Optimal Issuance under Information Asymmetry and Accumulation of Cash Flows

Loading...
Thumbnail Image
Penn collection
Finance Papers
Degree type
Discipline
Subject
dynamic information asymmetry
financing
cash flow accumulation
issuance delay
optimal security
Finance and Financial Management
Funder
Grant number
License
Copyright date
Distributor
Related resources
Author
Strebulaev, Ilya A
Zhu, Haoxiang
Zryumov, Pavel
Contributor
Abstract

We study the optimal timing of security issuance to finance a new project when the firm's assets in place have unobservable quality. Stochastic cash flows generated by assets in place reveal information about their quality and simultaneously reduce the required outside funding. A high-quality firm optimally delays issuance unless its accumulated cash or the market belief about its quality is sufficiently high. A low-quality firm does the same and, additionally, issues if market belief and accumulated cash are sufficiently low. Under stated restrictions, the renegotiation-proof optimal security pays outside investors in full before paying anything to original shareholders.

Advisor
Date Range for Data Collection (Start Date)
Date Range for Data Collection (End Date)
Digital Object Identifier
Series name and number
Publication date
2016-07-18
Volume number
Issue number
Publisher
Publisher DOI
Journal Issue
Comments
Recommended citation
Collection