1. Frank and Goyal (2003) assert that (i) the pecking order theory of Myers and Majluf...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
1. Frank and Goyal (2003) assert that (i) the pecking order theory of Myers and Majluf (1984) is founded on asymmetric information and (ii) the asymmetry of information between insiders and outsiders is greater for small firms. They document that the pecking order theory, in fact, fits the actual financing behaviour of large firms better than the financing behaviour of smaller firms. They argue, based on (i) and (ii), that this better fit for large firms is evidence against pecking order theory. What do you think about this argument? Are there any properties of the pecking order theory that might lead one to believe that the pecking order theory fits large firms better than small firms? 1. Frank and Goyal (2003) assert that (i) the pecking order theory of Myers and Majluf (1984) is founded on asymmetric information and (ii) the asymmetry of information between insiders and outsiders is greater for small firms. They document that the pecking order theory, in fact, fits the actual financing behaviour of large firms better than the financing behaviour of smaller firms. They argue, based on (i) and (ii), that this better fit for large firms is evidence against pecking order theory. What do you think about this argument? Are there any properties of the pecking order theory that might lead one to believe that the pecking order theory fits large firms better than small firms?
Expert Answer:
Answer rating: 100% (QA)
The argument presented by Frank and Goyal suggests that the pecking order theory which explains financing behavior based on asymmetric information fits the financing behavior of large firms better tha... View the full answer
Related Book For
Smith and Roberson Business Law
ISBN: 978-0538473637
15th Edition
Authors: Richard A. Mann, Barry S. Roberts
Posted Date:
Students also viewed these finance questions
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
In January, the board of directors of the Montgomery Corporation, one of Canada's largest retail store chains, was having its regularly scheduled meeting to establish and declare the next quarterly...
-
The Crazy Eddie fraud may appear smaller and gentler than the massive billion-dollar frauds exposed in recent times, such as Bernie Madoffs Ponzi scheme, frauds in the subprime mortgage market, the...
-
If OPEC raised the price of oil high enough, would that be sufficient to promote an efficient energy mix?
-
A concrete foundation mat in the shape of a regular hexagon with 3-m sides supports four column loads as shown. Determine the magnitude and the point of application of the resultant of the four...
-
The accounting equation requires that if assets have a balance of \($1\) million and equity has a balance of \($600,000\), then liabilities must equal a. $600,000 b. $1,600,000 c. $0 d. $400,000
-
Beryllium is an extremely lightweight metal that is used in many industries, such as aerospace and electronics. Long-term exposure to beryllium can cause people to become sensitized. Once an...
-
Define the supply chains for the following products from the first source of raw materials to the final customer: a. Big Mac b. Gasoline c. Automobile repair d. A textbook
-
Wood typically has a composition of 52% C, 6.5% H, and 41.5% O by mass . (a) Determine the mass of air required for stoichiometric combustion of 1 kg of dry wood. 2 (b) The products of combustion...
-
Match the marketing data to the marketing mix component (product, price, place, or promotion) that it would be most helpful for analyzing. Marketing Data Competitor price Order fulfillment time...
-
Oregon Inc. reported a net income of $105,000. during the current year the company had $5,000 shares of 100 par, 5% stock, and $10,000 0f $5 par common stock outstanding Oregon's earning per share is:
-
Question: The following activities occur at Greenwich Corporation, a company that contracts out a temporary workforce to retailers to meet seasonal demand:Required:Classify each of the activities...
-
This paragraph provides the context for the following question: "According to one estimate, between 1870 and 1910 emigration lowered the Swedish labour force by 20 per cent, and increased real wages...
-
Assume the discount rate is 10%. An FI originates a pool of real estate loans worth $2 million with maturities of 5 years and paying interest rates of 10% APR per year. Calculate the yearly payments...
-
The predicted cash flow for next year by Goodrade Enterprises will be $2.14 Million. The cash flows are anticipated to maintain a growth rate of 7.25% forever. If the required return is 10%, what is...
-
The currently selling at Rs 100 it is known that the share price will either turned to Rs 108 or Rs 90 Rf=12% P.A. if you intend to buy 3 month call option with an exercise price of Rs 97 .how much...
-
Why can an IT governance archetype be good for one type IS decision but not for another? When does cloud computing make sense for a large corporation that already has an IS organization? Give an...
-
Identify the Critical Infrastructure Physical Protection System Plan.
-
On this * * * appeal, Pacific Custom Pools, Inc., challenges the trial courts granting of summary judgment based on the failure of Pacific Custom Pools to substantially comply with the contractors...
-
Tovar applied for the position of resident physician in Paxton Community Memorial Hospital. The hospital examined his background and licensing and assured him that he was qualified for the position....
-
When Mr. McClam died, he left the family farm, heavily mortgaged, to his wife and children. To save the farm from foreclosure, Mrs. McClam planned to use insurance proceeds and her savings to pay off...
-
Applying the criterion for equilibrium, derive the Clausius-Clapeyron equation.
-
A binary liquid mixture consists of \(60 \mathrm{~mol}\) per cent ethylene and \(40 \mathrm{~mol}\) per cent propylene. At \(423 \mathrm{~K}\), the vapour pressure of ethylene and propylene are...
-
The pure component vapour pressure of two organic liquids \(\mathrm{X}\) and \(\mathrm{Y}\) by Antoine equations are given by \[ \ln P_{1}^{\text {Sat }}=14.35-\frac{2942}{T+220} \] and \[...
Study smarter with the SolutionInn App