Capital Structure Choice, Information Asymmetry, and Debt Capacity: Evidence from India

Komera, Surenderrao; Lukose, Jijo

doi:10.2139/ssrn.2208485

Cited by 8 publications

(20 citation statements)

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“…On the other hand, Singh and Kumar (2012) support the arguments of trade-off theory in explaining the financing pattern of Indian firms. Interestingly, Komera and Lukose (2015) find that pecking order theory fares poorly among Indian firms that face higher asymmetric information costs. The study carried out by Chauhan (2016) using a large sample of 4,300 Indian firms argues that the financing pattern outlined by pecking order theory is observed among the Indian firms, but the core argument of information asymmetry is missing.…”

Section: Capital Structure Of Indian Firmsmentioning

confidence: 98%

Information Asymmetry and Debt–Equity Choice: Evidence from an Emerging Market, India

Sony

Bhaduri

2018

Review of Market Integration

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We examine the role of information asymmetry in the debt-equity choice decisions of firms from an important emerging market, India. Information problems are more severe in the emerging markets and we find strong evidence in favour of information asymmetry playing a key role in the capital structure decisions of Indian firms. Consistent with the pecking order model, we find that equity issues are lesser in number and firms facing fewer information problems issue equity. We use novel variables such as analyst coverage, analyst forecast surprise and dispersion to capture information asymmetry in the Indian market.

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Section: Capital Structure Of Indian Firmsmentioning

confidence: 98%

Information Asymmetry and Debt–Equity Choice: Evidence from an Emerging Market, India

Sony

Bhaduri

2018

Review of Market Integration

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“…They reveal that firms heavily rely on equity financing to fill up deficiency needs. Komera and Lukose [22] argue that the POT fails to explain Indian firms' financing choices. Their estimated annual pecking order coefficients show no support for the financing choices described by the POT.…”

Section: The Empirical Findings Of the Pot: Conventional Versus Islammentioning

confidence: 99%

Testing the pecking order theory of capital structure: the case of Islamic financing modes

Guizani

2020

Futur Bus J

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The purpose of this paper is to examine whether or not the basic premises according to the pecking order theory provide an explanation for the capital structure mix of firms operating under Islamic principles. Pooled OLS and random effect regressions were performed to test the pecking order theory applying data from a sample of 66 Islamic firms listed on Kingdom of Saudi Arabia stock market over the period 2006–2016. The results show that sale-based instruments (Murabahah, Ijara) track the financial deficit quite closely followed by equity financing and as the last alternative to finance deficit, Islamic firms issue Sukuk. In the crisis period, these firms seem more reliant on equity, then on sale-based instrument and on Sukuk as last option. The study findings also indicate that the cumulative financing deficit does not wipe out the effects of conventional variables, although it is empirically significant. This provides no support for the pecking order theory attempted by Saudi Islamic firms. This research highlights the capital structure choice of firms operating under Islamic principles. It explores the implication of the relevant Islamic principles on corporate financing preferences. It can serve firm executive managers in their financing decisions to add value to the companies.

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“…However, the claims made by Myers and Majluf (1984) are challenged by another set of studies (Chirinko and Singha, 2000; Fama and French, 2005; Leary and Roberts, 2010). Similar to the developed economies, the evidence of pecking order pattern remains inconclusive in emerging markets as well, specifically in India (Bhaduri, 2000; 2015; Delcoure, 2007; Seifert and Gonenc, 2010; Komera and Lukose, 2015).…”

Section: Introductionmentioning

confidence: 99%

Information asymmetry and equity issue decision of low-leverage firms

Sony¹,

Bhaduri²

2018

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Purpose The purpose of this paper is to investigate the role of information asymmetry in the equity issue decision of two categories of Indian firms with distinct levels of information asymmetry – levered firms and unlevered firms. Design/methodology/approach This paper proposes a novel empirical approach to compare these two categories of firms. Levered firms exposed to the debt markets are under the scrutiny of lenders, reducing their information asymmetry problems. On the other hand, unlevered firms, which are smaller firms with fewer tangible assets and no credit history suffers more information problems. The authors use a propensity score matching method to identify firms that share similar firm-specific characteristics in these groups and compare equity issues to analyze the impact of information asymmetry. Findings The results show that information asymmetry plays a key role in the equity issue decision of Indian firms. Additionally, the authors find that the trends and characteristics of low-leverage (LL) firms in India are comparable to the LL from developed economies, which is consistent with the findings that they face more information problems. Originality/value Unlike the conventional approach of using proxy variables to capture information asymmetry, this study uses a novel framework where the authors compare the equity issue decision of similar firms in two categories with different degrees of information asymmetry.

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Capital Structure Choice, Information Asymmetry, and Debt Capacity: Evidence from India

Cited by 8 publications

References 0 publications

Information Asymmetry and Debt–Equity Choice: Evidence from an Emerging Market, India

Information Asymmetry and Debt–Equity Choice: Evidence from an Emerging Market, India

Testing the pecking order theory of capital structure: the case of Islamic financing modes

Information asymmetry and equity issue decision of low-leverage firms

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