College of Business and Management, University of Maryland at College Park. Previous versions of this paper were presented at seminars at the University of Maryland, Ohio State University, and the University of Virginia. Badih Soubra and Richard Kolodny offered especially helpful comments. All errors are mine only.
The Issue Decision of Manager-Owners under Information Asymmetry
Article first published online: 30 APR 2012
1987 The American Finance Association
The Journal of Finance
Volume 42, Issue 5, pages 1245–1260, December 1987
How to Cite
BRADFORD, W. D. (1987), The Issue Decision of Manager-Owners under Information Asymmetry. The Journal of Finance, 42: 1245–1260. doi: 10.1111/j.1540-6261.1987.tb04364.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
A firm must issue common stock in order to undertake a new investment, and the firm's manager-owners can value the firm more accurately than the market. The ability of the manager-owners to trade in the firm's shares during the issue (a) reduces the investments that are foregone because of the market's mispricing the firm's shares, (b) changes the size and direction of the stock price change when the firm announces a new stock issue, and (c) changes the market value of the firm before and after the issue announcement, whether or not it decides to issue.