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

22 Pages Posted: 22 Mar 2009 Last revised: 14 May 2013

Anton Miglo

Nipissing University - School of Business and Economics

Multiple version iconThere are 2 versions of this paper

Date Written: 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.

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

JEL Classification: D82, D92, G24, G32

Suggested Citation

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

Anton Miglo (Contact Author)

Nipissing University - School of Business and Economics ( email )

100 College Drive
North Bay, Ontario P1B 8L7
Canada

HOME PAGE: http://faculty.nipissingu.ca/antonm

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