Does information asymmetry lead to higher debt financing? Evidence from China during the NTS Reform period

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dc.contributor.authorQu W
dc.contributor.authorWongchoti U
dc.contributor.authorWu F
dc.contributor.authorChen Y
dc.date.available2018-10-04
dc.date.issued2018-07-16
dc.description.abstractPurpose The purpose of this paper is to test an implication of the pecking order theory to explain capital structure decisions among Chinese listed companies during the 2005-2007 NTS Reform transition period. Design/methodology/approach The authors utilize direct proxies for information asymmetry based on microstructure models including Probability of the arrival of informed trades (PIN), Adverse selection component of the bid-ask spread (λ), Illiquidity ratio (ILLIQ) and liquidity ratio, and Information asymmetry index (InfoAsy) to examine their relation with firms’ debt financing. Findings Consistent with the prediction of Pecking Order Theory, the authors find that companies for which stock investors are challenged with more severe informational disadvantages are associated with higher degree of leverage use. Originality/value The study provides a more direct test on the positive relation between information asymmetry and financial leverage of Chinese firms. In contrast to previous findings by Chen (2004), the results suggest that capital structure choices among Chinese firms progressively conform to conventional finance theories (e.g. Pecking Order Theory) with the decline of non-tradable shares.
dc.description.confidentialfalse
dc.identifierhttps://www.emeraldinsight.com/doi/full/10.1108/JABES-04-2018-0006
dc.identifier.citationJournal of Asian Business and Economic Studies, 2018
dc.identifier.doi10.1108/JABES-04-2018-0006
dc.identifier.elements-id416308
dc.identifier.harvestedMassey_Dark
dc.publisherEmerald Publishing Limited
dc.publisher.urihttps://www.emeraldinsight.com/doi/full/10.1108/JABES-04-2018-0006
dc.relation.isPartOfJournal of Asian Business and Economic Studies
dc.rightsThis article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors.
dc.titleDoes information asymmetry lead to higher debt financing? Evidence from China during the NTS Reform period
dc.typeJournal article
pubs.notesNot known
pubs.organisational-group/Massey University
pubs.organisational-group/Massey University/Massey Business School
pubs.organisational-group/Massey University/Massey Business School/School of Economics and Finance
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