Disciplining Role of Debts, Information Asymmetry, and Firm Value: Two-Step Generalized Methods of Moments
Objective: According to the pecking order theory, in the context of information asymmetry, debt financing can decrease the adverse selection costs, increase the firm value, and serve as a financial disciplinary device. The main objective of this research is to investigate the effect of the disciplin...
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| Format: | Article |
| Language: | fas |
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University of Isfahan
2020-03-01
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| Series: | Journal of Asset Management and Financing |
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| Online Access: | https://amf.ui.ac.ir/article_24312_b1042fabc61663930f7f0c068b1dec03.pdf |
| _version_ | 1818863422817697792 |
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| author | Abbas Aflatooni |
| author_facet | Abbas Aflatooni |
| author_sort | Abbas Aflatooni |
| collection | DOAJ |
| description | Objective: According to the pecking order theory, in the context of information asymmetry, debt financing can decrease the adverse selection costs, increase the firm value, and serve as a financial disciplinary device. The main objective of this research is to investigate the effect of the disciplinary role of leverage on the relationship between information asymmetry and firm value. Method: For hypotheses testing, this paper uses data for 148 firms listed in Tehran Stock Exchange that are selected, using systematic deletion, during 2007-2017. To control the potential endogeneity of leverage ratio which can create a reverse causality between firm value and leverage ratio, our models are estimated by using the two-step generalized method of moments (GMM) estimator. Results: The results indicate that the information asymmetry and the leverage ratio have a negative and significant effect on the firm value, and the negative relationship between information asymmetry and firm value is weakened by leverage ratio. Besides, the results reveal that the negative effect of information asymmetry on the firm's value is stronger (weaker) for firms with higher (lower) growth opportunities. These findings are consistent with the predictions of the pecking order theory. Innovations: Internal studies have not scrutinized the interaction between information asymmetry and leverage ratios in influencing firm value. Likewise, the issue of endogenous bias resulting from the inverse causality of leverage ratio has never been addressed. In this study, in addition to considering the above two issues, the intensity of the relationship between information asymmetry and firm value in companies with high and low growth opportunities is compared. |
| first_indexed | 2024-12-19T10:15:31Z |
| format | Article |
| id | doaj.art-dfa188dee5b049f79c8c2e76e2bfe396 |
| institution | Directory Open Access Journal |
| issn | 2383-1189 2383-1189 |
| language | fas |
| last_indexed | 2024-12-19T10:15:31Z |
| publishDate | 2020-03-01 |
| publisher | University of Isfahan |
| record_format | Article |
| series | Journal of Asset Management and Financing |
| spelling | doaj.art-dfa188dee5b049f79c8c2e76e2bfe3962022-12-21T20:26:15ZfasUniversity of IsfahanJournal of Asset Management and Financing2383-11892383-11892020-03-018110512210.22108/amf.2019.115793.139024312Disciplining Role of Debts, Information Asymmetry, and Firm Value: Two-Step Generalized Methods of MomentsAbbas Aflatooni0Assistant Professor of Accounting, Department of Accounting, Faculty of Economics and Social Sciences, Bu-Ali Sina University, Hamedan, Iran.Objective: According to the pecking order theory, in the context of information asymmetry, debt financing can decrease the adverse selection costs, increase the firm value, and serve as a financial disciplinary device. The main objective of this research is to investigate the effect of the disciplinary role of leverage on the relationship between information asymmetry and firm value. Method: For hypotheses testing, this paper uses data for 148 firms listed in Tehran Stock Exchange that are selected, using systematic deletion, during 2007-2017. To control the potential endogeneity of leverage ratio which can create a reverse causality between firm value and leverage ratio, our models are estimated by using the two-step generalized method of moments (GMM) estimator. Results: The results indicate that the information asymmetry and the leverage ratio have a negative and significant effect on the firm value, and the negative relationship between information asymmetry and firm value is weakened by leverage ratio. Besides, the results reveal that the negative effect of information asymmetry on the firm's value is stronger (weaker) for firms with higher (lower) growth opportunities. These findings are consistent with the predictions of the pecking order theory. Innovations: Internal studies have not scrutinized the interaction between information asymmetry and leverage ratios in influencing firm value. Likewise, the issue of endogenous bias resulting from the inverse causality of leverage ratio has never been addressed. In this study, in addition to considering the above two issues, the intensity of the relationship between information asymmetry and firm value in companies with high and low growth opportunities is compared.https://amf.ui.ac.ir/article_24312_b1042fabc61663930f7f0c068b1dec03.pdffirm valueinformation asymmetryleverage ratiopecking order theorydisciplining role |
| spellingShingle | Abbas Aflatooni Disciplining Role of Debts, Information Asymmetry, and Firm Value: Two-Step Generalized Methods of Moments Journal of Asset Management and Financing firm value information asymmetry leverage ratio pecking order theory disciplining role |
| title | Disciplining Role of Debts, Information Asymmetry, and Firm Value:
Two-Step Generalized Methods of Moments |
| title_full | Disciplining Role of Debts, Information Asymmetry, and Firm Value:
Two-Step Generalized Methods of Moments |
| title_fullStr | Disciplining Role of Debts, Information Asymmetry, and Firm Value:
Two-Step Generalized Methods of Moments |
| title_full_unstemmed | Disciplining Role of Debts, Information Asymmetry, and Firm Value:
Two-Step Generalized Methods of Moments |
| title_short | Disciplining Role of Debts, Information Asymmetry, and Firm Value:
Two-Step Generalized Methods of Moments |
| title_sort | disciplining role of debts information asymmetry and firm value two step generalized methods of moments |
| topic | firm value information asymmetry leverage ratio pecking order theory disciplining role |
| url | https://amf.ui.ac.ir/article_24312_b1042fabc61663930f7f0c068b1dec03.pdf |
| work_keys_str_mv | AT abbasaflatooni discipliningroleofdebtsinformationasymmetryandfirmvaluetwostepgeneralizedmethodsofmoments |