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DynamicsofAsymmetricInformationandCapitalStructureNikolayHalov1NYU–SternSchoolofBusinessNovember2006AbstractIproposeamodeloffinancingdecisionsinanenvironmentwhereasymmetricinformationchangesthroughtime.Mygoalistodeterminetheoptimalsequenceofsecuritiesasafunctionoftheamountanddynamicsoftheasymmetricinformationadvantagethatinsidersofthefirmhavewithrespecttooutsideinvestors.Iidentifyanovelcostofdebtthatarisesinthisdynamicsetting.Whereasinaoneperiodmodel,debtisalwayspreferredtoequitybecauseitislesssensitivetotheprivateinformationmanagershave,withmultipleoverlappinginvestmentprojects,debtissuestodaymakefuturesecurityissuesmoresensitivetothedegreeofasymmetricinformationintheissuanceperiod.IusethedispersionofanalystforecastsfordifferenthorizonstoproxyforcurrentandfutureasymmetricinformationandexaminethefinancingofalargepanelofUSfirms.Ifindthatfutureadverseselectioncostsaffectnegativelythedebtcomponentofnewexternalfinancingandpositivelythecashreservesofthefirm.Thisevidenceisconsistentwiththepredictionofmymodelthatcompaniestrytominimizeadverseselectioncostsintertemporally.1NYUSternSchoolofBusiness,email:nhalov@stern.nyu.edu.IamgratefultoKoseJohnforinvaluableguidanceanddiscussions.IalsowanttothankHeitorAlmeida,YakovAmihud,MenachemBrenner,FlorianHeider,EliOfekandDanielWolfenzonforhelpfulcommentsandsuggestion.Usualdisclaimerapplies.21.IntroductionInthisstudy,Iproposeamodeloffinancingdecisionsinanenvironmentwithdynamicasymmetricinformation.Inthissetting,thechoiceofsecuritydependsnotonlyonthecurrentadverseselectioncostofthesecuritybutalsoonthefutureinformationenvironmentandfutureneedsoffinancingofthefirm.Whenmanagersanticipateanincreaseintheasymmetricinformation,eventhoughtheyhaveprivateinformationatpresent,managersmaychoosetoissueequity.Thegoalistodeterminetheoptimalsequenceofsecuritiesasafunctionofthesizeanddynamicsoftheasymmetricinformationadvantagethatinsidersofthefirmhavewithrespecttooutsideinvestors.Iusedispersionofanalystforecastfordifferenthorizons,theprobabilityofinformedtradingmeasureandanalystfollowingtofindsupportformyhypothesis.Ifindthatdispersionofanalystforecastsforthecurrentyearandfollowingyearhavemarkedlydifferenteffectonthecapitalstructuredecisionsofthefirmwhichareconsistentwithfirmstryingtominimizeadverseselectioncostintertemporally.SincetheseminalresearchbyMyers(1984)andMyersandMajluf(1984)ithasbeenrecognizedthatwhenitisimpossibleorcostlyforfirmstoconveythetruevalueoftheirassetstooutsideinvestors,firmsmaybeforcedtoforgoprojectswithpositivenetpresentvalue.Inreactioncompaniesoptimallychoosetousesourcesoffundsthatareinsensitivetotheinformationadvantageofinsiders.Whenmanagersknowmoreaboutthemeanexpectedreturns,thisleadstotheclassicalpeckingorderofusingallinternalfundsfirstandifadditionalcapitalisneededtoberaised,debtshouldbeissued.Equity3shouldbeissuedonlyasalastresortwhentheleverageisataveryhighlevelatwhichthefirmhasexhausteditsdebtcapacity.Infacthowever,companiesmakeasequenceoffinancingdecisionsovertime.Itisclearthatmyopicallyfollowingthepeckingorderruleisnotgoingtobeoptimalforabigproportionoffirms.Itisnaturalthatinsiders,namelythemanagersrunningthecompany,woulddobetteriftheyminimizetheadverseselectioncostsofallroundsoffinancingbypickinganoptimalsequenceofsecurities.AlthoughMyersandMajluf(1984)donotconsiderthedynamicissuesexplicitly,onesolutionthattheyproposeforthesingleperiodproblemsuggestaremedyforthedynamicproblem.Ifmanagersdonothaveaninformationadvantageatsomepointbeforetheinvestmenthastobemade,companiesshouldbuildfinancialslacktobeusedlaterwhenthevaluationsofinsidersandoutsidersdiverge.Forthemajorityoffirmshowever,itislikelythattheywillsufferhighestadverseselectioncostwhiletheyareyoungandlackestablishedrelationswiththecapitalmarkets.Ontheonehandforatypicalfirm,theinformationasymmetrymaygraduallybereducedthroughtimeasmoreandmoreinvestorsstartproducinginformationaboutthefirmandasitaccumulatespricehistoriesofitssecurities.Ontheotherhand,weobservelotsofoldestablishedfirmsthatstillfacesignificantinformationasymmetrieswhenraisingcapital.Possiblereasonsforwhythefirmmaybecomelesstransparentaresharpincreasesofpricesofinputs,changeofthemanagementteam,changeinthecorporategovernance,orchangeofthefocusofthecompanythroughinvestmentsinprojectsthat4areoutsideofmainlineofbusinessorbydevelopingnewproducts2.Essentiallyanychangeinthecompanythatbreaksthepatternsandinvalidatesthepasthistoricalexperienceofinvestorsdealingwiththefirmwilldiminishthecapabilityofoutsiderstopricecorrectlythesecuritiesofthefirm,whilemakingtheadvantageofmanagersofreceivingfirstsignalsaboutthequalityofthefirmbigger.Iconsideradynamicmodeloffinancingchoicesinamultiperiodsetting.Inthisenvironmentthechoiceofsecuritiesdependsasmuchonthecurrentlevelofadverseselectioncostsasonthechangeinadverseselectioncostsinthefuture.Themainresultisthatfirmsmayissueequityifcorporateinsidersanticipatethattheirasymmetricinformationadvantagewillincreaseinthefuture.Thisisareversalofthesingleperiodintuitionthatfirmsissuedebtinthepresenceofasymmetricinformation.Thenoveleff
本文标题:Dynamics of Asymmetric Information and Capital Str
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