Capital Structure Adjustments and Asymmetric Information

Abstract

The findings of this paper suggest another reason for capital structure adjustments besides the Trade-Off and Pecking Order theories propositions because asymmetric information impacts capital structure changes and deviations only for a quarter whilst stationarity impacts them for 4 quarters, even when controlled. Asymmetric information has been measured by Corwin-Schultz bid ask spread estimator and capital structure target as the mean of debt-to-equity ratio of 262 Nyse non-financial and non-regulated companies and their industries during 91 quarters. The data were analyzed with Johansen-Fisher panel cointegration. The capital structure deviations last from 2 to 4 quarters and move toward a target.