Corporate Investment and Financing UnderAsymmetric Information

We develop a dynamic model of corporate investment and financing decisions in whichcorporate insiders have superior information about the firm's growth prospects. We show thatrms with positive private information can credibly signal their type to outside investors usingthe timing of corporate actions and their debt-equity mix. Using this result, we show thatasymmetric information induces firms with good prospects to speed up investment, leading toa significant erosion of the option value of waiting to invest. Additionally, we demonstrate thatinformational asymmetries may not translate into a financing hierarchy or pecking order oversecurities.[...]