Debt-equity choice under asymmetric information

Noe, Thomas and Kale, Jayant R (1991) Debt-equity choice under asymmetric information. Economics Letters, 35 (2). pp. 215-219.


Under asymmetric information regarding the quality of investment opportunities and a tax advantage to debt, it is demonstrated that a separating equilibrium in which higher-quality firms issue equity and lower-quality firms issue debt may exist. Thus, the ‘pecking order’ theory may break down when debt financing enjoys a tax advantage.

Item Type: Article
Keywords: Debt financing; Stock prices; finance
Subject(s): Finance
Date Deposited: 19 Feb 2012 12:30
Last Modified: 02 Mar 2017 10:50
Funders: N/A

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