Financing New Investments under Asymmetric Information: A General Approach

Robin Boadway () and Michael Keen ()

No 1017, Working Papers from Queen's University, Department of Economics

Abstract: We study the efficiency of credit market equilibria when financial intermediaries cannot observe the riskiness or the returns of potential investment projects. With loan financing, there is over-investment in high-return, high-risk projects and under-investment in low-return, low-risk projects relative to the social optimum. If firms have the choice of equity finance, there is unambiguously over-investment under reasonable conditions. The well-known cases of Stiglitz and Weiss and of de Meza and Webb emerge as special cases. The results are extended to allow for signaling and screening equilibria.

Keywords: Credit Markets; Asymmetric Information (search for similar items in EconPapers)
JEL-codes: G14 G18 (search for similar items in EconPapers)
Date: 2004-01
View list of references View citations in EconPapers

Downloads: (external link)
http://www.econ.queensu.ca/working_papers/papers/qed_wp_1017.pdf First version 2004 (application/pdf)

Related works:
Working Paper: Financing New Investments under Asymmetric Information: a General Approach (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:qed:wpaper:1017

Access Statistics for this paper

More papers in Working Papers from Queen's University, Department of Economics
Contact information at EDIRC.
Series data maintained by Mark Babcock ().