Information asymmetry and capital structure: Evidence from regulation FD
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 profe...
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| Format: | Article |
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Elsevier
2018
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| Online Access: | http://hdl.handle.net/1721.1/114877 https://orcid.org/0000-0002-7469-9753 |
| _version_ | 1826200160483409920 |
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| author | Chen, Rei-Ning |
| author2 | Sloan School of Management |
| author_facet | Sloan School of Management Chen, Rei-Ning |
| author_sort | Chen, Rei-Ning |
| collection | MIT |
| description | 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 |
| first_indexed | 2024-09-23T11:32:06Z |
| format | Article |
| id | mit-1721.1/114877 |
| institution | Massachusetts Institute of Technology |
| last_indexed | 2024-09-23T11:32:06Z |
| publishDate | 2018 |
| publisher | Elsevier |
| record_format | dspace |
| spelling | mit-1721.1/1148772022-10-01T04:17:34Z Information asymmetry and capital structure: Evidence from regulation FD Chen, Rei-Ning Sloan School of Management Chen, Rei-Ning 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 2018-04-23T17:24:52Z 2018-04-23T17:24:52Z 2015-01 2015-01 2018-04-20T11:03:40Z Article http://purl.org/eprint/type/JournalArticle 0165-4101 http://hdl.handle.net/1721.1/114877 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. https://orcid.org/0000-0002-7469-9753 http://dx.doi.org/10.1016/J.JACCECO.2015.01.002 Journal of Accounting and Economics Creative Commons Attribution-NonCommercial-NoDerivs License http://creativecommons.org/licenses/by-nc-nd/4.0/ application/pdf Elsevier SSRN |
| spellingShingle | Chen, Rei-Ning Information asymmetry and capital structure: Evidence from regulation FD |
| title | Information asymmetry and capital structure: Evidence from regulation FD |
| title_full | Information asymmetry and capital structure: Evidence from regulation FD |
| title_fullStr | Information asymmetry and capital structure: Evidence from regulation FD |
| title_full_unstemmed | Information asymmetry and capital structure: Evidence from regulation FD |
| title_short | Information asymmetry and capital structure: Evidence from regulation FD |
| title_sort | information asymmetry and capital structure evidence from regulation fd |
| url | http://hdl.handle.net/1721.1/114877 https://orcid.org/0000-0002-7469-9753 |
| work_keys_str_mv | AT chenreining informationasymmetryandcapitalstructureevidencefromregulationfd |