Financing New Investments under Asymmetric Information: a General Approach

Robin Boadway and Michael Keen

Cahiers de recherche from CIRPEE

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-instrument 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. Policy implications are considered, and 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
New Economics Papers: this item is included in nep-acc, nep-cfn, nep-com and nep-ent
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.cirpee.org/fileadmin/documents/Cahiers_2004/CIRPEE04-07.pdf (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: https://EconPapers.repec.org/RePEc:lvl:lacicr:0407

Access Statistics for this paper

More papers in Cahiers de recherche from CIRPEE Contact information at EDIRC.
Bibliographic data for series maintained by Manuel Paradis (manuel.paradis.1@ulaval.ca).