Information Asymmetry, Monitoring, and the Placement Structure of Corporate Debt

Journal of Financial Economics, Vol. 51, No. 3, March 1999

Posted: 20 Feb 1999

See all articles by Sudha Krishnaswami

Sudha Krishnaswami

University of New Orleans - College of Business Administration

Paul A. Spindt

Tulane University - A.B. Freeman School of Business

Venkat Subramaniam

Tulane University

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Abstract

We empirically examine the impact of flotation costs, agency conflicts, regulation, and information asymmetries on a firm's mix between public and privately placed debt. Our results indicate that larger firms and firms with larger issue sizes exploit the scale economies in flotation costs of public debt, and so have lower proportions of private debt. We also find that firms that have higher contracting costs due to moral hazard, such as firms with more growth options, have higher proportions of private debt. However, our evidence provides only limited support for the view that private debt mitigates the contracting costs associated with adverse selection. Although we find that firms that operate under a greater degree of information asymmetry rely more on private debt, we find little evidence that firms with favorable private information about future profitability choose more private debt. We do however, find weak evidence that of the firms with favorable information about future profitability, those that are also subject to a high degree of information asymmetry rely more on private debt.

Note: This is a description of the paper and is not the actual abstract.

JEL Classification: G30, G32

Suggested Citation

Krishnaswami, Sudha and Spindt, Paul A. and Subramaniam, Venkat R., Information Asymmetry, Monitoring, and the Placement Structure of Corporate Debt. Journal of Financial Economics, Vol. 51, No. 3, March 1999. Available at SSRN: https://ssrn.com/abstract=149308

Sudha Krishnaswami (Contact Author)

University of New Orleans - College of Business Administration ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States
504-280-6488 (Phone)
504-280-6397 (Fax)

HOME PAGE: http://www.uno.edu/~skrishna

Paul A. Spindt

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States
504-865-5413 (Phone)

Venkat R. Subramaniam

Tulane University ( email )

A.B. Freeman School of Business
New Orleans, LA 70118
United States
504-865-5493 (Phone)
504-862-8327 (Fax)

HOME PAGE: http://www.tulane.edu/~vencat

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