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Multi-Stage Investment, Long-Term Asymmetric Information and Pecking Order Revisited


Anton Miglo


University of Bridgeport - School of Business; University of Guelph - Department of Economics

June 2, 2011


Abstract:     
Following some recent empirical papers we focus on the key feature of "Pecking-order theory" (POT) - the existence and the extent of asymmetric information between firms' insiders and outsiders. We analyze the debt-equity choice for financing a two-stage investment and consider different informational structures. When private information is short-term, equilibria are consistent with POT. When private information is long-term and the extent of asymmetric information regarding firms values is small enough while that regarding the earnings profile over time is large enough, equilibria may exist where high quality firms issue equity which are not consistent with POT. This clarifies the role of asymmetric information in explaining equity issues and provides new tools for researchers testing POT.

Number of Pages in PDF File: 22

Keywords: pecking-order theory, long-term asymmetric information, signalling equilibrium, afterissuing underperformance

JEL Classification: D82, D92, G24, G32

working papers series


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Date posted: March 22, 2009 ; Last revised: May 14, 2013

Suggested Citation

Miglo, Anton, Multi-Stage Investment, Long-Term Asymmetric Information and Pecking Order Revisited (June 2, 2011). Available at SSRN: http://ssrn.com/abstract=1363480 or http://dx.doi.org/10.2139/ssrn.1363480

Contact Information

Anton Miglo (Contact Author)
University of Bridgeport - School of Business ( email )
126 Park Avenue
Bridgeport, CT 06601
United States
HOME PAGE: http://www.bridgeport.edu/~amiglo
University of Guelph - Department of Economics ( email )
Guelph, Ontario N1G 2W1
Canada
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