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Pecking order, access to public debt market, and information asymmetry

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  • Shen, Carl Hsin-han

Abstract

We suggest that the limited access to the public debt market is a reason for the violations of pecking order behavior documented in literature. We show that as information asymmetry increases, two effects take place. On the one hand, firms do desire to increase the debt issuance. On the other hand, firms start to lose their access to the public debt market. As a result, firms associated with high degrees of information asymmetry can only issue private debt and face the relatively low debt capacities provided in the private debt market.

Suggested Citation

  • Shen, Carl Hsin-han, 2014. "Pecking order, access to public debt market, and information asymmetry," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 291-306.
    • Handle: RePEc:eee:reveco:v:29:y:2014:i:c:p:291-306
    DOI: 10.1016/j.iref.2013.06.002
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    2. Didier Brandao,Tatiana & Levine,Ross Eric & Schmukler,Sergio L., 2015. "Capital market financing, firm growth, and firm size distribution," Policy Research Working Paper Series 7353, The World Bank.
    3. Chen, Tsung-Kang, 2016. "Does geography matter in a geographically small and culturally homogeneous country? Firm location and corporate credit risk," International Review of Economics & Finance, Elsevier, vol. 44(C), pages 323-348.
    4. Maziar Ghasemi & Nazrul Hisyam Ab Razak* & Komeil Dehghani, 2018. "Determinants of Debt Structure in Ace Market Bursa Malaysia: A Panel Data Analysis," The Journal of Social Sciences Research, Academic Research Publishing Group, pages 390-395:6.
    5. David Abad & Juan Pedro Sánchez-Ballesta & José Yagüe, 2017. "The short-term debt choice under asymmetric information," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 8(3), pages 261-285, August.
    6. Didier Brandao,Tatiana & Levine,Ross Eric & Schmukler,Sergio L., 2015. "Capital market financing, firm growth, and firm size distribution," Policy Research Working Paper Series 7353, The World Bank.
    7. Fosu, Samuel & Danso, Albert & Ahmad, Wasim & Coffie, William, 2016. "Information asymmetry, leverage and firm value: Do crisis and growth matter?," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 140-150.
    8. Stereńczak Szymon & Kubiak Jarosław, 2023. "The choice of external financing source: The role of company size and stock liquidity," Economics and Business Review, Sciendo, vol. 9(3), pages 44-65, October.
    9. Zeidan, Rodrigo & Galil, Koresh & Shapir, Offer Moshe, 2018. "Do ultimate owners follow the pecking order theory?," The Quarterly Review of Economics and Finance, Elsevier, vol. 67(C), pages 45-50.
    10. Zeeshan Ahmed & Qasim Saleem & Abdul Qadir Bhatti & Bilal Ahmed, 2020. "Corporate Leverage Transmission under Information Asymmetry: Evidence from Non-financial Firms of Pakistan," International Journal of Economics and Financial Issues, Econjournals, vol. 10(4), pages 176-184.
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    12. Byoun, Soku, 2014. "Information content of unsolicited credit ratings and incentives of rating agencies: A theory," International Review of Economics & Finance, Elsevier, vol. 33(C), pages 338-349.

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    More about this item

    Keywords

    Capital structure; Pecking order; Public debt market; Information asymmetry;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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