Respondents from 31 percent of fortune 500 firms and

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Unformatted text preview: rst glance, on the basis of financial theory, this choice appears to be inconsistent with wealth maximization goals, but Stewart Myers has explained how “asymmetric information” could account for the pecking order financing preferences of financial managers.19 Asymmetric information results when managers of a firm have more information about operations and future prospects than do investors. Assuming that managers make decisions with the goal of maximizing the wealth of existing stockholders, then asymmetric information can affect the capital structure decisions that managers make. 18. The results of the survey of Fortune 500 firms are reported in J. Michael Pinegar and Lisa Wilbricht, “What Managers Think of Capital Structure Theory: A Survey,” Financial Management (Winter 1989), pp. 82–91, and the results of a similar survey of the 500 largest OTC firms are reported in Linda C. Hittle, Kamal Haddad, and Lawrence J. Gitman, “Over-the-Counter Firms, Asymmetric Information, and Financing Preferences,” Review of Financial Economics (Fall 1992), pp....
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This document was uploaded on 01/19/2014.

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