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Information asymmetry and financing choice between debt, equity and dual issues by Indian firms

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  • Sony, Bipin
  • Bhaduri, Saumitra

Abstract

This paper examines the role of information asymmetry in determining the capital structure choices of firms in an emerging market -India. Unlike the conventional capital structure studies examining the debt-equity framework, we introduce dual issues i.e. the simultaneous issue of debt and equity, into the analytical framework. Further, we also incorporate novel variables related to analyst coverage information as proxies for information asymmetry which are rarely used in the Indian capital structure studies. The findings suggest that asymmetric information is a key determinant of the security issue decisions. Specifically, equity issues are limited and are only conducted by firms facing lesser information asymmetry, which in turn supports the arguments of information-based models.

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  • Sony, Bipin & Bhaduri, Saumitra, 2021. "Information asymmetry and financing choice between debt, equity and dual issues by Indian firms," International Review of Economics & Finance, Elsevier, vol. 72(C), pages 90-101.
  • Handle: RePEc:eee:reveco:v:72:y:2021:i:c:p:90-101
    DOI: 10.1016/j.iref.2020.11.001
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    More about this item

    Keywords

    Information asymmetry; Capital structure; Pecking order; Dual issues; Emerging economy;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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