Information asymmetry, leverage and firm value: do crisis and growth matter?

Samuel Fosu, Albert Danso, Wasim Ahmad, William Coffie

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    Abstract

    Drawing on pecking order and agency cost theories, we assess the extent to which information asymmetry is an important determinant of firm value and the extent to which this relationship is conditional on the leverage level of firms. We also assess the impact of information asymmetry on firm value during the pre and post 2007/09 financial crisis period and for high and low growth opportunity firms. Using a large sample of UK firms, our empirical findings suggest that information asymmetry adversely impacts firm value, and that this effect decreases with firm’s leverage. We also find that leverage has a negative effect on firm value, and that the marginal effect of leverage is lower for information asymmetric firms. Further, we find that the relation between information asymmetry and firm value is more pronounced in the post-crisis period than the pre-crisis period. Finally, we show that the impact of information asymmetry on firm value is higher (lower) for firms with high (low) growth opportunities.
    Original languageEnglish
    Pages (from-to)140–150
    Number of pages11
    JournalInternational Review of Financial Analysis
    Volume46
    Early online date10 May 2016
    DOIs
    Publication statusPublished - Jul 2016

    Keywords

    • Information asymmetry
    • leverage
    • firm value
    • financial crisis
    • UK

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