Abstract
This paper studies the dynamic investment policies of firms under asymtnetric information. Managers make decisions to maximize the wealth of e.yisiini^ shareholders. In equilibrium, the superior firms invest myopically. choosing intrinsically lower-valued projects that produce early cash fiows. The inferior firms follow the socially preferred rule of investing in intrinsically higher-valued projects that produce late cash flows. In addition to explaining investment myopia, the model generates numerous predictions regarding announcement effects of equity issues and attempts by firms to stockpile cash, firms' preferences for limits on mandatory di.sclosure rules, and the etfects of managerial entrenchment motives.
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