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Unformatted text preview: rted 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. 81–92.
13. Stewart C. Myers, “The Capital Structure Puzzle,” Journal of Finance (July 1984), pp. 575–592. CHAPTER 11 signal
A financing action by management that is believed to reflect its
view of the firm’s stock value;
generally, debt financing is
viewed as a positive signal that
management believes the stock
is “undervalued,” and a stock
issue is viewed as a negative
signal that management believes
the stock is “overvalued.” Leverage and Capital Structure 441 viewed as a signal that reflects management’s view of the firm’s stock value. Debt
financing is a positive signal suggesting that management believes that the stock
is “undervalued” and therefore a bargain. When the firm’s positive future outlook becomes known to the market, the increased value will be fully captured by
existing owners, rather than having to be shared with new stockholders.
If, however, the outlook for the fir...
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This document was uploaded on 03/30/2014.
- Spring '14