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Equity issues and temporal variation in information asymmetry

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  • Autore, Don M.
  • Kovacs, Tunde
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    Abstract

    We investigate the intertemporal relation between information asymmetry and equity issues, and particularly focus on which firms drive this relation. We find that when information asymmetry for a particular firm is low compared to the recent past, the firm is more likely to issue equity as opposed to debt. Importantly, this intertemporal association is driven by firms with high levels of information asymmetry. These firms are more prone to adverse selection costs and thus have more to gain by issuing equity after a narrowing of the information gap between managers and investors. Our findings are robust to various firm-specific proxies for information asymmetry.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 34 (2010)
    Issue (Month): 1 (January)
    Pages: 12-23

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    Handle: RePEc:eee:jbfina:v:34:y:2010:i:1:p:12-23

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: Seasoned equity offer Information asymmetry Pecking order theory;

    References

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    Cited by:
    1. Chen, An-Sing & Cheng, Lee-Young & Cheng, Kuang-Fu & Chih, Shu-Wei, 2010. "Earnings management, market discounts and the performance of private equity placements," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1922-1932, August.
    2. Lu, Chia-Wu & Chen, Tsung-Kang & Liao, Hsien-Hsing, 2010. "Information uncertainty, information asymmetry and corporate bond yield spreads," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2265-2279, September.
    3. Ari Pandes, J., 2010. "Bought deals: The value of underwriter certification in seasoned equity offerings," Journal of Banking & Finance, Elsevier, vol. 34(7), pages 1576-1589, July.
    4. Bo, Hong & Huang, Zhongnan & Wang, Changyun, 2011. "Understanding seasoned equity offerings of Chinese firms," Journal of Banking & Finance, Elsevier, vol. 35(5), pages 1143-1157, May.
    5. Djaoudath Alidou, 2012. "Employees Equity Issue and Asymmetric Information:Evidence from France - Augmentations de capital réservées aux salariés et Asymétrie d’information:Cas de la France," Working Papers CREGO 1120901, Université de Bourgogne - CREGO EA7317 Centre de recherches en gestion des organisations.
    6. Kayo, Eduardo K. & Kimura, Herbert, 2011. "Hierarchical determinants of capital structure," Journal of Banking & Finance, Elsevier, vol. 35(2), pages 358-371, February.
    7. Drobetz, Wolfgang & Grüninger, Matthias C. & Hirschvogl, Simone, 2010. "Information asymmetry and the value of cash," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2168-2184, September.
    8. Selvarajah, Esaignani & Ursel, Nancy, 2012. "Mergers and corporate debt financing," Economics Letters, Elsevier, vol. 114(3), pages 296-298.
    9. Kryzanowski, Lawrence & Lazrak, Skander & Rakita, Ian, 2010. "Behavior of liquidity and returns around Canadian seasoned equity offerings," Journal of Banking & Finance, Elsevier, vol. 34(12), pages 2954-2967, December.

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