The role of information has always been an active research area of corporate finance. In particular, asymmetric information between managers and outside investors has received a great deal of attention. Depending on the composition of project quality, it has been shown that this type of information friction leads to underinvestment when even promising projects cannot be financed, or overinvestment when borrowers that are not creditworthy receive funding. Since good borrowers are hurt by the suspicion that they may be bad, managers with profitable projects try to signal themselves in various ways such as pledging collateral, issuing short-term debt, underpricing in IPOs and SEOs, and so on. Managers also have the incentive to manage outside investors’ expectation about firms’ profitability by garbling noisy signals like earnings. This manipulation leads to income and payout smoothing. In addition, costly asymmetric information implies the pecking-order theory for capital structure, that is, sources of financing can be ranked by their information intensity – internal finance first, next debt, and last, equity issuance.