Stock Issues and Investment Policy When Firms Have Information That Investors Do not Have: A Note

Eduardo F. Lemgruber

University of California at Los Angeles, Anderson Graduate School of Management from Anderson Graduate School of Management, UCLA

Abstract: In their article Stock Issues and Investment Policy When Firms Have Information That Investors Do not Have, Myers and Majluf(1981) show that there exist situations where positive net present value projects may be passed up if they have to be financed externally. It is shown here that if projects are marketable and if the managers can pass along their information to a buying firm, then the present value rule will not break down, and further more, the buying firm need not carry slack.

Date: 1983-11-01
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