Originality/Value: This chapter contributes to the related literature in two ways. Finally, the results contribute to the vast literature on the estimation of information asymmetry by demonstrating that the classical and standard proxies for information asymmetry are not consistent in terms of the ability to differentiate between favorable or adverse selection (which corresponds to low and high level of information asymmetry). These findings prove that information asymmetry plays a vital role in the relationship between corporate financial decisions and growth of the firm. In addition, corporate dividen d policy has a similar effect on firm growth across all asymmetric levels. A similar picture emerges in the cases of firm size and industry effects. Standard and proposed proxies of information asymmetry are discussed.įindings: The results conclude that there is a variation in the impact of financial variables on growth of the firm at high and low levels of information asymmetry especially regarding investment and financing decisions. The generalized method of moments estimation method is employed in order to examine the relative significance and contribution of each financial decision on growth of the firm, respectively. The statistical tests include linearity, fixed, and random effects and normality.
The data cover quarterly periods from 1989 to 2014. Therefore, the core objective of this chapter is to examine the determinants of each financial decision and the effects on growth of the firm under conditions of information asymmetry.ĭesign/Methodology/Approach: This chapter uses data for the non-financial firms listed in S&P 500. As far as financial decisions affect growth of the firm, the latter must also be affected by either favorable or adverse selection.
Purpose: In reality, financial decisions are made under conditions of asymmetric information that results in either favorable or adverse selection.
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