3.3. Asymmetric Information Signaling Framework
The proponents of Information signaling model argue that the existence of information asymmetry between the firm and the likely finance providers causes the relative cost of finance to vary between the different sources of finance. For instance, an internal source of finance, where the funds provider is the firm, will have more information about the firm than new equity holders; thus new equity holders will expect a higher rate of return on their investments meaning that it will cost the firm more to issue fresh equity shares than using internal funds. The conclusion drawn from the asymmetric information theories is that there is a hierarchy of firm preference with respect to the financing of their investments (Myers and Majluf, 1984). Ooi (1999) investigated the corporate debt maturity structure of property companies quoted in the UK over the period 1989-95 and showed that, in order to distinguish themselves from firms in other risk classes and to mitigate the information asymmetry effects, property companies with potential good news employ more debt in their capital structure, which is consis tent with the signaling hypothesis. Bayless and Chaplinsky (1996) found that when there are low levels of information asymmetry (i.e., in hot markets) the announcement-period returns are significantly higher than in cold markets. They concluded that firms try to take advantage of these "windows of opportunity7" as they decide when to schedule a new equity or debt issue. Frank and Goyal (2003) argued that large firms are usually more diversified, have better reputations in debt markets, and face lower information costs when borrowing, therefore, large firms are predicted to have more debt in their capital structures. Hall et. al. (2004) argued that because much of the data which small firms will supply to banks, in their applications for loans, will not be readily verifiable, hence, the problem of information asymmetry that they face will be particularly acute, so debt would be positively related to firm size. Bhaduri (2002) proposed that young firms are more vulnerable to the problem of asymmetric informatio n, and hence they are likely to use debt and avoid the equity market. Further, the author argued that a firm with a reputation of dividend payment faces less asymmetric information in accessing the equity market, therefore, an inverse relationship is predicted to exist between leverage and dividend payment. Bancel and Mittoo (2004) found in their sample survey of managers from 16 European countries that over 40% of the managers issue debt when interest rates are low or when the firm’s equity is undervalued by the market. These findings suggest the managers use windows of opportunity to raise capital. The authors further reasoned that managers issue convertible debt because it is less expensive than straight debt, or to attract investors who are unsure about the riskiness of the firm. Habib and Johnsen (2000) showed that debt and outside equity can be used to elicit accurate information about the value of an enterprise in alternative uses. They argued that the firm issue securities to reveal outside investors knowledge of the expected return through the size of the stake they acquire and the price they pay for it assuming that the outside investors observe a signal and communicate it to the firm. Devis (1996) explained that preference financing is chosen when significant information asymmetries exist between management and outside investors. Mark Garmaise (2001) showed that firms attempt to maximize diversity of opinion by issuing risky securities such as equity. The author suggested that the researching the state of investor beliefs and choosing an optimal design in the light of these beliefs can create substantial value for the firm's original owners. McLaughlin et. al. (1998) examined the information content of offerings of debt and equity by public corporations by analyzing the relationship between information asymmetry and long run changes in firm operating performance around the offerings. Their results were consistent with the information model of decision to issue securities. Dittmar (2000) examined and found that the firms repurchase stock to take advant age of potential undervaluation. Michaelas et al. (1999) empirically examined the implication of theory of capital structure in the U.K. small business sector and suggested that the asymmetric information costs have an effect on the level of debt in small firms. 本文来自辣.文,论-文·网原文请找腾讯3249,114
The researchers have also observed inadequacy in asymmetric information signaling model to explain the capital structure decisions. Byrd et. al. (1996)
运动会加油稿 examined stock price reactions to conversion forcing calls of convertible bonds and preferred stocks and found that analysts earning forecast, both short term and long term, were revised upward following the call announcement of convertible bonds and preferred stocks. Their findings cast doubt on the established belief that such capital structure decisions signal negative information about firm value. Bhabra et. al. (1996) examined whether all firms that issue convertible bonds truthfully reveal firm quality at the offer announcement and found that some low-quality firms issue convertible bonds with contract terms that suggest higher quality, however market reacts more positively to announcements of these low quality firms.
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