The presence of asymmetric information affects capital structure because it can affect managers' financing decisions.

Question

Quizplus · Accepted Answer

When there is asymmetric information, managers may have more information about the firm's prospects than outside investors. This can lead to adverse selection and moral hazard problems that affect the firm's ability to raise capital, which can influence their financing decisions and ultimately impact the capital structure.

The Presence of Asymmetric Information Affects Capital Structure Because It