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Information Asymmetry and Debt–Equity Choice: Evidence from an Emerging Market, India

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  • Bipin Sony
  • Saumitra Bhaduri

Abstract

We examine the role of information asymmetry in the debt–equity choice decisions of firms from an important emerging market, India. Information problems are more severe in the emerging markets and we find strong evidence in favour of information asymmetry playing a key role in the capital structure decisions of Indian firms. Consistent with the pecking order model, we find that equity issues are lesser in number and firms facing fewer information problems issue equity. We use novel variables such as analyst coverage, analyst forecast surprise and dispersion to capture information asymmetry in the Indian market. JEL: G32

Suggested Citation

  • Bipin Sony & Saumitra Bhaduri, 2018. "Information Asymmetry and Debt–Equity Choice: Evidence from an Emerging Market, India," Review of Market Integration, India Development Foundation, vol. 10(3), pages 228-252, December.
  • Handle: RePEc:sae:revmar:v:10:y:2018:i:3:p:228-252
    DOI: 10.1177/0974929218803151
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    Cited by:

    1. 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.
    2. Bipin Sony & Saumitra Bhadurib, 2020. "Information asymmetry and the choice between rights issue and private placement of equity," BASE University Working Papers 01/2020, BASE University, Bengaluru, India.

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    More about this item

    Keywords

    Capital structure; information asymmetry; pecking order; financing decisions; India;
    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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