NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Stock Issues and Investment Policy When Firms Have Information That Investors Do Not Have

Stewart C. Myers, Nicholas S. Majluf

NBER Working Paper No. 884
Issued in April 1982
NBER Program(s):   PE

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.

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Document Object Identifier (DOI): 10.3386/w0884

Published: Myers, Stewart C. and Nicholas S. Majluf. "Corporate Financing And Investment Decisions When Firms Have Information That Investors Do Not Have," Journal of Financial Economics, 1984, v13(2), 187-221.

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