Information asymmetry and capital structure: Evidence from regulation FD
Name
Petacchi_Information asymmetry.pdf
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886.04 KB
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Author(s)
Chen, Rei-Ning
Date Issued
January 2015
Journal
Journal of Accounting and Economics
Publisher
Elsevier
Citation
Petacchi, Reining. “Information Asymmetry and Capital Structure: Evidence from Regulation FD.” Journal of Accounting and Economics 59, 2–3 (April 2015): 143–162 © 2015 Elsevier B.V.
Version
Author's final manuscript
Abstract
This study uses Regulation Fair Disclosure (FD) as a plausibly exogenous shock to the information environment to identify the causal effect of information asymmetry on corporate financing behavior. Although Regulation FD prevents firms from selectively disclosing material information to market professionals in the equity market, firms can still do so to banks and rating agencies in the debt market. The standard׳s differential disclosure requirements lead to differential changes in the information environments between the two markets, providing a reasonably useful setting to examine the effect of information asymmetry on firms׳ capital structure. I find that firms with a high level of information asymmetry increase debt more than firms with a low level of information asymmetry post-Regulation FD. The results suggest that managers adjust the target leverage ratios to rely more on debt when facing higher costs of equity. Keywords: Regulation FD; Capital structure; Accounting disclosure; Information asymmetry; Economic consequences of regulations
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-NonCommercial-NoDerivs License
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DOI of Published Version
https://doi.org/10.1016/J.JACCECO.2015.01.002
