Real Option Signaling Games of Debt Financing Using Equity Guarantee Swaps under Asymmetric Information

2019 ◽  
Author(s):  
Qiuqi Wang ◽  
Yue Kuen Kwok
Keyword(s):  
Asymmetric Information ◽  
Real Option ◽  
Debt Financing ◽  
Signaling Games

Real Option Financing Under Asymmetric Information

2012 ◽  
Vol 27 (1) ◽  
pp. 180-210 ◽  
Author(s):  
Matthieu Bouvard
Keyword(s):  
Asymmetric Information ◽  
Real Option

scholarly journals Profitability And Capital Structure Of Amex And Nyse Firms

2011 ◽  
Vol 4 (11) ◽  
Author(s):  
Richard H. Fosberg ◽  
Arvin Ghosh
Keyword(s):  
Information Theory ◽  
Asymmetric Information ◽  
Capital Structure ◽  
Inverse Relationship ◽  
Debt Financing ◽  
Font Size ◽  
Firm Profitability ◽  
Strong Inverse Relationship

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt;"><span style="font-size: 10pt;"><span style="font-family: Times New Roman;">In this study, we found that NYSE and AMEX firms have somewhat different capital structures.<span style="mso-spacerun: yes;">&nbsp; </span>NYSE firms generally use 5% to 8% more debt financing in their capital structures than AMEX firms.<span style="mso-spacerun: yes;">&nbsp; </span>It was also found that the amount of debt in the capital structures of AMEX firms declined somewhat between 1985 and 2003 but remained relatively stable for NYSE firms.<span style="mso-spacerun: yes;">&nbsp; </span>Also, NYSE firms were found to exhibit a strong inverse relationship between firm profitability and the amount on debt in the firm&rsquo;s capital structure.<span style="mso-spacerun: yes;">&nbsp; </span>This result is generally consistent with Myers and Majluf&rsquo;s &ldquo;asymmetric information theory&rdquo; of capital structure.<span style="mso-spacerun: yes;">&nbsp; </span>No relationship was found between profitability and capital structure for AMEX firms.<span style="mso-spacerun: yes;">&nbsp; </span>Comparison of these results to similar calculations found in Fosberg and Ghosh (2005) for NASDAQ firms shows that, like AMEX firms, NASDAQ firms use less debt in their capital structures than NYSE firms and exhibit no relationship between profitability and capital structure.<span style="mso-spacerun: yes;">&nbsp; </span>Consequently, because these anomalies exist for both AMEX and NASDAQ firms, these two anomalies can not be an exchange listing effect.</span></span></p>

Debt Financing under Asymmetric Information

1995 ◽  
Vol 50 (2) ◽  
pp. 633-659 ◽  
Author(s):  
GAUTAM GOSWAMI ◽  
THOMAS NOE ◽  
MICHAEL REBELLO
Keyword(s):  
Asymmetric Information ◽  
Debt Financing

REAL OPTION SIGNALING GAMES OF DEBT FINANCING USING EQUITY GUARANTEE SWAPS UNDER ASYMMETRIC INFORMATION

2020 ◽  
Vol 23 (05) ◽  
pp. 2050036
Author(s):  
QIUQI WANG ◽  
YUE KUEN KWOK
Keyword(s):  
Real Option ◽  
Debt Financing ◽  
Bank Loan ◽  
Information Cost ◽  
Information Costs ◽  
Investment Opportunity ◽  
High Type ◽  
Investment Timing ◽  
Funding Cost ◽  
Financing Choice

We analyze the real option signaling game models of debt financing of a risky project under information asymmetry, where the firm quality is only known to the firm management but not outsiders. The firm decides on the optimal investment timing of the risky project that requires upfront fixed funding cost and subsequent operating costs. The fixed funding cost is financed via either direct bank loan or entering into a three-party equity guarantee swap (EGS) that involves a bank granting the loan and third party guarantor. Under the EGS agreement, the guarantor is obligated to pay all the future coupon stream to the bank upon default of the firm. In return for the provision of the guarantee, the guarantor obtains certain proportional share of equity of the firm at the time when the swap agreement is signed. The share of equity demanded by the guarantor depends on the outside investors’ belief on the firm quality. The low-type firm has the incentive to mimic the investment strategy of being high-type in terms of investment timing and share of equity. The high-type firm may adopt the appropriate separating strategy by speeding up investment or choosing an alternative financing choice. The resulting loss of the real option value of the investment opportunity represents the information cost under separating strategies. We examine the incentive compatibility constraints faced by the firm under different quality types and discuss characterization of the separating and pooling equilibriums. Unlike the usual assumption of perpetuity of investment opportunity, our real option model assumes the time window of the investment opportunity to be finite. We explore how the information cost and nature of separating and pooling equilibriums evolves over the finite time span of the investment opportunity. The information costs and investment thresholds exhibit interesting time-dependent behaviors. We examine the firm’s investment and financing choice between EGS and the direct bank loan against time and other parameters via comparison of the corresponding information costs and investment thresholds.

scholarly journals A Composição do Endividamento das Empresas Brasileiras de Capital Aberto: um Estudo Empírico

2005 ◽  
Vol 3 (2) ◽  
pp. 173
Author(s):  
Cláudio R. Lucinda ◽  
Richard Saito
Keyword(s):  
Asymmetric Information ◽  
Economies Of Scale ◽  
Sao Paulo ◽  
Debt Financing ◽  
São Paulo ◽  
Public Issues ◽  
The Public ◽  
Fixed Assets ◽  
Private And Public

This article examines the major determinants of private and public issues of debt decisions by public traded companies on the Sao Paulo exchange. The major findings include that companies with higher fixed assets in proportion to fixed assets and thus subject to higher liquidation costs tend to finance with private issues of debt. In addition, the higher the long-term liabilities, the more likely the company will diversify its debt financing, increasing the public issues of debt. This provide evidence that as the company presents decreasing asymmetric information, public issues of debt is likely to increase. Other factors, such as, economies of scale and other variables to control for asymmetric information seem to be of little significance.

scholarly journals Asymmetric Information and the Pecking (Dis)Order*

2020 ◽  
Vol 24 (5) ◽  
pp. 961-996 ◽  
Author(s):  
Paolo Fulghieri ◽  
Diego García ◽  
Dirk Hackbarth
Keyword(s):  
Asymmetric Information ◽  
Classical Problem ◽  
High Growth ◽  
Debt Financing ◽  
Growth Options ◽  
Growth Opportunities ◽  
Growth Firms

Abstract We study the classical problem of raising capital under asymmetric information. Following Myers and Majluf, we consider firms endowed with assets in place and riskier growth opportunities. When asymmetric information is concentrated on assets in place (rather than growth opportunities), equity-like securities are more likely to be optimal. In contrast, when asymmetric information falls on growth options, debt is optimal. Intuitively, this happens because when the asset with greater volatility is less affected by asymmetric information, issuing a security with greater exposure to upside potential (such as equity) can be less dilutive than issuing a security lacking such exposure (such as debt). Our results suggest that equity is more likely to dominate debt for younger firms with larger investment needs, endowed with riskier, more valuable growth opportunities. Thus, our model can explain why high-growth firms may prefer equity over debt, and then switch to debt financing as they mature.

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