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http://ssrn.com/abstract=2024666
 
 

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Asymmetric Information and the Pecking (Dis)Order


Paolo Fulghieri


University of North Carolina Kenan-Flagler Business School; European Corporate Governance Institute (ECGI)

Diego Garcia


University of North Carolina at Chapel Hill - Finance Area

Dirk Hackbarth


Boston University School of Management

March 18, 2013

UNC Kenan-Flagler Research Paper No. 2012-6

Abstract:     
In this paper we show that when growth options represent a significant component of overall firm value, equity financing can dominate (i.e., be less dilutive than) debt financing under asymmetric information. In particular, we find that equity is more likely to dominate debt for younger firms with larger investment needs and with riskier growth opportunities. Thus, our model can explain why high-growth firms may prefer equity over debt, and then switch to debt as they mature. We also fid that equity financing is relatively more attractive when a firm already has debt in its capital structure. In addition, equity can dominate debt in multidivisional firms. Finally, we provide new predictions on the cross-sectional variation of capital structures.

Number of Pages in PDF File: 51

Keywords: Capital Structure

JEL Classification: G32

working papers series


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Date posted: March 20, 2012 ; Last revised: March 20, 2013

Suggested Citation

Fulghieri, Paolo and Garcia, Diego and Hackbarth, Dirk, Asymmetric Information and the Pecking (Dis)Order (March 18, 2013). UNC Kenan-Flagler Research Paper No. 2012-6. Available at SSRN: http://ssrn.com/abstract=2024666 or http://dx.doi.org/10.2139/ssrn.2024666

Contact Information

Paolo Fulghieri
University of North Carolina Kenan-Flagler Business School ( email )
Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http://www.ecgi.org
Diego Garcia (Contact Author)
University of North Carolina at Chapel Hill - Finance Area ( email )
Chapel Hill, NC 27599-3490
1-919-962-8404 (Phone)
HOME PAGE: http://www.unc.edu/~garciadi/

Dirk Hackbarth
Boston University School of Management ( email )
595 Commonwealth Avenue
Boston, MA 02215
United States
(617) 358-4206 (Phone)
(617) 353-6667 (Fax)
HOME PAGE: http://people.bu.edu/dhackbar/
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