Does Asymmetric Information Drive Capital Structure Decisions ?

@inproceedings{Bharath2009DoesAI,
  title={Does Asymmetric Information Drive Capital Structure Decisions ?},
  author={Sreedhar T. Bharath},
  year={2009}
}
Using a novel information asymmetry index based on measures of adverse selection developed by the market microstructure literature, we test whether information asymmetry is an important determinant of capital structure decisions, as suggested by the pecking order theory. Our index relies exclusively on measures of the market’s assessment of adverse selection risk rather than on ex ante firm characteristics. We find that information asymmetry does affect the capital structure decisions of U.S… CONTINUE READING
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