Corporate Policies in a World with Information Asymmetry by Agrawal Vipin K. Rao Ramesh K. S

Author:Agrawal, Vipin K.,Rao, Ramesh K. S.
Language: eng
Format: epub
Publisher: World Scientific Publishing Company

Table 2. IA implications when S contains just debt and equity.

Note: In this table: (i) credit risk IA is the difference between the credit risks of h and l, (ii) credit risk spread is the magnitude of credit risk IA, (iii) value IA is the difference in the firm value of h and l, (iv) is the pooled contract that maximizes h’s financing-NPV, and (v) hazard rate IA is the difference in hazard rates for the two firm-types.

aThese financing policy results also hold for firms if credit risk IA is negative for some and non-negative for some other face values and financing needs are high.

bAs noted earlier,

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