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The Role of Information Asymmetry in Financing Methods

Author

Listed:
  • Mahdi Salehi

    (Ferdowsi University of Mashhad, Iran)

  • Vahab Rostami

    (Payame Noor University, Iran)

  • Hamid Hesari

    (Zanjan Branch of AIU, Iran)

Abstract

There is no doubt that new investments are the cornerstone of progress and competition in today’s world. Different financing instruments are employed to secure the funds for these investments. The most common financing methods in Iran are debt and equity financing. Some investors, including corporate insiders, have access to private information. Themore private the information, the more will be the bid/ask spread between investors, thus reducing the returns of those with no access to such information. Therefore, information asymmetry is expected to affect the funding of investments. The purpose of this study was to examine the relationship between information asymmetry and financing methods (debt and equity financing). The population consists of all the firms listed on the Tehran Stock Exchange that have been operating during the period 2006–2010. Totally, 61 firms were selected as sample using targeted sampling. The results showed that there is no significant relationship between information asymmetry and debt financing; however, there was a significant positive relationship between information asymmetry and equity financing.

Suggested Citation

  • Mahdi Salehi & Vahab Rostami & Hamid Hesari, 2014. "The Role of Information Asymmetry in Financing Methods," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 12(1 (Spring), pages 43-54.
    • Handle: RePEc:mgt:youmgt:v:12:y:2014:i:1:p:43-54
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    More about this item

    Keywords

    information asymmetry; debt financing; equity financing;
    All these keywords.

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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