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An empirical analysis of cross-security information asymmetry and the “pecking order” hypothesis

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Abstract

This paper suggests that any examination of the “pecking order” hypothesis must consider the possibility that a firm's level of information asymmetry is related to the type of security it issues. The empirical results show that, on average, firms issuing common stock exhibit higher information asymmetry levels (as proxied by financial analysts' earnings forecast errors) than do firms issuing debt. However, after controlling for information asymmetry, abnormal returns to common stock announcements remain significantly less than those of debt issues which supports the existence of a “pecking order” in capital procurement.

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Authors and Affiliations

  1. University of South Alabama, 36688-0002, Mobile, AL

    Roger J. Best & Ronald W. Best

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  1. Roger J. Best
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  2. Ronald W. Best
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Best, R.J., Best, R.W. An empirical analysis of cross-security information asymmetry and the “pecking order” hypothesis. J Econ Finan 19, 19–29 (1995). https://doi.org/10.1007/BF02920612

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