Firm Heterogeneity and Adverse Selection in External Finance: Micro Evidence and Macro Implications

Xing Guo, Pablo Ottonello, Thomas Winberry and Toni Whited

No 34019, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the macroeconomic consequences of asymmetric information between firms and external investors. To do so, we develop a heterogeneous firm macro model in which firms have private information about their quality. Private information creates a lemons problem in the market for external finance, depressing investment relative to the full information benchmark. We measure the distribution of private information, and therefore the magnitude of this lemons problem, using high-frequency stock price changes when firms raise new funding (revealing their quality to the market). We find that changes in distribution of private information are a quantitatively important determinant of aggregate fluctuations. For example, a spike in private information accounts for 40% of the decline in aggregate investment during the 2007-2009 financial crisis and made monetary stimulus significantly less effective at that time.

JEL-codes: E22 E32 E52 G30 (search for similar items in EconPapers)
Date: 2025-07
Note: AP CF EFG ME PR
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w34019.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
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:nbr:nberwo:34019

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w34019
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().