Dynamic financial decisions with varying degrees of information asymmetry and profitability

Chen Hsun Lee; Yung Hsiang Ying; Koyin Chang

doi:10.1142/S021909151650003X

Dynamic financial decisions with varying degrees of information asymmetry and profitability

Chen Hsun Lee^*, Yung Hsiang Ying, Koyin Chang

^*Corresponding author for this work

Department of Business Administration

Research output: Contribution to journal › Article › peer-review

3 Citations (Scopus)

Abstract

Much research has been conducted on the accuracy of the pecking order theory and the trade-off theory. Neither theory on its own has seemed to hold sufficient explanatory power to accurately describe capital structures. Chou et al. [Sun Yat-Sen Management Review, 19, 225-227 (2011)] proposed the signal factor hypothesis (SFH) which encompasses and integrates the two theories. Using hierarchical linear modeling (HLM), we verified the predictions of the SFH, proving that companies from Taiwan and China with low information symmetry have higher debt ratios than those with high information symmetry, and that profitability has a negative influence on capital structure regardless of the degree of the information asymmetry.

Original language	English
Article number	1650003
Journal	Review of Pacific Basin Financial Markets and Policies
Volume	19
Issue number	1
DOIs	https://doi.org/10.1142/S021909151650003X
Publication status	Published - 2016 Mar 1

Keywords

Capital structure
HLM
pecking order theory
signal factor hypothesis
trade-off theory

ASJC Scopus subject areas

Finance
Economics and Econometrics

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10.1142/S021909151650003X

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abstract = "Much research has been conducted on the accuracy of the pecking order theory and the trade-off theory. Neither theory on its own has seemed to hold sufficient explanatory power to accurately describe capital structures. Chou et al. [Sun Yat-Sen Management Review, 19, 225-227 (2011)] proposed the signal factor hypothesis (SFH) which encompasses and integrates the two theories. Using hierarchical linear modeling (HLM), we verified the predictions of the SFH, proving that companies from Taiwan and China with low information symmetry have higher debt ratios than those with high information symmetry, and that profitability has a negative influence on capital structure regardless of the degree of the information asymmetry.",

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AU - Ying, Yung Hsiang

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N2 - Much research has been conducted on the accuracy of the pecking order theory and the trade-off theory. Neither theory on its own has seemed to hold sufficient explanatory power to accurately describe capital structures. Chou et al. [Sun Yat-Sen Management Review, 19, 225-227 (2011)] proposed the signal factor hypothesis (SFH) which encompasses and integrates the two theories. Using hierarchical linear modeling (HLM), we verified the predictions of the SFH, proving that companies from Taiwan and China with low information symmetry have higher debt ratios than those with high information symmetry, and that profitability has a negative influence on capital structure regardless of the degree of the information asymmetry.

AB - Much research has been conducted on the accuracy of the pecking order theory and the trade-off theory. Neither theory on its own has seemed to hold sufficient explanatory power to accurately describe capital structures. Chou et al. [Sun Yat-Sen Management Review, 19, 225-227 (2011)] proposed the signal factor hypothesis (SFH) which encompasses and integrates the two theories. Using hierarchical linear modeling (HLM), we verified the predictions of the SFH, proving that companies from Taiwan and China with low information symmetry have higher debt ratios than those with high information symmetry, and that profitability has a negative influence on capital structure regardless of the degree of the information asymmetry.

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Dynamic financial decisions with varying degrees of information asymmetry and profitability

Abstract

Keywords

ASJC Scopus subject areas

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