Does Asymmetric Information Drive Capital Structure Decisions?

Bharath, Sreedhar T.; Pasquariello, Paolo; Wu, Guojun

doi:10.2139/ssrn.789725

Cited by 149 publications

(207 citation statements)

References 108 publications

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“…This outcome is reinforced by the finding of Cheung et al (2015) who further suggest that stock market liquidity is relevant for firm value through corporate governance. A number of papers focus on examining the relationship between stock market liquidity and the capital structure decision of firms (Morellec 2001;Lesmond et al 2008;Bharath et al 2009;Lipson & Mortal 2009;Sibilkov 2009). These papers argue that firm managers tend to be influenced by stock market signal in their corporate finance decisions.…”

Section: Literature Reviewmentioning

confidence: 99%

Stock Market Liquidity and Firm Investment: Evidence from Vietnam

Ha¹,

Vo²

2017

JIBE

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It is interesting to explore whether corporate managers follow stock market signals when making corporate financial decisions. However, the literature concerning the relationship between stock market liquidity and corporate investment is still limited. This paper investigates the impact of stock liquidity on firm investment in the Vietnamese context, where stock market has grown at a significant pace in the recent years but the finance literature seems to ignore this small emerging economy. This relationship is tested in a panel of firms listed on the Vietnam Stock Market over an extended time period. We aim to achieve more robust estimation results by employing the econometric technique of GMM estimator for panel data analysis. Moreover, we use a number of indicators to proxy for firm investment including both the aggregated indicators and disaggregated indicators. Consistent with previous findings, we find that corporate managers use market liquidity as an input for firm investment decision. However, our results are different from previous findings of papers employing advanced countries data in the outcome that stock market liquidity affects different investment growth indicators differently. More importantly, these findings are fully explainable by the context of emerging markets.

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Section: Literature Reviewmentioning

confidence: 99%

Stock Market Liquidity and Firm Investment: Evidence from Vietnam

Ha¹,

Vo²

2017

JIBE

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“…Previous studies found that increased information asymmetry are associated with reduced liquidity of a company's stocks (Agarwal & O'Hara, 2007;Bharath, Pasquariello & Wu, 2009), suggesting that share liquidity and information asymmetry can be negatively correlated.…”

Section: Control Variablesmentioning

confidence: 98%

Investor relations and information asymmetry

Rodrigues

Galdi

2017

Rev. contab. finanç.

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Companies invest significant volumes of resources in investor relations (IR) departments. The professionals working in the IR department are responsible for communication between the company and the market, so that the information generated is widely disseminated and understood by investors. In this context, this research aims to investigate whether there is evidence that the IR activity decreases information asymmetry between the company and the market. Specifically, we evaluate the hypothesis that Brazilian companies with IR websites classified as more informative have a reduced bid-ask spread (proxy for asymmetry). Therefore, this paper classifies the informative content from IR websites of Brazilian companies for the years 2013 and 2014 and relates the outcomes obtained with information asymmetry metrics. Initially, the estimation considers the pooled ordinary least squares (POLS) model and, at a second moment, in order to mitigate potential endogeneity problems, the pooled two-stage least squares (2SLS) model is used. The results indicate that more informative IR websites are able to decrease the bid-ask spread of Brazilian listed companies. This finding strongly encourages companies to provide information to stakeholders on well-structured IR websites of their own.

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“…From exploring the financing theories in the literature; tangibility, growth, firm size and profitability have influences on pecking order theory (Bharath et al, 2009;Frank and Goyal, 2003;Leary and Roberts, 2010). Frank and Goyal (2009) indicate that firms that have more tangible assets tend to have higher leverage.…”

Section: Capital Structurementioning

confidence: 99%

Information transparency and corporate financing decision: Testing the pecking order theory

Wang¹,

Meng²,

Huang³

et al. 2011

Afr. J. Bus. Manage.

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This research is mainly to study the impact of corporate information transparency on corporate financing decision. The "information disclosure and transparency ranking" survey results by the Securities and Futures Institute (SFI) were incorporated into the regression models to test the pecking order theory. The assumption was that information disclosure would lead to higher transparency, and in turn, higher market efficiency. While the financial deficit gets higher, the debt gets higher too, but does not follow the pecking order theory (management prefer debt financing to equity financing). On the other hand, when taking transparency into consideration, empirical results showed that with lower transparency and higher financial deficit, management is more inclined to follow the pecking order theory. It is apparent that information transparency is a vital indicator for corporations to follow the pecking order theory. Companies with lower transparency might raise debts extensively, and that would further impact on stockholders' equity inducing a more serious agency problem. Thus, government as well as the corporate world should both promote information transparency and reduce information asymmetry to protect stockholders from suffering adverse selection.

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Does Asymmetric Information Drive Capital Structure Decisions?

Cited by 149 publications

References 108 publications

Stock Market Liquidity and Firm Investment: Evidence from Vietnam

Stock Market Liquidity and Firm Investment: Evidence from Vietnam

Investor relations and information asymmetry

Information transparency and corporate financing decision: Testing the pecking order theory

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