Information Asymmetry and the Timing of Capital Issuance: An International Examination

Abstract

Using issuance data across 50 countries from 1996 through 2009, we examine the role of information asymmetry in market timing globally. We utilize a model that takes into account the possible feedback of security issues to past market returns allowing us to ascertain whether timing of capital issuance around the world is based on information asymmetry. We find evidence of both market timing and pseudo market timing. The evidence for (pseudo) market timing is (not) significantly stronger in international sub-samples with greater levels of information asymmetry when capital issuance is measured by (changes in equity) equity share. These results suggest that information asymmetry plays an important role in the ability of managers to time capital issuance and that counter to the implications of extant literature, market timing and pseudo market timing are not mutually exclusive, i.e., existence of one does not nullify the other.

Keywords: equity issues, market timing, information asymmetry, international evidence

JEL Classification: C53, G14, G15, G32