Reference no: EM132005805

According to the Pecking Order Theory of Stewart Myers, what is the pecking order that managers should follow in raising capital for investment? What exactly is th e “cost” that Myers argues that managers should consider in raising capital, and why this is the relevant concern? Roughly, describe the magnitudes of these costs associated with the issue of various types of secur ities in the pecking order. Describe the Lemon Problem, advanced by George Akerloff, when there is informational asymmetry between two parties. When there are informational inefficiencies in markets, Myers argues that corporate actions send important signals to market participants. Describe the signals that stock issues and bond issues might send to markets about the firms’ prospects and explain why. Correspondingly, how do markets react to announcements of these two types of security issues?