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

Question

Quizplus · Accepted Answer

Issuing debt instead of 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.

One Implication of Information Asymmetry Between Investors and Firm Managers