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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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