Dynamic Financial Decisions with Varying Degrees of Information Asymmetry and Profitability

Chen Hsun Lee, Yung-Hsiang Ying () and Koyin Chang ()
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Chen Hsun Lee: Department of Money and Banking, National Kaohsiung First University of Science and Technology, No.1, University Rd., Yanchao Dist., Kaohsiung City 824, Taiwan
Yung-Hsiang Ying: Undergraduate Program of Business Administration, National Taiwan Normal University, 162, He-ping East Road, Section 1, Taipei 106, Taiwan
Koyin Chang: Department of Healthcare Information and Management, Ming Chuan University, 250 Zhong Shan N. Rd., Sec. 5, Taipei 111, Taiwan

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2016, vol. 19, issue 01, 1-9

Abstract: Much research has been conducted on the accuracy of the pecking order theory and the trade-off theory. Neither theory on its own has seemed to hold sufficient explanatory power to accurately describe capital structures. Chou et al. [Sun Yat-Sen Management Review, 19, 225–227 (2011)] proposed the signal factor hypothesis (SFH) which encompasses and integrates the two theories. Using hierarchical linear modeling (HLM), we verified the predictions of the SFH, proving that companies from Taiwan and China with low information symmetry have higher debt ratios than those with high information symmetry, and that profitability has a negative influence on capital structure regardless of the degree of the information asymmetry.

Keywords: Capital structure; trade-off theory; pecking order theory; signal factor hypothesis; HLM (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1142/S021909151650003X

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