THE NATURE OF INFORMATION CONVEYED BY PURE CAPITAL STRUCTURE CHANGES

This study investigates the information conveyed by intrafirm exchange offers. I find that leverage increases and leverage decreases convey qualitatively different information. Leverage-increasing offers appear to lower investors' assessment of risk of the firm's common stock, bu t do not appear to change their expectations of cash flows; leverage-d ecreasing offers appear to lower investors' expected cash flows, but d o not appear to change their assessment of risk. The nature of changes in leverage, capital outlays, and dividends is also asymmetric. Furth er, I find that, for leverage-increasing offers, corporate control act ivity does not explain the information content or its asymmetry.