This essay details a model of capital structure and financial equilibrium, developed in order to provide more theoretical information about informational asymmetries, financial structure, and financial intermediation. Although direct information transfer about the abilities of the entrepreneur...

We study the classical problem of raising capital under asymmetric information. Following Myers and Majluf (1984), we consider firms endowed with assets in place and riskier growth opportunities. When asymmetric information is concentrated on assets in place (rather than growth opportunities),...