Investment Timing and Quantity Strategies under Asymmetric Information

Abstract

We extend the asymmetric information problem by incorporating not only the investment timing decision but also the investment quantity strategy. We show that investment timing is more delayed under asymmetric information than under full information, implying a decrease in the value of equity. However, in order to minimize this inefficiency, investment quantity is larger under asymmetric information than under full information. Thus, there are trade-offs between the efficiencies of investment timing and investment quantity under asymmetric information.