Information Revelation and Strategic Use of Capital Structure in Duopoly with Asymmetric Information

2009 ◽  
Author(s):  
Baran Siyahhan
Keyword(s):  
Asymmetric Information ◽  
Capital Structure ◽  
Information Revelation

Informational Efficiency and Liquidity Premium as the Determinants of Capital Structure

2010 ◽  
Vol 45 (2) ◽  
pp. 401-440 ◽  
Author(s):  
Chun Chang ◽  
Xiaoyun Yu
Keyword(s):  
Capital Structure ◽  
Information Acquisition ◽  
Operating Efficiency ◽  
Informational Efficiency ◽  
Information Revelation ◽  
Security Prices ◽  
Liquidity Premium ◽  
Maximum Information ◽  
Informed Traders ◽  
Operating Decisions

AbstractThis paper investigates how a firm’s capital structure choice affects the informational efficiency of its security prices in the secondary markets. We identify two new determinants of a firm’s capital structure policy: the liquidity (adverse selection) premium due to investors’ anticipated losses to informed trading, and operating efficiency improvement due to information revelation from the firm’s security prices. We show that the capital structure decision affects traders’ incentives to acquire information and subsequently, the distribution of informed traders across debt and equity claims. When information is less imperative for improving its operating decisions, a firm issues zero or negative debt (i.e., holding excess cash reserves) in order to reduce socially wasteful information acquisition and the liquidity premium associated with it. When information is crucial for a firm’s operating decisions, the optimal debt level is one that achieves maximum information revelation at the lowest possible liquidity cost. Our model can explain why many firms consistently hold no debt. It also provides new implications for financial system design and for the relationship among leverage, liquidity premium, profitability, and the cost of information acquisition.

scholarly journals Coordination and Private Information Revelation

Games ◽  
2018 ◽  
Vol 9 (3) ◽  
pp. 64
Author(s):  
Debdatta Saha ◽  
Prabal Roy Chowdhury
Keyword(s):  
Asymmetric Information ◽  
Private Information ◽  
Existence Result ◽  
Coordination Game ◽  
Information Revelation ◽  
Coordination Failure ◽  
Strategic Uncertainty ◽  
Full Disclosure ◽  
Two Agents ◽  
Battle Of The Sexes

This paper examines a persuasion game between two agents with one-sided asymmetric information, where the informed agent can reveal her private information prior to playing a Battle-of-the-Sexes coordination game. There is a close connection between the extent of information revelation and the possibility of coordination failure; while, in the absence of any coordination failure, there exist equilibria with full disclosure, in the presence of strategic uncertainty in coordination there exists an equilibrium with no information revelation. We provide a purification argument for the non-existence result, as well demonstrate that it is robust to several extensions, including both-sided asymmetric information and imprecise information revelation.

Does asymmetric information affect firm's financing decisions?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Muhammad Munir Ahmad ◽  
Ahmed Imran Hunjra ◽  
Faridul Islam ◽  
Qasim Zureigat
Keyword(s):  
Asymmetric Information ◽  
Capital Structure ◽  
Stock Exchange ◽  
Generalized Method Of Moments ◽  
Fixed Effect Model ◽  
Content Type ◽  
Financing Decisions ◽  
Measures Of Asymmetry ◽  
Target Leverage ◽  
The Impact

PurposeThe authors examine the impact of asymmetric information on firm's financing decisions, the feedback effect of changes in capital structure on the level of asymmetric information, and the speed of adjustments in capital structure on its target leverage.Design/methodology/approachThe authors extract the data on 280 non-financial firms listed in the Pakistan Stock Exchange (PSX) from the DataStream. The authors implement the generalized method of moments (GMM), complemented by the fixed effect model (FEM) to estimate the model coefficients.FindingsThe authors find that asymmetric information significantly affects the financing decisions; and that on average, firms adjust 26% of the total debt toward their target capital structure. The negative effect from the difference between the observed and target changes in leverage on asymmetric information confirms that capital structure changes act as a signal for future profitability and helps the management to lower its level of asymmetric information.Originality/valueThe findings offer fresh insight into the effect of asymmetric information on financing decisions, as well as the speed of adjustment of capital structure toward its target leverage, in the context of the firms working in emerging markets like Pakistan. To the authors’ best knowledge, this is the first study to investigate the impact of asymmetric information on financing decisions that incorporate firm's age, size and the global financial crises 2007–2008. The authors construct an asymmetric information index using both accounting and finance measures of asymmetry.

scholarly journals Does Asymmetric Information Drive Capital Structure Decisions?

2006 ◽  
Author(s):  
Sreedhar T. Bharath ◽  
Paolo Pasquariello ◽  
Guojun Wu
Keyword(s):  
Asymmetric Information ◽  
Capital Structure
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