The Pecking Order, Information Asymmetry, and Financial Market Efficiency

49 Pages Posted: 25 Oct 2006

See all articles by Abu M. Jalal

Abu M. Jalal

University of Minnesota - Twin Cities - Department of Business Finance

Date Written: July 10, 2007

Abstract

This paper studies the marginal debt issuance behavior of publicly traded companies with firm-level data from 42 countries. The focus is on the extent to which measures from the literature on finance and development can help to explain the observed differences among countries in the corporate use of marginal debt financing. Using the pecking order testing framework of Shyam-Sunder and Myers (1999), this study provides empirical evidence that financial market imperfections and institutional development affect the debt issuance decisions of firms when raising external capital. Country development, Law enforcement, legal origin, shareholder protections, effectiveness of the government, and control of corruption are significantly related to marginal debt issuance decisions of firms. Finally, the coefficient estimates of the pecking order regressions are correlated with the long run average growth rates of the countries and appear to be a powerful objective measure of financial market efficiency.

Keywords: Pecking Order Theory, Capital Structure, Financing Deficit, Equity Market Efficiency

JEL Classification: G32, G00, F30

Suggested Citation

Jalal, Abu M., The Pecking Order, Information Asymmetry, and Financial Market Efficiency (July 10, 2007). Available at SSRN: https://ssrn.com/abstract=939588 or http://dx.doi.org/10.2139/ssrn.939588

Abu M. Jalal (Contact Author)

University of Minnesota - Twin Cities - Department of Business Finance ( email )

Carlson School of Management
321 19th Avenue South
Minneapolis, MN 55455
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
834
Abstract Views
3,334
Rank
54,045
PlumX Metrics