Equity Issues with Time-Varying Asymmetric Information

This paper develops a formal model of the effect of time-varying asymmetric information on the timing and pricing of equity issues when managers are better informed than outside investors. We assume that as time passes, the adverse selection problem becomes more severe as more managers receive a pri...

Full description

Saved in:
Bibliographic Details
Published in:Journal of financial and quantitative analysis 1992-09, Vol.27 (3), p.397-417
Main Authors: Korajczyk, Robert A., Lucas, Deborah J., McDonald, Robert L.
Format: Article
Language:English
Subjects:
Adverse selection
Empirical evidence
Equity
Information
Information asymmetry
Information economics
Investors
Market prices
Mathematical models
Modeling
Quantitative analysis
Securities issues
Securities markets
Stock prices
Studies
Citations: Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:This paper develops a formal model of the effect of time-varying asymmetric information on the timing and pricing of equity issues when managers are better informed than outside investors. We assume that as time passes, the adverse selection problem becomes more severe as more managers receive a private signal. Under this assumption, the model predicts temporal variation in the quantity of issues, with a bunching of issues after information releases. It also predicts that the price drop at issue announcement increases with the time since the last information release. These predictions are consistent with several recent empirical studies relating equity issues to earnings and dividend announcements.
ISSN:0022-1090
1756-6916
DOI:10.2307/2331327