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Information asymmetry and financing choice between debt, equity and dual issues by Indian firms

Bipin Sony and Saumitra Bhaduri

International Review of Economics & Finance, 2021, vol. 72, issue C, 90-101

Abstract: This paper examines the role of information asymmetry in determining the capital structure choices of firms in an emerging market -India. Unlike the conventional capital structure studies examining the debt-equity framework, we introduce dual issues i.e. the simultaneous issue of debt and equity, into the analytical framework. Further, we also incorporate novel variables related to analyst coverage information as proxies for information asymmetry which are rarely used in the Indian capital structure studies. The findings suggest that asymmetric information is a key determinant of the security issue decisions. Specifically, equity issues are limited and are only conducted by firms facing lesser information asymmetry, which in turn supports the arguments of information-based models.

Keywords: Information asymmetry; Capital structure; Pecking order; Dual issues; Emerging economy (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.iref.2020.11.001

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