Effect of information disclosure on firms' direct financing in emerging securities markets

In the 1990s, the significant emergence and evolution of securities markets or direct financing not only substantially affected credit suppliers' lending activities but also profoundly altered the financing patterns of businesses in developing countries. Therefore, this study examines heterogeneous firms' emerging use of long-term securities financing mainly from the perspectives of asymmetric information and the types of fund providers. The intertemporal maximization framework theoretically suggests that firms with a greater degree of information disclosure may prefer direct financing over indirect financing in their long-term financial arrangements. In addition, economic recession or stagnation could contribute to a higher level of long-term securities financing. This study employs panel data models and the Tobit model to analyze the emerging direct financing patterns in a panel dataset comprising 131 Taiwanese listed companies from 1989 to 2000. The empirical results support the theoretical findings. The results suggest a positive relationship between the degree of information disclosure and firms' intertemporal level of long-term direct financing, which directly contributes to the development of securities markets and the establishment of balanced financial infrastructure in developing countries. The influence of information disclosure variables (the fund providers paradigm) on firms' emerging direct financing in a developing country outweighs that of the capital structure variables (the securities types paradigm).