According to Graham and Harvey (2001), an immense gap exists between capital structure theories and practice. By analyzing students' perception of capital structure theories and the differences between their opinion and that of the current CEO's and managers this paper argues that this can be...

According to Graham and Harvey (2001), an immense gap exists between capital structure theories and practice. By analyzing students' perception of capital structure theories and the differences between their opinion and that of the current CEO's and managers this paper argues that this can be...

This paper shows that asymmetric information about the timing of earnings can affect corporate capital structure. It sheds new light on the following issues: why profitable firms may be interested in issuing equity and why debt does not necessarily signal a firm's quality. These issues seem to...

In this article we argue that asymmetric information can explain why seignorage is an inferior choice to debt for governments. We also argue that the Ricardian equivalence for governments is very similar to what the Modigliani-Miller proposition is for corporations. Our model is based on Bolton...

This paper surveys 4 major capital structure theories: trade-off, pecking order, signaling and market timing. For each theory, a basic model and its major implications are presented. These implications are compared to the available evidence. This is followed by an overview of pros and cons for...

Traditional pecking-order theory (POT) cannot explain why good-quality firms issue equity: this is often considered to be an empirical puzzle. We build a model of capital structure that has elements of both asymmetric information and behavioral finance. Firms have private information about their...

We consider an optimal contract between an entrepreneur and an investor, where the entrepreneur is subject to a double moral hazard problem (one being the choice of production effort and the other being earnings manipulation). Since the entrepreneur cannot entirely capture the results of his...

This paper analyzes debt-equity choice for financing a two-stage investment when a firm’s insiders have private information about the firm’s expected earnings. When private information is one-dimensional (for example when short-term earnings are common knowledge while long-term earnings are...