Difference between revisions of "Asymmetric information theory"
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| − | [[Asymmetric information theory]] is a theory that assumes that managers have more complete information than investors and leads to a preferred ''pecking order'' of financing: (1) retained earnings, followed by (2) debt, and then (3) new common stock. Also known as signaling theory. | + | [[Asymmetric information theory]] is a theory that assumes that managers have more complete information than investors and leads to a preferred ''pecking order'' of financing: (1) [[retained earnings]], followed by (2) debt, and then (3) new common stock. Also known as signaling theory. |
==Definitions== | ==Definitions== | ||
According to [[Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition)]], | According to [[Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition)]], | ||
| − | :[[Asymmetric information theory]]. Assumes managers have more complete information than investors and leads to a preferred “pecking order” of financing: (1) retained earnings, followed by (2) debt, and then (3) new common stock. Also known as signaling theory. | + | :[[Asymmetric information theory]]. Assumes managers have more complete information than investors and leads to a preferred “pecking order” of financing: (1) [[retained earnings]], followed by (2) debt, and then (3) new common stock. Also known as signaling theory. |
==Related concepts== | ==Related concepts== | ||
Latest revision as of 03:48, 9 November 2019
Asymmetric information theory is a theory that assumes that managers have more complete information than investors and leads to a preferred pecking order of financing: (1) retained earnings, followed by (2) debt, and then (3) new common stock. Also known as signaling theory.
Definitions
According to Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition),
- Asymmetric information theory. Assumes managers have more complete information than investors and leads to a preferred “pecking order” of financing: (1) retained earnings, followed by (2) debt, and then (3) new common stock. Also known as signaling theory.
Related concepts
- Financial management. A combination of enterprise efforts undertaken in order to procure and utilize monetary resources of the enterprise.
