Abstract
AbstractWe investigate the investment timing and financing decisions of financially constrained small and medium‐sized enterprises (SMEs) in a real‐option setting with asymmetric information. ‘Bad’ firms can sell over‐priced securities by mimicking in a pooling equilibrium. However, ‘good’ firms can separate from bad firms by imposing an adverse selection cost for mimicry only when the benefit of being recognized as the ‘good’ type outweighs the investment distortion costs. Further, asymmetric information induces good firms to accelerate investment, leading to investment distortion and higher guarantee costs. Equity‐for‐guarantee swap not only mitigates SMEs' financing constraints but also reduces the investment and finance distortions.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
