abstract Junda Li Essay

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Junda li student number is 20603532

Narayanan, M. P. (1988) ‘Debt versus Equity under Asymmetric Information’ Journal of financial and quantitative analysis

In this paper is talking about the debt versus equity under asymmetric information, it is declared that the stranger are less messaged regarding the quality of the companies compare with the insider in a world of asymmetric information, and the asymmetric information theory mentioned that debt, even if the debt is not safe, but it is still more advantageous than external equity because the inferior firms would not interesting about the debt a lot. With the advantage to debt level increases, there is a fact that it can keep some companies which are not profitable withdrawal from the market; hence furthering the companies’ average quality in the market. The advantage of use debt is even if the companies could not be totally distinguished in the signaling equilibrium.

In this paper it is also shown that when the market underpriced the securities of any given company, the company would prefer debt, if people limit themselves to safe debt, this is very important. Based on the definition, safe debt could not be given wrong price, so some companies are being undervalued, they will choose debt rather than equity.

Harris, M. and A, Raviv. (1991) ‘The Theory of Capital Structure’ the Journal of finance

In this paper is talking about the capital structure conception based on asymmetric, agency costs, product/input interactions of market, more over the firm control consideration. Each of them is given a typical example, and also it has given a short…