Effect stock liquidity and excess leverage: Emphasis on information asymmetry

Subject Areas : Journal of Capital Market Analysis

Allah Karam Salehi ¹ , Aliyar Mehdipour ² , Abbas Baharipour ³

1 - Department of Accounting, Masjed-Soleiman Branch, Islamic Azad University, Masjed-Soleiman, Iran
2 - MSc. Accounting, Islamic Azad University, Masjed-Soleiman Branch, Masjed-Soleiman, Iran
3 - MSc. Accounting, Islamic Azad University, Khoramshar-Persian Gulf International Branch, Khoramshar, Iran

Received: 2021-08-26 Accepted : 2022-01-11 Published : 2021-11-22

Keywords: stock liquidity, Information Asymmetry, Excess leverage,

Abstract :

Maximizing shareholder wealth and reducing the capital cost are among the goals of financial managers. In this regard, deciding on financial leverage (capital structure) is one of the most effective ways to achieve these goals. On the other hand, the value of the company's stock and the expected return of shareholders are also affected by the stock liquidity factor. Lower stock liquidity is expected to lead to relatively greater use of debt. In addition, information asymmetry plays a key role in how managers make decisions about how to finance and determine the company's capital structure. Therefore, this paper investigates the effect of information asymmetry on the relationship between stock liquidity and excess leverage in the Tehran Stock Exchange during 2012 to 2018 using the information of 133 selected companies. The results show that there is a negative and significant relationship between stock liquidity and excess leverage and information asymmetry moderates this relationship and reduces its tensity. In fact, in companies with high information asymmetry, due to the lack of simultaneous access to information and the existence of information asymmetry, the negative impact of liquidity on excess leverage is less tensity and less.