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Navigating Market Distress: The Role of Information Asymmetry in Capital Structure Decisions

Larsson, Fanny LU ; Lyxell, Vera LU and Holmqvist, Natalie LU (2024) IBUH19 20241
Department of Business Administration
Abstract
This paper aims to uncover how stock liquidity and analyst coverage, as indicators of information asymmetry, influence the capital structure decisions of companies during market distress, such as the recent COVID-19 pandemic. This assumption is mainly based on the theoretical framework of Pecking Order theory (Myers & Majluf, 1984) and previous empirical research on capital structure and information asymmetry. The study uses a longitudinal quantitative approach and analyzes a sample of 305 U.S. firms from 2017 to 2023 extracted from LSEG Eikon’s database.

Multiple regression models tested the derived hypotheses. The results show that stock liquidity and analyst coverage, as indicators of information asymmetry, do not significantly... (More)
This paper aims to uncover how stock liquidity and analyst coverage, as indicators of information asymmetry, influence the capital structure decisions of companies during market distress, such as the recent COVID-19 pandemic. This assumption is mainly based on the theoretical framework of Pecking Order theory (Myers & Majluf, 1984) and previous empirical research on capital structure and information asymmetry. The study uses a longitudinal quantitative approach and analyzes a sample of 305 U.S. firms from 2017 to 2023 extracted from LSEG Eikon’s database.

Multiple regression models tested the derived hypotheses. The results show that stock liquidity and analyst coverage, as indicators of information asymmetry, do not significantly impact capital structure decisions during the market distress triggered by COVID-19, suggesting that other considerations, such as industry-specific factors and government intervention, may be influential during this period. These results challenge previous research on information asymmetry’s impact on capital structure during market distress, indicating a need for further research. Future studies should employ more robust statistical techniques and consider a broader range of variables and contexts. This research contributes to the existing literature by providing new insights into the complexities of financial decision-making during crises, emphasizing the importance of considering broader economic and regulatory environments. (Less)
Please use this url to cite or link to this publication:
author
Larsson, Fanny LU ; Lyxell, Vera LU and Holmqvist, Natalie LU
supervisor
organization
alternative title
A study of how different indicators of information asymmetry impact the capital structure decision of firms during market distress
course
IBUH19 20241
year
type
M2 - Bachelor Degree
subject
keywords
Capital Structure, Information Asymmetry, Pecking Order theory, Stock liquidity, Bid-ask spread, Turnover, Analyst coverage, Number of analysts, Analyst disagreement
language
English
id
9159756
date added to LUP
2024-08-07 17:45:05
date last changed
2024-08-07 17:45:05
@misc{9159756,
  abstract     = {{This paper aims to uncover how stock liquidity and analyst coverage, as indicators of information asymmetry, influence the capital structure decisions of companies during market distress, such as the recent COVID-19 pandemic. This assumption is mainly based on the theoretical framework of Pecking Order theory (Myers & Majluf, 1984) and previous empirical research on capital structure and information asymmetry. The study uses a longitudinal quantitative approach and analyzes a sample of 305 U.S. firms from 2017 to 2023 extracted from LSEG Eikon’s database.

Multiple regression models tested the derived hypotheses. The results show that stock liquidity and analyst coverage, as indicators of information asymmetry, do not significantly impact capital structure decisions during the market distress triggered by COVID-19, suggesting that other considerations, such as industry-specific factors and government intervention, may be influential during this period. These results challenge previous research on information asymmetry’s impact on capital structure during market distress, indicating a need for further research. Future studies should employ more robust statistical techniques and consider a broader range of variables and contexts. This research contributes to the existing literature by providing new insights into the complexities of financial decision-making during crises, emphasizing the importance of considering broader economic and regulatory environments.}},
  author       = {{Larsson, Fanny and Lyxell, Vera and Holmqvist, Natalie}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Navigating Market Distress: The Role of Information Asymmetry in Capital Structure Decisions}},
  year         = {{2024}},
}