Project Financing Versus Corporate Financing Under Asymmetric Information

27 Pages Posted: 1 Mar 2007

Multiple version iconThere are 2 versions of this paper

Date Written: January 2007

Abstract

Existing literature studies the effect of asymmetric information on many aspects of debt financing including debt maturity and seniority, collateral, liquidation rights, convertible debt, income bonds and sinking funds. Less is known about the effect of asymmetric information on firms' incentives to issue non-recourse debt (project financing). This paper is intended to shed new light on this issue. We analyze the choice between project financing and corporate financing when a firm's insiders have private information about the qualities of the firm's investment projects. Different informational structures and the resulting equilibria are considered. Empirical implications including new testable predictions are discussed.

Keywords: asymmetric information, non-recourse debt, project financing, optimal financing

JEL Classification: C72, D82, G29, G32, O220

Suggested Citation

Miglo, Anton, Project Financing Versus Corporate Financing Under Asymmetric Information (January 2007). Available at SSRN: https://ssrn.com/abstract=966680 or http://dx.doi.org/10.2139/ssrn.966680

Anton Miglo (Contact Author)

University of East Anglia ( email )

Norwich Research Park
Norwich, Norfolk NR4 7TJ
United Kingdom

HOME PAGE: http://https://research-portal.uea.ac.uk/en/persons/anton-miglo

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