Associate Professor, Graduate School of Business Administration, Harvard University. The author wishes to thank Paul Asquith and a referee for numerous suggestions that improved the exposition.
Stock Price Movements in Response to Stock Issues under Asymmetric Information
Article first published online: 30 APR 2012
1986 The American Finance Association
The Journal of Finance
Volume 41, Issue 1, pages 93–105, March 1986
How to Cite
KRASKER, W. S. (1986), Stock Price Movements in Response to Stock Issues under Asymmetric Information. The Journal of Finance, 41: 93–105. doi: 10.1111/j.1540-6261.1986.tb04493.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
This paper characterizes the function relating the number of new shares issued by a firm to the resulting change in the firm's stock price, when insiders are asymmetrically informed. We show that, in equilibrium, the stock price will be a decreasing function of the issue size; moreover, the rate of decrease can be so rapid to cause “equity rationing.” We also show that there will be underinvestment relative to the symmetric information case.