Growth Opportunities - Proxy - Information Asymmetry.
Hi all,
Smith and Watts (1992) argue that the degree of information asymmetry is larger for firms with significant growth opportunities, since managers of high growth firms have privileged knowledge about the firm’s investment opportunities and insights in the expected future cash flows from their firm’s existing assets. Resulting from this reasoning, a firm’s set of investment opportunities is used as a proxy for information asymmetry.
The authors used Tobin's Q to measure investment opportunities.
Any other measure which might be suitable? P/E, EV/EBITDA??
Thanks
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