 Optimal financing and investment strategies under asymmetric information on liquidation valueTakashi Shibata () and Michi Nishihara Journal of Banking & Finance, 2023, vol. 146, issue C Abstract: This study develops the real options model to explore how asymmetric information at the time of liquidation ex-post affects a firm’s financing (capital structure) and investment decisions ex-ante. Accordingly, it is found that asymmetric information at the time of liquidation delays investment and reduces the amount of debt issuance. When the degree of asymmetric information is high, the firm cannot take a mixed financing consisting of risky debt and equity. The firm with collateral takes a mixed financing consisting of risk-free debt and equity, whose debt issuance amount equals the collateral value, whereas the firm without collateral takes all-equity financing. This result contrasts with that under symmetric information, where the firm always issues a mix of risky debt and equity. Moreover, when the degree of asymmetric information is substantial, an increase in cash inflow volatility decreases debt issuance. This result also contrasts with that under symmetric information, where an increase in volatility increases debt issuance. Keywords: Real options; Irreversibility; Liquidation; Financial friction (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:146:y:2023:i:c:s0378426622002898 DOI: 10.1016/j.jbankfin.2022.106709 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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