How do information asymmetries affect financing decisions?

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How do information asymmetries affect financing decisions?

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How do information asymmetries affect financing decisions?

Explanation & AnswerSolution by a verified expert

Explanation

Asymmetric information is when better information is available with managers than investors.
If it is known that the investors are expecting higher earnings in the future then the company will issue short-term debt rather than long-term debt.
The company will issue long-term debt if the company has poor prospects.

Verified Answer

Information available with the management will affect the choice of maturity structure of debt as per the expectation of the investors.

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