One implication of information asymmetry between investors and firm managers is that if a firm raises new capital by issuing debt rather than by selling stock,it signals that the firm has very good prospects.

Question

Quizplus · Accepted Answer

Issuing debt rather than equity can signal to investors that managers are confident in the firm's future cash flows, as they are willing to commit to fixed interest payments, suggesting good prospects.

One Implication of Information Asymmetry Between Investors and Firm Managers