Quiz Ch 13 – T/F Capital Structure Theories and Asymmetric Information

Fundamentals of Financial Management, Concise

Brigham and Houston

09th Edition

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True or false: Modigliani and Miller (MM) assumed uniform information between managers and outside stockholders, but this "symmetric information" concept is questionable. The introduction of "asymmetric information" led to the "signaling" theory of capital structure. It posits that firms avoid issuing new stock due to investors interpreting it as managers' concern. Various actions send different signals, shaping capital structure based on managers' perception of financing impact on investor views and firm value.

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