European Financial Management · 2021 · 17 citations · 22 references
Social SciencesEconomicsFinanceCorporate FinanceEntrepreneurial FinanceFinancial EconomicsAdverse SelectionAsymmetric InformationInformation AsymmetryInformation EconomicsInvestmentReal Options AnalysisFirm Financing ConstraintsInformation Asymmetry EffectsInvestment Timing AnalysisInvestment Timing DecisionsOptimal Timing Of InvestmentReal Options Under Financial ConstraintsSme FinanceValuation Under Information Asymmetry
Abstract We investigate the investment timing and financing decisions of financially constrained small and medium‐sized enterprises (SMEs) in a real‐option setting with asymmetric information. ‘Bad’ firms can sell over‐priced securities by mimicking in a pooling equilibrium. However, ‘good’ firms can separate from bad firms by imposing an adverse selection cost for mimicry only when the benefit of being recognized as the ‘good’ type outweighs the investment distortion costs. Further, asymmetric information induces good firms to accelerate investment, leading to investment distortion and higher guarantee costs. Equity‐for‐guarantee swap not only mitigates SMEs' financing constraints but also reduces the investment and finance distortions.
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Clifford W. Smith · Journal of Financial Economics · 1976 · 476 citations
Investment timing, agency, and information
Steven R. Grenadier, Neng Wang · Journal of Financial Economics · 2004 · 225 citations · Full text