This paper argues that firms may not issue debt in order to avoid the adverse selection cost of debt. Theory suggests that since debt is a concave claim, it may be mispriced when outside investors are uninformed about firms' risk. The empirical literature has however paid little attention the...

The paper presents a simple model arguing that the pecking order theory is an extreme when there is only asymmetric information about value. We show how asymmetric information about both, value and risk, transforms the adverse selection logic underlying the pecking order into a general theory of...

The paper presents a simple model arguing that the pecking order theory is an extreme when there is only asymmetric information about value. We show how asymmetric information about both, value and risk, transforms the adverse selection logic underlying the pecking order into a general theory of...