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Article: Does Change in the Information Environment Affect Financing Choices?

TitleDoes Change in the Information Environment Affect Financing Choices?
Authors
Keywordsinformation environment
analyst coverage
financing choices
Issue Date2019
PublisherINFORMS. The Journal's web site is located at http://mansci.pubs.informs.org
Citation
Management Science, 2019, v. 65 n. 12, p. 5449-5956 How to Cite?
AbstractUsing brokerage mergers and closures as natural experiments, we examine how exogenous changes in the information environment affect a firm’s financing choice. Our difference-in-differences approach shows that exogenous increases in information asymmetry lead firms to substitute away from equity and public debt toward bank debt. Firms with higher risk tend to substitute equity for bank debt, and firms with lower risk tend to substitute bonds for bank debt. The effect of the change in the information environment on a firm’s financing choice is more pronounced for firms with worse information environments, such as those with few initial analysts and younger firms. We demonstrate that the mechanism of the change is through a reduction of the issuance of equity and bonds but with an increase of the issuance of bank loans. Further analysis reveals that such firms tend to reduce long-term borrowing, reduce their issuance of subordinated debt, and increase their revolving credit lines.
Persistent Identifierhttp://hdl.handle.net/10722/279001
ISSN
2017 Impact Factor: 3.544
2015 SCImago Journal Rankings: 4.384
SSRN

 

DC FieldValueLanguage
dc.contributor.authorLi, X-
dc.contributor.authorLin, C-
dc.contributor.authorZhan, X-
dc.date.accessioned2019-10-21T02:17:48Z-
dc.date.available2019-10-21T02:17:48Z-
dc.date.issued2019-
dc.identifier.citationManagement Science, 2019, v. 65 n. 12, p. 5449-5956-
dc.identifier.issn0025-1909-
dc.identifier.urihttp://hdl.handle.net/10722/279001-
dc.description.abstractUsing brokerage mergers and closures as natural experiments, we examine how exogenous changes in the information environment affect a firm’s financing choice. Our difference-in-differences approach shows that exogenous increases in information asymmetry lead firms to substitute away from equity and public debt toward bank debt. Firms with higher risk tend to substitute equity for bank debt, and firms with lower risk tend to substitute bonds for bank debt. The effect of the change in the information environment on a firm’s financing choice is more pronounced for firms with worse information environments, such as those with few initial analysts and younger firms. We demonstrate that the mechanism of the change is through a reduction of the issuance of equity and bonds but with an increase of the issuance of bank loans. Further analysis reveals that such firms tend to reduce long-term borrowing, reduce their issuance of subordinated debt, and increase their revolving credit lines.-
dc.languageeng-
dc.publisherINFORMS. The Journal's web site is located at http://mansci.pubs.informs.org-
dc.relation.ispartofManagement Science-
dc.subjectinformation environment-
dc.subjectanalyst coverage-
dc.subjectfinancing choices-
dc.titleDoes Change in the Information Environment Affect Financing Choices?-
dc.typeArticle-
dc.identifier.emailLi, X: xuli1@hku.hk-
dc.identifier.emailLin, C: chenlin1@hku.hk-
dc.identifier.authorityLi, X=rp01615-
dc.identifier.authorityLin, C=rp01808-
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.1287/mnsc.2018.3096-
dc.identifier.hkuros308017-
dc.identifier.volume65-
dc.identifier.issue12-
dc.identifier.spage5449-
dc.identifier.epage5956-
dc.publisher.placeUnited States-
dc.identifier.ssrn2532121-

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