISBN: 9783656841449

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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.

Corporate Policies in a World with Information Asymmetry

Corporate Policies in a World with Information Asymmetry
Author: Vipin K Agrawal,Ramesh K S Rao
Publsiher: World Scientific
Total Pages: 176
Release: 2015-08-24
Genre: Business & Economics
ISBN: 9789814551328

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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

Information Asymmetries in Developing Country Financing

Information Asymmetries in Developing Country Financing
Author: Mr.George C. Anayotos
Publsiher: International Monetary Fund
Total Pages: 28
Release: 1994-07-01
Genre: Business & Economics
ISBN: 9781451955781

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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.

Asymmetric Information in Financial Markets

Asymmetric Information in Financial Markets
Author: Ricardo N. Bebczuk
Publsiher: Cambridge University Press
Total Pages: 176
Release: 2003-08-21
Genre: Business & Economics
ISBN: 0521797322

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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.

Lessons in Corporate Finance

Lessons in Corporate Finance
Author: Paul Asquith,Lawrence A. Weiss
Publsiher: John Wiley & Sons
Total Pages: 499
Release: 2016-03-28
Genre: Business & Economics
ISBN: 9781119207436

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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.

Remedies to Informational Asymmetries in Stock Markets

Remedies to Informational Asymmetries in Stock Markets
Author: Peter-Jan Engelen
Publsiher: Intersentia nv
Total Pages: 4
Release: 2005
Genre: Securities
ISBN: 9789050954846

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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.

Innovations in Investments and Corporate Finance

Innovations in Investments and Corporate Finance
Author: Mark Hirschey,Kose John,Anil K. Makhija
Publsiher: Elsevier
Total Pages: 224
Release: 2002-08-09
Genre: Business & Economics
ISBN: 0762308974

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The valuation of Internet companies, effects of firm size in takeover studies, and long-run performance of mergers in the telecommunications industry are all seen as riddles for the Efficient Markets Hypothesis. This volume focuses on pricing puzzles in investments. It also features studies describing innovations in corporate finance.