Orateur
Description
We examine the interactions between financing (capital structure) and investment decisions of a firm under asymmetric information about collateral (liquidation) value between well-informed managers and less-informed investors. We show that asymmetric information reduces the amount of debt issuance to finance the cost of investment, that leads to delay corporate investment. In particular, an increase in the degree of asymmetric information forces the firm to be a risk-free debt-equity financing (ultimately be the all-equity financing) by reducing the amount of debt issuance. In addition, an increase in the cash flow volatility decreases the amount of debt issuance, credit spread, and leverage under asymmetric information. Our results fit well with empirical studies. This is a joint work with Michi Nishihara.
