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OVER‐THE‐COUNTER FIRMS, ASYMMETRIC INFORMATION, AND FINANCING PREFERENCES
Author(s) -
Hittle Linda C.,
Haddad Kamal,
Gitman Lawrence J.
Publication year - 1992
Publication title -
review of financial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.347
H-Index - 41
eISSN - 1873-5924
pISSN - 1058-3300
DOI - 10.1002/j.1873-5924.1992.tb00559.x
Subject(s) - pecking order , pecking order theory , information asymmetry , hierarchy , order (exchange) , economics , stock (firearms) , empirical research , empirical evidence , monetary economics , business , finance , microeconomics , capital structure , debt , market economy , mechanical engineering , philosophy , epistemology , evolutionary biology , biology , engineering
A puzzling empirical finding is that firms often seem to follow a pecking‐order hierarchy of financing. Asymmetric information has been hypothesized as one possible explanation for the pecking‐order hierarchy. A survey of Fortune 500 firms found strong support for the pecking‐order model. This study surveys over‐the‐counter firms which seem more likely to experience asymmetric information than the Fortune 500. The findings of this study provide empirical support for the asymmetric information hypothesis by demonstrating that managers of firms with greater asymmetric information are more likely to believe their stock is mispriced leading them to follow the pecking‐order model of financing.