information asymmetry ~ financing decisions
TRANSCRIPT
INFORMATION ASYMMETRY ~ FINANCING DECISIONS
Su Hui Ling
Bachelor of Finance (Honours)
2012
Statement of Originality
The work described in this Final Year Project, entitled
"information Asymmetry and Financing Decisions;;
is to the best of the author's knowledge that of the author except
where due reference is made.
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(Date Submitted) Su HuiLing 25166
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Pusat Khillmat MakJumat Akademik UNJVERSm MALAYSIA SARAWAK
p.KHIDMAT MAKLUMAT AKADI!MIK
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INFORMATION ASYMMETRY AND FINANCING DECISIONS
SUHUILING
This project is submit~ in partial fulfillment of the requirements for the degree of Bachelor of Finance with Honours
Faculty of Economics and Business UNIVERSITI MALAYSIA SARAWAK
2012
ABSTRACT
INFORMATION ASYMMETRY AND FINANCING DECISIONS
By
Su Hui Ling
This study explores the relationship between information asymmetry and financing
decisions of firms. The sample data includes 598 public-listed firms in Bursa Malaysia,
over the sample period from 2005 until 2010. This study relies on firm-level of
information, focusing in business context. Information asymmetry is defined as the
imbalance amount of information gained between the insiders' management and the
outsiders' investor. This study concludes that firms' size, corporate leverage and
financial slack could influence the level of information gained among parties. The result
and findings in this study shows that total assets has the strongest relationship with the
information asymm~try. In addition, total assets could represent internal financing of a
firm. The relationship is then followed by financial slack and corporate leverage,
respectively. These findings are somehow consistent with the assumption of pecking
order theory, showing the preference of firm in deciding to apply internal financing.
Keywords: Information asymmetry, Financing decisions
ABSTRAK
KETIDAKSEIMBANGAN INFORMASI DAN KEPUTUSAN PEMBIAYAAN
Oleh
Su Hui Ling
Kajian ini meneroka hubungan antara ketidakseimbangan dalam informasi dan
keputusan pembiayaan yang dilakukan oleh firma-firma, seeara keseluruhannya.
Sampel data dalam kajian ini merangkumi 598 firma yang disenaraikan dalam Bursa
Malaysia, dari tahun 2005 hingga 2010. Kajian ini membincangkan tentang informasi
firma dan tertumpu kepada konteks dalam perniagaan. Ketidakseimbangan dalam
merujuk kepada informasi yang diserap oleh orang dalaman dalam ssesebuah firma dan
orang luaran iaitu pelabur yang melabur dalam firma tersebut. Kajian ini
menyimpulkan saiz firma, hutang firma dan isu kewangan boleh menpengaruhi
informasi yang didapati oleh parti-parti yang berkaitan. Keputusan hasil kajian dalam
kajian ini mendapati jumlah aset mempunyai hubungan yang paling tinggi dalam
menentukan ketidakseimbangan dalam informasi. Tambahan pula, jumlah aset .,
merupakan sejenis pembiayaan dalaman sesebuah firma. Hubungan seterusnya diikuti
oleh kewangan kendur dan pembiayaan korporat. Hasil kajian ini adalah selaras
dengan andaian dalam theory yang dinamai "pecking order theory", dimana firma lebih
cenderung untuk mengapplikasikan pembiayaan dalaman.
Kata Kunci: Ketidakseimbangan Informasi, Keputusan Pembiayaan
ACKNOWLEDGEMENT
This is my first thesis after I have been as a student over the long time. Before I
move on further, I would like to convey my special appreciation to Dr. Chu Ei Yet who
is my key supervisor that has guided me along the way. First and foremost, I thank to
Dr, Chu for been selecting and approving me as one of your supervisee and student for
this thesis accompliment. Sir, I know that since you approved this, you have been taking
up responsibility to enlighten and inspire me. All the way, I has been feeling free to
express any of my hesitation to you. Honestly, this has been very great, as I recognized
that I was sort of simple-minded person. For this thesis, you have guided and taught me
from A to Z, without doubt. Sir, I have been sincerely appreciating for everything, and
that could not be able to be expressed into word. However, I would also like to take this
chance to apologize and forgiveness from you, Sir, if I have did anything wrong and
caused inconvenience to you all the way.
I would also like to show my gratitude to my coursemates. They are also my best
friends as well. They are Bong Hui Hian a.nd Cindy Yeo Siaw Hui. It is really honour to
have both of you with me all the way. Without you friends, I think I would not be able to
survive this long, in withhold of the ups and downs in life. Say, if the life could be chosen
again. I would still chosen to bewith you as my best friends, good partners and good
sisters as well; sharing the sweet and soul of life together. In this thesis, both of you
have indirectly help, advise and share your knowledge with me all the way. This has
benefits me greatly. Without you friends, I would not know very clearly on what is
carrying on with my thesis. Without you friends, I would not been doing a great job in
this thesis and out assignments of other courses as well. My university life of three
years has been really great to have both of you atong, giving your encouragement and
support to me all the way.
I would like to convey my special thank to my beloved parents for their lovings,
efforts and concerns. Besides, they also give financial support throughout my three
years studying in Universiti Malaysia Sarawak (UNIMAS). They have been very
understandable to me, knowing that I am busy with my assignments and thesis, yet
they give their support to me spiritually and taking care with my daily routine and
meals all the way.
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To my fellow coursemates, though you may not know me very well, I would still
like to convey my thankfulness to you. You have been indirectly discussing the details of
the thesis and assignments with me. Though all of us have different supervisor of own,
but still you let me understand that we may have different way to do thesis, but we hold
common hopes; moving in the same direction, to a better future. With this, I have been
given a better consideration on the way to do my thesis. Lastly, I have being able to
complete all my assignments and this thesis as well, submitting it on time to the
concerned lecturers.
I would like to thank to the staffs of the Faculty of Economics and Business
(FEB), UNIMAS. Upon data collection, it is necessary to obtain data from the Thomson
Datastream software. As concerned, this software is very costly and it is only available
at certain venue in FEB. A specially thanks to the staffs who has been approving me to
use the software whenever I need it. Recalling, I have been bothering them quite a few
times for the request to use the software. I also thanks for their concern as they
understand that we are taking time to use the software, since we are not experting and
is learning to use it.
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Pusat Khidmat MakJumat Akademlk UNlVERSm MALAYSIA SARAWAK
TABLE OF CONTENT
Chapter 1 Introduction
1.1 Information Asymmetry ..................................................................... 1
1.2 Financing Decisions ..................................................................... 5
1.3 Background of the Study ..................................................................... 8
1.3.1 The Pecking Order Theory ................................................. 9
1.3.2 Adverse Selection ..................................................................... 10
1.4 Problem Statement ..................................................................... 11
1.4.1 Practical Problem ..................................................................... 11
1.4.2 Research Problem ..................................................................... 11
1.5 Objectives of the Study .............: ....................................................... 12
1.5.1 General Objective ..................................................................... 12
1.5.2 Specific Objective ..................................................................... 12
1.6 Significance of the Study ..................................................................... 13
Chapter 2 Literat'ure Review
2.1 Introduction ......................................................................................... 14
2.2 Overvievv ......................................................................................... 15
2.3 Information Asymmetry ..................................................................... 16
2.4 Financing Decisions ..................................................................... 18
2.5 The Statis Trade-off and the Pecking Order Theory ............................. 22
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Chapter 3 Methodology
3.1 Introduction ...... '" ................................................................................ 26
3.2 Theoretical Framework .......................... '" .......................................... 27
3.3 Model and Hypotheses Development ................................................. 28
3.3.1 Model Development .. .. ....................................................... 29
3.3.2 Hypotheses Development ........................................................... 31
3.4 Description on Variables ..................................................................... 35
3.4.1 Dependent Variable .......................................................... ,. 35
3.4.2 Independent Variable .......................................................... 36
3.5 Data Description ................................................................................38
3.5.1 Sample Period ..................................................................... 38
3.5.2 Data Collection ..................................................................... 38
Chapter 4 Result and Findings
4.1 Introduction ......................................................................................... 4()
4.2 Descriptive Statistics ..................................................................... 41
4.3 Correlation Test .............................................................................. 43
4.4 Panel Ordinary Least Square (panel OLS) ........................................ 44
4.4.1 Bis-ask spread as dependent variable ............................. 46
.' 4.4.2 DR as dependent variable ........................................................... 49
4.5 Discussion on the findings ........................................................... 52
4.5 Conclusion ............................................................................... 53
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Chapter 5 Summary
5.1 Introduction ............................................................................... 54
5.2 Summary of the study ..................................................... ~.............. 54
5.3 Summary of the findings .................................................................... 56
5.4 Policy Implication .................................................................... 57
5.5 Limitations of the study ..................................................................... 59
5.6 Recommendations for future direction ................................................. 60
5.7 Conclusion ............................................................................... 61
REFERENCES
APPENDIX
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LIST OF TABLES
Table I The descriptive statistics of the Study ............ ... .......... .......... .. ....40
Table 2 Correlation analysis of the Study ........ ........................ '" .............. 43
Table 3 The determinants of bid-ask spread (BAS) ................ .. ........... 46
Table 4 The determinants of debt ratio (DR) ............... .......................... 49
Table 5 Summary of Panel OLS for the regression models ................. .. 56
LIST OF FIGURES
Figure I Flow of Information between Insiders and Outsiders ................... 3 (Adopted from Cheng, 2(06)
.Figure 2 Approaches that can be applied in the study ,.. .............. ,........... 8
Figure 3 Theoretical Framework of the study ................................... .... 27
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;
Chapter 1
Introduction
1.1 Information Asymmetry
Several studies have found that information asymmetry is among the
challenge issue in the world today. Information is advancing to a modern way as
it plays essential role in many aspects. Nowadays, information can be assess
easily in a split second as it is spreading around whenever it is needed. Yet,
information plays important role in financing decisions (Scholtens & Wensveen,
2003). There are various kinds of information available especially information
on business and economics. For instance, Nayyar (1990) conducts a study where
competitive advantage in the market could leads to information asymmetry. It
then results in information costs for the involved parties. Over the long time,
distribution of information has been concerned in almost every aspect.
"In the real world, imperfections such as taxation, bankruptcy,
information ,symmetry, and agency costs are a fact of life, thereby making the
celebrated Modigliani-Miller theorem fragile" (Broil & Wong, 1999). This means
that the information asymmetry is the necessary in life. There is nothing that is
one hundred percent perfect in life. If so, life should not be that interesting.
Information asymmetry refers to any imbalance of information between
suppliers and demanders (Demir, Kalaychi & Celik, n.d.). It does not shows the
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strong version of efficient market hypothesis. Rather, there are issues on
asymmetric information, between insiders management and outsi ers investor.
Apparently, information asymmetry can be known with different names.
There are information asymmetry (Richardson, 20(0), uncertainty, poor
information disclosure (e.g., Bailey, Karolyi & Salva, 2002; Attig, Fong,
Gadhoum & Lang, 2006; Hussainey & AI-Najjar, 2011), market imperfection
(Scholtens & Wensveen, 2003), information-driven imperfection (Carpenter,
1994) and information disagreement (Bailey et al., 2(02). Myers and Majluf
(1983) expresses that information asymmetry appears when the amount of
information hold by two parties is different and inconsistent. It briefly describes
with the lack of complete information, the inaccurate information acquired, the
inconsistent of information disclosure, and the uncertain among parties. This
usually happens to outsiders investor. However, there are issues on asymmetric
information within firms, happening between insiders management and
outsiders investor.l
Eventually, findings of Attig et al. (2006) reflects that information
asymmetry is high in family-based companies of Singapore and Hong Kong.
Consequently, when there is no information asymmetry, firms are subjected to
high level of information disclosure (Bailey' et al., 20(0). Insiders of bigger firm
hold more information than outsiders do. Insiders hold information that. outsiders do not have. Scholtens and Wensveen (2003) states that informational
gaps between insiders and outsiders is due to that insiders hold information
advantage. Whereas, Choi, Sami and Zhou (2010) points that information
I Among the studies or research paper that is related are Bessler et a!. (20 II); Choi, Sami, Zhou (201 0); RichardROtl (1998); Attig et ~1. QO(6); Chu and Song QO 10); A~~ I.:A?v (2000)
2
asymmetry usually explains the relationship or correlation between insiders
and outsiders, in the perspective corporate finance. Insiders have superior.. linkage to true information about firm, as compared to outsiders.
Information asymmetry could also used to explain general phenomena of
businesses. Prior to the study of information asymmetry as done by Myers and
Majluf (1983), it is regards whether a firm should let outsiders to issues shares
or equity to raise fund for their new project with assumption that outsiders
could act rationally based on firm's behavior.2
In constrast, Cheng (2006) states that the u.s. countries are always rich
with information. However, information asymmetry may include risk and
"value". Insiders hold the risk that the outsiders may hold informational
advantages than they do. And vice versa, assuming that outsiders hold the risk
that the insiders may possess or signal inaccurate information to the market.
Both insiders and outsiders have their own consideration as well. Consequently,
in general form, information flows of insiders and oursiders can be summarized
as follow:
Figure 1: Flow of Information between Insiders and Outsiders (Adopted from Cheng, Z006) .
Adverse Selection
. Insiders ' \ Outsiders
Information advantage r Information asmmetry
Information Risk
2 Example in the paper entitled "Corporate financing and investment decisions when firms have the in(Qrmatioo thaJe invmaB da oot have"
3
Again, information asymmetry comes from interest of parties within firm
(Jensen & Meckling, 1976). Similarly, issue of information asymmetry arise
when insiders mainly focus for the benefit of firm For instance, during the
period of 1993 to 1994, Malaysia's capital market growth has out-perform and
beyond expectation (Song, 2007). The period was known as super bull-run where
investors involve in super active kind of speculation. Indices were priced highly
with narrow dispersion of information asymmetry. This has indirectly becomes
major aspect to firm's financing decisions. Major financing decisions of firm are
made in term of asymmetries information laying from conflicts of interest
between parties.
Jiao (2010) documents that there are noisy and soft information 3.
However, information is informative only when outside investors receive what
is exactly been delivered. Prior studies had shown various factors causing to
information asymmetry in the market (Aboody & Lev, 2000).4 Both insiders and
outsiders respectively possess and receive different amount of information. If
the financing decisions of firm is based on capital structure of firm, it reflects a
weak form of efficient market hypothesis, where information asymmetries arise.
This shows that insiders possess little information on firm's intrinsic value.
Insiders wh9 release private information regarding the firm, the information
will show changes in bid and ask prices. 5 In extent to measurement of
information asymmetry, bid-ask spread is used. For instance, Bachtiar (2008)
Soft information indicates the value of finn which can be assess easily; whereas, noisy information isJdnd of information which is consider imperfect since it does not reflect other infonnation (liao, 2010) 4 Among the factors that is related to infonnation asymmetry ar~ analyst coverage (Chang et aI., 20(6), institutional ownership (Wang & Zhang, 2(09), insider gains (Aboody & Lev, 2(00), trading volume (Bailey et al., 2000), corporate ownership (Choi et aI., 2010), Bachtiar, 2008), finn's capital structure piao,2010) and liO on
See the study by Siegel and Karim (1998) which presents information as proxy to abnonnal returns; measured by bid-ask spread
4
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Pusat Khidmat MakJumat Akademik UNIVERsm MALAYSIA SARAWAJ(
results that information asymmetry and bid-ask spread have a positive
relationship. This would then helps to minimize losses of the firm...
Last but not the least, Shaym-Sunder and Myers (1999) initiates the
theory of pecking order as an indicator to see how information asymmetry
should guides to firms' decisions.
1.2 Financing Decisions
In general, major firms are to issue equity for their financing purpose
(Broll & Wong, 1999). According to Ahmed and Hisham (2009), Malaysian firms
prefer financing sourced from financial institution due to the ease of obtaining it.
Firms tends to issue securities, especially bond, after the Asian financial crisis.
Strict competitiveness in today's business world forces manager to make
the best suited decisions on capital structure and financing decisions of firm
(Rasiah & Kim, 2(02). According to Aboody and Lev (2000), the investments
matter of firm lead to asymmetries information. This statement is not in line to
the general objective of this study. Moreover, Scholtens and Wensveen, 2003
claims that financing decisions of firm ·are always closely related to the
inlormational data on firm.
However, to better understand on information asymmetry, it is quite
important to understand its impact on various firm's decisions. In the paper by
Jiao (2010), information influence not only the financing decisions of firm, but it
is more or less did influence financing behaviour of firm. Based on the study
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II!!=....---I:==------===---=-=----:------~--"-"'--'~---.----_=_------=--~---
done by Myers and Majluf (1983), there are major studies regarding the impact
brings by asymmetries information on various firm's decisions and issues (e.g."
see the recent study done by Bessler, Drobetz and Gruninger, 2011). Dispersion
of information asymmetry exists when firm is undervalued or overvalued,
leading firm to inability to issue security (Chang, Dasgupta and Hilary, 2006).
This would then result to the frequency of firm to acquire financing source.
Practically, financing decisions are related to the matter of issuance of
debt and equity by firm (pike and Neale, 2009; Bessler et al., 2011). Why do
some firms issue security? The issuance offers security in the market and wish
to attract investors to issue it. The main intention behind is to the sake of firm,
to develop its financial slack or financial reserve to finance the profitable
project. Leary and Roberts (2008) present that there are generally more than 50%
of firms consider the choice between internal and external financing rather than
choosing between debt and equity financing.
Generally, a firm should have short-term and long-term financing plan
that to consider. This is related to the way of how a firm acts to increases its
fund, internally and externally, in both short-term and long-term period. In
other word, it is all about the flow of fund of the firm. The purpose of financing
tends to create an instrument or securi~, from individual or authorized
institution(s), to raise fund and financial slack of firm. Lastly, those individual
or the authorized institution(s) would be the investor to the firm.
Idiosyncratically, bigger firm seems to be reliable to raise fund. Such
firm is well-known and big-sized, with its reliability to their operation and
strong management team. In the future, they tend to create more income or
6
equity, based on their primary objectives to maximize shareholders wealth, and
minimize risk. In this study, financing decisions act as principal explanatory "
variable to information asymmetry. Financing decisions of firm act as key
rationale to see how managers behave to possess or releases particular
information of firm to the outsiders.
Practically, financing decisions are correlated with the matter of
issuance of debt and equity by firm (pike & Neale, 2009). Firms usually offer
security in the market and in return, they wish to attract investors to invest in
the company. In fact, the main intention behind is that firm need financial slack
or financial reserve to finance new project. Therefore, firm would need more
cash or capital to fund the project.
In short, it is somehow important to understand its impact on variQus
firm's decisions. Thereafter, there are major studies regarding the impact brings
by asymmetries information on various firm's decisions and issues. However,
the basic study of this study is that how financing decisions of firm influence
how much the managers should and could release; considering its impact to the
firm and the market as well.
The structure in this study paper is as follow: The next section in this
chapter displays a brief background of thi~ study. Chapter two develops the
literature review related. Chapter three shows the methodology to measurement
of both firm's financing decisions and information asymmetry (i.e., the variable
of this study). Chapter four is the empirical result and findings resulted from
the previous chapter. Last but not the least, the final chapter includes the
overall summary on this study.
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I,...
1.3 Background of the Study
Theories of capital structure (i.e., financing decisions) have been applied
to illustrate information asymmetry between insiders and outsiders. Bessler et
aI. (2011) show that capital structure decision would influence information
asymmetry. Firm's capital structure has been very useful to financing decisions
(Fama and French, 2005). However, the table as follow summarizes the
approaches than can be apply to firm's financing decisions and information
asymmetry respectively.
Fi6ure 2: Approaches that can be applied in the study
Information Asymmet::L..~_____-+-=F:....:i=n:.::a=n:.::c=in=-Decl;;;;; io ;;;;s~_______--11=.;;;.;;;·s;.;;;;;;.;;nSignaling theory Trade-off theory Agency theory Pecking-order theory
Adverse Selection Modigliani-Miller theorem (financial-policy-irrelevancy argument) Fama and French framework Time-V Adverse Selection
1.3.1 The Pecking Order Theory
Information asymmmetry is a part of pecking order theory. The theory
could be used to explain financing matter of a firm. "The pecking order theory of
capital structure is among the most influential theories of corporate leverage"
(Frank & Goyal, 2(02). Prior studies have prove that pecking order theory
provides better description on financing behavior of firmS. In contrast, Chang et
at (2006) describes that small firm is tending to external financing as compared
6 See also Myers (1984); Frank and Goyal (2002) for further explanation on pecking order theory
8
to bigger firm. In overall, the theory claims that firm is tending to external
financing when internal financing is insufficient.
There is no one best way. In the study by Bessler et aI. (2011), pecking
order theory is used to illustrate how a firm behaves in making the possible best
suited financing alternative for the firm itself. Firm prefers to issuance of equity
when there is low level of information asymmetry. This could strengthen the
financial slack of firm. Firm will then have enough capital and ability to finance
the project with high profitability as it meant to expand the financial reserves of
firm. The reserves will then contribute to a high and positive net present value
of the project. In addition, low level of information asymmetry refers to
condition where insiders know more about firm that the outsiders do. Firm was
behaves in such a way that information are reduced and less released by the
insiders.
The paper by Leary and Roberts (2008) also state that pecking order
theory hypotheses is related to information asymmetry and financing decisions
of firms. It begins with internal financing of firm, leverage and equity issuance,
using it to minimize adverse selection costs. Chang et al. (2006) claim that it is
among the important theory related to firm's equity issuance decisions (i.e.,
financing decisions). However, information. asymmetry is always seems to be
related with market timing. When firm issue equity, it leads to higher level or
widen the range of information asymmetry, due to conditions in the market
which is quite volatile. When firm is overvalued, managers prefer and intend to
issue equity. This is because the firm has the ability and great opportunity to do
so. Therefore, the range of information asymmetry between firm's insiders and
outsiders will be widened.
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1.3.2 Adverse Selection
Based on the paper by Frank and Goyal (2001), peckiflg order theory,
capital structure and adverse selection are inter-correlated. Adverse selection
possess that firm prefers internal financing rather than external financing
(Bessler et al., 2011). This is due to the ease of volatility to repay fund. Wang
and Zhang (2009) express that when outsiders have the same information about
firm as the insiders (e.g. managers), the dispersion of information asymmetry
would be narrower; leading to minimize the adverse selection costs at the same
time. In short, influences of adverse selection could influence information
asymmetry since it is measured by bid-ask spread (Choi et aI., 2010). Adverse
selection arises when firm (e.g. small and medium firm) does not matter too
much on financing matter.
On the other hand, time-varying adverse selection, as the name implied,
it is all about timing. It determines when firms are beneficial to issue security or
equity.' Firm is assumed to issue equity immediately once information is
released to the market. This is due to costliness and riskiness if such issuance is
made in a particular period later. This usually happens among u.s. firms
(Bessler et al., 2011). However, if firm is undervalued, manager acts rationally
to delay isSuance of equity. The manager ~o so to wait for the opportunity of the
stock price to rise. In short, manager tends to seek for great opportunity and
take advantage from it (i.e., the equity issuance).
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1.4 Problem Statement
In this study, the dominant issue that is faced is the question to the
relationship between information asymmetry and financing decisions.
Consequently, major studies are focusing on the information asymmetry and
financing decision, respectively.
1.4.1 Practical Problem
As aforementioned, major previous research are focusing on the issues of
information asymmetry and various decisions of firm, respectively. This study
explores how firm's financing decisions could relates and leads to information
asymmetry. A basic question arieed: how financing decisions of firm could
influence the flow of information within and beyond firm; leading to differences
in information asymmetry aftermath.
1.4.2 Research Problem
According to Chen and Poor (2003), the market (e.g. outsiders investor)
might not have exact information on the true value of firm as the insiders do.
Consequently, information asymmetry occur. This rises up to the question of
why outsiders do not have true informatioll about firm (Myers & Majluf, 1983).
Seems that they could not be able to access to particular information about the
firm. Thereafter, it is hard for both insiders and outsiders to hold symmetric
information. Thus, it seems impossible to hold equal amount of information for
every parties in the market. In fact, insiders hold true information on firm's
value; while outsiders do not.
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1.6 Objectives of the Study
This section comprises the general and specific objectives ,.that is focused
in this study.
1.6.1 General Objective:
i. To determine the relationship of firms' financing decisions on
information asymmetry
Financing decision of firm as the key rationale, to examine how
insiders manager behave, in the perspective of financing matter, to
possess information to the outside investors. On the other word,
financing decision is the principle explanatory variable of information
asymmetry.
1.5.2 Specific Objective:
i. To study and apply theories or models in relative to information
asymmetry and financing decisions of firm
However, this study is specifically aiming on investigation of how
financing decisions of firm could leads the information asymmetry.
In other word, this study examines impact of firm's financing
decisions on information asymmetry in the market. Based on
financing decisions of firm, managers play their role in regards to
how much information to release to outsiders investor or the market.
Subsequently, managers consider its impact to firm, whether the
information released would increase or decrease firm's value.
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1.6 Significance of the Study
The primary purpose of this study is to investigate and obtain a better
understanding on the role of firm's financing decisions on information gains and
disclosure. It benefits academicians and students as well. Empirical studies had
shown various possible factors that might lead to information asymmetry
between insiders and outsiders. However, the key area here is looking at how
firm's decisions could influence the information possess. Specifically, firm's
financing decisions act as to represent the level of information asymmetries. In
addition, this study also proposes the approaches - the model and theories
related to the study. This would then create a better understanding on the
coverage of the study.
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