Department/School
Accounting; Finance
Date of this version
2016
Document Type
Article
Keywords
Firm Investment, Capital Structure, Information Asymmetry
Abstract
Though it is generally accepted that information asymmetry has an impact on capital structure policy, the nature of the information asymmetry is not well understood. Recent theoretical work and empirical evidence suggests that financing choice depends upon the information asymmetry associated with the investment risk of the particular use of proceeds. Consistent with this view, using the sources and uses of funds framework, we find that equity is used to fund projects with greater information asymmetry about their risk such as research and development expenditure, while debt is used to fund investments with lower information asymmetry about their risk such as liquidity enhancement.
Volume
16
Issue
2
Published in
Journal of Business Finance and Accounting
Creative Commons License
This work is licensed under a Creative Commons Attribution-Noncommercial 3.0 License
Citation/Other Information
16(2), 243-264