Research on Corporate Financing Decisions and Capital Structure Choices from the Perspective of Information Asymmetry

DOI: https://doi.org/10.62517/jbm.202609503

Author(s)

Hailing Xie*, Tiantian Zhang

Affiliation(s)

School of Finance, Fuzhou University of International Studies and Trade, Fuzhou, Fujian, China *Corresponding Author

Abstract

Information asymmetry is an important feature of capital markets and an important perspective for understanding corporate financing decisions and capital structure choices. Based on the evolution of capital structure theories, this paper incorporates adverse selection, moral hazard, and signaling into a unified framework to analyze the underlying mechanisms through which information asymmetry affects corporate financing decisions. Adverse selection increases external financing costs, thereby increasing firms’ reliance on internal funds and affecting their financing choices; moral hazard gives debt financing both governance effects and agency costs, with its effects depending on debt levels, maturity structure, and creditors’ monitoring capabilities; signaling makes the choice of financing instruments a channel for information transmission. These three mechanisms jointly affect capital structure choices. Based on this framework, this paper uses the pecking order theory as a reference to analyze the effects of information asymmetry on the volume of external financing and financing structure, and discusses the operation of the three mechanisms and the applicability of the pecking order theory under the institutional environment of China’s capital market. This paper adopts a theoretical analysis approach and does not conduct empirical tests; the relevant propositions still require further examination through empirical evidence.

Keywords

Information Asymmetry; Financing Decisions; Capital Structure; Pecking Order Theory; Signaling

References

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