Corporate Policies in a World with Information Asymmetry

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9789814551304: Corporate Policies in a World with Information Asymmetry
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A corporate manager typically oversees several ongoing projects and has the opportunity to invest in new projects that add wealth to the stockholders. Such new projects include expanding the corporation's existing business, entering into a new line of business, acquiring another business, and so on. If the firm does not have sufficient internal capital (cash) to finance the initial investment, the manager must enter into a transaction with outside investors to raise additional funds.

In this situation, the manager of a public corporation faces two key decisions:

  • Should he transact with outside investors and raise the necessary capital to invest in the project? The answer to this question determines the firm's investment policy
  • .
  • If the manager decides to raise external capital how should the investment be financed — with debt, with equity, or with some other security? The answer determines the firm's financing policy
  • .
Modern corporate finance theory, originating with the seminal work of Merton Miller and Franco Modigliani, has demonstrated that these decisions depend on the information that the manager and investors have about the firm's future cash flows.

< In this book, the authors examine these decisions by assuming that the manager has private information about the firm's future cash flows. They provide a unified framework that yields new theoretical insights and explains many empirical anomalies documented in the literature.

< Readership: Master and doctoral level students in finance, academic researchers and financial managers.

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From the Inside Flap:

To raise the necessary capital to finance the initial investment for the firm, a manager must enter into a transaction with outside investors to raise the additional funds. In this situation, the manager of a public corporation faces three key capital acquisition decisions:

The investment decision: Should the manager transact with outside investors and raise the necessary capital to invest in the project?

The financing decision: If the manager decides to raise external capital, how should the investment be financed with debt, with equity, or with some other security?

The dividend decision: How much of the firm's available cash should the manager pay out in dividends?

Modern corporate finance theory, originating with the seminal work of Merton Miller and Franco Modigliani, has demonstrated that these decisions depend on the information that the manager and investors have about the firm's future cash flows.

In this book, the authors examine these decisions by assuming that the manager has private information about the firm's future cash flows and provides a unified framework that explains many empirical anomalies in the literature, one that provides guidance for better empirical tests.

About the Author:

Vipin K Agrawal, received his undergraduate degree in Electronics and Communications Engineering from Delhi College of Engineering in India. He then went to Texas A&M University for his MS (Finance) and the University of Texas at Austin for his PhD (Finance). Since receiving his PhD, he has been an Assistant Professor at California State University at Fullerton. In addition, he was Visiting Assistant Professor at the University of Texas at Austin for the academic year 2006–2007.

Dr Agrawal's primary research interests are in the areas of theoretical and empirical corporate finance. In particular, he is interested in studying how market imperfections such as informational asymmetry and agency conflicts affect capital structure, financing choices, and payout policy. In addition, he is also interested in issues related to market efficiency and the impact of outsourcing on firm performance. His research has been published in journals such as The Quarterly Review of Economics and Finance and Production and Operations Management, and has been presented at various conferences such as the Financial Management Association and National Decision Sciences Institute.

While at California State University at Fullerton and University of Texas at Austin, Dr Agrawal has taught courses in investment and corporate finance to undergraduate, MBA, and executive MBA students. In recognition of his exceptional teaching effectiveness, he received the Teacher Scholar award at California State University.

Ramesh K S Rao is the McDermott Centennial Professor of Banking and Finance in the McCombs School of Business at the University of Texas, Austin. Dr Rao received an MBA and DBA from Indiana University and a B Tech in metallurgical engineering from the Indian Institute of Technology, Madras, India.

Dr Rao's research interests are asset pricing, informational asymmetry, and the interface between finance and marketing and between finance and operations management. Dr Rao has published in the American Economic Review, the Journal of Financial Economics, Management Science, the Journal of Financial and Quantitative Analysis, Journal of Marketing, and Production and Operations Management, among others. He is the author of Financial Management: Concepts and Applications, 3rd ed., Fundamentals of Financial Management, and A Theory of the Firm's Cost of Capital (with E Stevens).

He has received the Outstanding Professor Award, the Joe Beasley Award, the Jack G Taylor Teaching Excellence Award, Outstanding Professor Award in the Executive MBA Program, and the Excellence in Education Award at The University of Texas. He served as Associate Dean for Graduate Programs and Director of the Texas MBA Program during 1997–1999. In 2010 he was a recipient of the Regents' Outstanding Teaching Award. In addition to conducting seminars for IBM, Arthur Young, Chase Banks, Texas Instruments, Motorola, Phillips Petroleum, and Halliburton, Dr Rao has participated in several executive development programs in the US and abroad.

Dr Rao has had industry experience in the areas of bankruptcy, corporate restructuring, corporate valuation, corporate litigation and executive education. His clients include the Federal Home Loan Banks, Intel Corporation, Burlington Northern, Deutche Bank, Duke Energy, and Fidelity Investments. He has served on the Boards of Directors of companies and has testified as an expert witness in the Federal Bankruptcy Courts. He was appointed the sole valuation expert in the spinoff-restructuring of First City Bancorporation. He recently was a valuation expert in the matter of American Express v Visa et al and Boon v CIGNA.

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Book Description World Scientific Publishing Co Pte Ltd, Singapore, 2015. Hardback. Condition: New. Language: English . Brand New Book. A corporate manager typically oversees several ongoing projects and has the opportunity to invest in new projects that add wealth to the stockholders. Such new projects include expanding the corporation s existing business, entering into a new line of business, acquiring another business, and so on. If the firm does not have sufficient internal capital (cash) to finance the initial investment, the manager must enter into a transaction with outside investors to raise additional funds.In this situation, the manager of a public corporation faces two key decisions:Modern corporate finance theory, originating with the seminal work of Merton Miller and Franco Modigliani, has demonstrated that these decisions depend on the information that the manager and investors have about the firm s future cash flows.In this book, the authors examine these decisions by assuming that the manager has private information about the firm s future cash flows. They provide a unified framework that yields new theoretical insights and explains many empirical anomalies documented in the literature. Seller Inventory # AAJ9789814551304

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