NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Publications by Nicholas S. Majluf

Contact and additional information for this authorAll papers and publicationsWorking Papers onlyWorking Papers with publication info

Working Papers and Chapters

July 1984Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have
with Stewart C. Myers: w1396
This paper considers a firm that must issue common stock to raise cash to undertake a valuable investment opportunity. Management is assumed to know more about the firm's value than potential investors. Investors interpret the firm's actions rationally. An equilibrium model of the issue-invest decision is developed under these assumptions.The model shows that firms may refuse to issue stock, and therefore may pass up valuable investment opportunities.The model suggests explanations for several aspects of corporate financing behavior, including the tendency to rely on internal sources of funds, and to prefer debt to equity if external financing is required. Extensions and applications of the model are discussed.
April 1982Stock Issues and Investment Policy When Firms Have Information That Investors Do Not Have
with Stewart C. Myers: w0884
This paper describes corporate investment and financing decisions when managers have inside information about the value of the firm's existing investment and growth opportunities, but cannot convey that information to investors. Capital markets are otherwise perfect and efficient. In these circumstances, the firm may forego a valuable investment opportunity rather than issue stock to finance it. The decision to issue cannot fully convey the managers' special information. If stock is issued, stock price falls. Liquid assets or financial slack are valuable if they reduce the probability or extent of stock issues. The paper also suggests explanations for some aspects of dividend policy and choice of capital structure.

Contact and additional information for this authorAll papers and publicationsWorking Papers onlyWorking Papers with publication info

 
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