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Information Asymmetry and Valuation Effects of Debt Financing
Author(s) -
Alam Pervaiz,
Walton Karen Schuele
Publication year - 1995
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.1995.tb00834.x
Subject(s) - information asymmetry , shareholder , earnings , valuation (finance) , debt , monetary economics , business , debt financing , valuation effects , finance , economics , corporate governance
This study demonstrates that under conditions of information asymmetry, shareholders earn positive returns around the shelf registration date of straight debt. The results provide evidence to support Miller and Rock's conclusion that new expected financing by firms can result in positive returns to shareholders and Blazenko's contention that positive returns around the announcement date of straight debt issuance may be found by studying firms with asymmetric information. Firms with reported research and development expenses are assumed to have a higher level of asymmetric information and a greater chance of requiring new outside financing. Research and development expense intensity and abnormal earnings in future periods are found to be significant in a cross‐sectional regression explaining abnormal returns for days surrounding the announcement period.