Asymmetric Information and Debt Financing: Hie Empirical Importance of Size and Balance Sheet Factors

This study examines the informativeness of fundamental financial information to three levels of shareholder value. In general, the results show that the fundamental financial information is quite informative to shareholders using the MB ratio as a measure of shareholder value. According to the sensitivity analysis, (1) the balance sheet items are not quite informative, (2) the income statement items are consistently informative to shareholders at the three classes, and (3) the financial ratios, as a form of co-integrated financial information, are quite informative to the high and low shareholder value classes. The results regarding the fundamental analysis indicate that (a) in the three levels of MB firms, investors are concerned with the short-term horizon, (b) in the low MB firms, the investors are concerned with the long-term horizon, (c) in the high and low MB firms, the operating and total expenses are regarded as a capital investment, (d) in the high MB firms, the trend is to finance operations using equity rather than debt financing, (e) profitability affects low MB firms only rather than high and medium firms, (f) in the high and medium MB firms, investors do not regard the elements related to firms operations, (g) in the low MB firms, investors are concerned with the effects of capital structure on firms value although the results show that dividends have a reverse effect on firms market value.

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Profitability And Capital Structure Of Amex And Nyse Firms

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v4i11.2714 ◽

2011 ◽

Vol 4 (11) ◽

Cited By ~ 2

Author(s):

Richard H. Fosberg ◽

Arvin Ghosh

Keyword(s):

Information Theory ◽

Asymmetric Information ◽

Capital Structure ◽

Inverse Relationship ◽

Debt Financing ◽

Font Size ◽

Firm Profitability ◽

Strong Inverse Relationship

In this study, we found that NYSE and AMEX firms have somewhat different capital structures.  NYSE firms generally use 5% to 8% more debt financing in their capital structures than AMEX firms.  It was also found that the amount of debt in the capital structures of AMEX firms declined somewhat between 1985 and 2003 but remained relatively stable for NYSE firms.  Also, NYSE firms were found to exhibit a strong inverse relationship between firm profitability and the amount on debt in the firm’s capital structure.  This result is generally consistent with Myers and Majluf’s “asymmetric information theory” of capital structure.  No relationship was found between profitability and capital structure for AMEX firms.  Comparison of these results to similar calculations found in Fosberg and Ghosh (2005) for NASDAQ firms shows that, like AMEX firms, NASDAQ firms use less debt in their capital structures than NYSE firms and exhibit no relationship between profitability and capital structure.  Consequently, because these anomalies exist for both AMEX and NASDAQ firms, these two anomalies can not be an exchange listing effect.

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Debt Financing under Asymmetric Information

The Journal of Finance ◽

10.1111/j.1540-6261.1995.tb04798.x ◽

1995 ◽

Vol 50 (2) ◽

pp. 633-659 ◽

Cited By ~ 24

Author(s):

GAUTAM GOSWAMI ◽

THOMAS NOE ◽

MICHAEL REBELLO

Keyword(s):

Asymmetric Information ◽

Debt Financing

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A Composição do Endividamento das Empresas Brasileiras de Capital Aberto: um Estudo Empírico

Brazilian Review of Finance ◽

10.12660/rbfin.v3n2.2005.1149 ◽

2005 ◽

Vol 3 (2) ◽

pp. 173

Author(s):

Cláudio R. Lucinda ◽

Richard Saito

Keyword(s):

Asymmetric Information ◽

Economies Of Scale ◽

Sao Paulo ◽

Debt Financing ◽

São Paulo ◽

Public Issues ◽

The Public ◽

Fixed Assets ◽

Private And Public

This article examines the major determinants of private and public issues of debt decisions by public traded companies on the Sao Paulo exchange. The major findings include that companies with higher fixed assets in proportion to fixed assets and thus subject to higher liquidation costs tend to finance with private issues of debt. In addition, the higher the long-term liabilities, the more likely the company will diversify its debt financing, increasing the public issues of debt. This provide evidence that as the company presents decreasing asymmetric information, public issues of debt is likely to increase. Other factors, such as, economies of scale and other variables to control for asymmetric information seem to be of little significance.

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Asymmetric Information and the Pecking (Dis)Order*

Review of Finance ◽

10.1093/rof/rfaa005 ◽

2020 ◽

Vol 24 (5) ◽

pp. 961-996 ◽

Cited By ~ 3

Author(s):

Paolo Fulghieri ◽

Diego García ◽

Dirk Hackbarth

Keyword(s):

Asymmetric Information ◽

Classical Problem ◽

High Growth ◽

Debt Financing ◽

Growth Options ◽

Growth Opportunities ◽

Growth Firms

Abstract We study the classical problem of raising capital under asymmetric information. Following Myers and Majluf, we consider firms endowed with assets in place and riskier growth opportunities. When asymmetric information is concentrated on assets in place (rather than growth opportunities), equity-like securities are more likely to be optimal. In contrast, when asymmetric information falls on growth options, debt is optimal. Intuitively, this happens because when the asset with greater volatility is less affected by asymmetric information, issuing a security with greater exposure to upside potential (such as equity) can be less dilutive than issuing a security lacking such exposure (such as debt). Our results suggest that equity is more likely to dominate debt for younger firms with larger investment needs, endowed with riskier, more valuable growth opportunities. Thus, our model can explain why high-growth firms may prefer equity over debt, and then switch to debt financing as they mature.

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Asymmetric Information Weighting in Belief Updating and the Effect on Mid-Sequence Evaluation

PsycEXTRA Dataset ◽

10.1037/e683272011-092 ◽

1996 ◽

Author(s):

Gal Zauberman ◽

Dan Ariely

Keyword(s):

Asymmetric Information ◽

Belief Updating

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ANALISIS LAPORAN KEUANGAN UNTUK MENILAI KINERJA KEUANGAN PT. ASTRA AGRO LESTARI Tbk

eBA Journal: Journal Economics, Bussines and Accounting ◽

10.32492/eba.v5i2.847 ◽

2019 ◽

Vol 5 (2) ◽

pp. 75-88

Author(s):

M. Shobihin ◽

Sayekti Suindyah Dwiningwarni ◽

Supriadi Supriadi

Keyword(s):

Financial Performance ◽

Good Condition ◽

Balance Sheet ◽

Financial Statements ◽

Ratio Analysis ◽

Business Decisions ◽

Financial Ratio ◽

Financial Ratio Analysis ◽

Income Statement ◽

Quantitative Descriptive

The financial statements serve as a benchmark in assessing the financial performance of the company as the basis for making business decisions. The motivation in conducting this research is to support previous research to see the development condition of one of the oil palm plantation companies. The purpose of this study is to assess the financial performance by using financial ratio analysis and horizontal analysis. The method used in this research is Quantitative Descriptive with analysis design using Term series Analysis. The result of the research based on financial ratio analysis shows the liquidity ratio and solvency ratio in good condition, while the activity ratio and profitability ratio are not good because it is below the industry average of similar companies. Based on horizontal analysis, financial performance fluctuated and influenced internal and external factors such as operational performance and the average price of world palm oil. The limitations of this study are using only two analytical tools and financial statements analyzed only the balance sheet and income statement.

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