Information ratings and capital structure

Lee Hsien Pan, Chien-Ting Lin, Shih-Cheng Lee and Kung-Cheng Ho

Journal of Corporate Finance, 2015, vol. 31, issue C, 17-32

Abstract: We examine the impact of information asymmetry on a firm's capital structure decisions with a unique information rating scheme that draws from 114 measures over five dimensions of information disclosures on each firm from 2006 to 2012. We find that a firm with high (low) information rating is related to low (high) debt financing and leverage. In particular, a firm that moves from the lowest to the highest information rating experiences a 7.8% reduction in firm leverage on average. This relationship is robust to firm characteristics, incentive conflicts, and the agreement theory of Dittmar and Thakor (2007). Our results suggest that information asymmetry is influential on a firm's pecking order behavior independent of these effects.

Keywords: Information asymmetry; Capital structure; Information ratings; Pecking order theory; Incentive conflicts (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0929119915000127
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:31:y:2015:i:c:p:17-32

DOI: 10.1016/j.jcorpfin.2015.01.011

Access Statistics for this article

Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter

More articles in Journal of Corporate Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().