Munich Personal RePEc Archive

Multi-stage investment, long-term asymmetric information and equity issues

Miglo, Anton (2012): Multi-stage investment, long-term asymmetric information and equity issues. Published in: Journal of Current Issues in Finance, Business and Economics , Vol. 4, No. 4 (2012): pp. 331-348.

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We analyze equity financing for a two-stage investment and consider different informational structures. When private information is short-term, equilibria are consistent with signalling theory and pecking-order theory. When private information is long-term, equilibria may exist where high quality firms issue equity. The model explains the link between debt-equity choice and subsequent performance after issue (short-term versus long-term). A set of new predictions is generated regarding the link between the extent of asymmetric information and equity issues, macroeconomic performance and equity issues and market timing.

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