Abstract

Literature posits that investors are informed by the capital structure and other classical theories in making their portfolio choices, dependent on available information. The choice should be rational to conform to set models and rules in theories to achieve the best of reward from the investment. The issue of rationality has not been specifically addressed to help the assessment of information and the investment environment for decision making. The study reviews literature on the rationality of information in investment decisions corresponding to traditional and classical financial models. Attention is directed to the fact that investors react differently to available information and how interpreted. The reaction of investors to information being relevant or rational is adjunct to their expectation and self-interest. It is observed that rationality of information and its relevance should be the responsibility of management to ensure rational investment decision. With information asymmetry information is expensive and investors will trade of information for debt capital, which response establishes the capital structure. In emerging and underprivileged economies development of the bond market will help the less endowed to develop entrepreneurial capabilities.

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