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Information asymmetry and capital structure: Evidence from the Chinese stock market

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  • Kung‐Cheng Ho
  • Yujing Gong

Abstract

Using a unique data set of information ratings (IRs) for firms listed on the Shenzhen Stock Exchange from 2001 to 2018, we examine the impact of information asymmetry on capital structure decisions in China. We determine that firms with higher IRs have fewer debt issuances and lower leverage. This negative relationship is consistent for firms listed on the Main Board, Small and Medium‐sized Enterprise (SME) board and Growth Enterprise Market (GEM) board. We further decompose IR into accounting‐associated and nonaccounting‐associated components and find that both are negatively correlated with leverage. Additional analyses reveal that for firms listed on the SME and GEM boards, the nonaccounting‐associated component exhibits a stronger relationship with leverage than does the accounting‐associated component. Our results suggest that information asymmetry is instrumental in capital‐structure decision‐making.

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  • Kung‐Cheng Ho & Yujing Gong, 2022. "Information asymmetry and capital structure: Evidence from the Chinese stock market," International Finance, Wiley Blackwell, vol. 25(1), pages 84-102, April.
    • Handle: RePEc:bla:intfin:v:25:y:2022:i:1:p:84-102
    DOI: 10.1111/infi.12399
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    1. Ho, Kung-Cheng & Sun, Renji & Yang, Lei & Li, Hui-Min, 2023. "Information disclosure as a means of minimizing asymmetric financial reporting: The role of market reaction," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 1221-1240.

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