Capital Structure Adjustment Speed and Expected Returns: Examination of Information Asymmetry as a Moderating Role

Paper: arXiv 2403.06035

Authors: Masoud Taherinia, Mehrdad Matin, Jamal Valipour, Kavian Abdolahi, Peyman Shouryabi, Mohammad Mahdi Barzegar

Abstract

Shareholders’ expectations of stock returns and fluctuations are constantly changing due to restrictions in financial status and undesirable capital structure, which constrain managers to limit the changes in price trends in order to cover the risk instigated and infused by the unfavorable situation. The present research examines the moderating impact of information asymmetry on the relationship between capital structure adjustment and expected returns. The data from 120 companies approved in the Tehran Stock Exchange were extracted, and a hybrid data regression model was used to test the research hypotheses. Findings indicate that the capital structure adjustment speed correlates with the expected returns. Moreover, the information asymmetry positively affects the relationship between capital structure adjustment speed and expected returns.

Complexity vs Empirical Score

• Math Complexity: 3.5/10
• Empirical Rigor: 5.5/10
• Quadrant: Street Traders — practical and empirical, lighter on theory

Why this score: The paper uses standard empirical panel regression methods on market data to test corporate finance hypotheses without introducing complex mathematical derivations. While the empirical setup covers a moderate sample of firms (120 Tehran Stock Exchange companies), the novelty is incremental, focusing on the moderating role of information asymmetry.

Research Flowchart

  flowchart TD
    A[Research Goal: Examine if Information Asymmetry moderates<br>the link between Capital Structure Adjustment Speed & Expected Returns] --> B[Data Collection: 120 companies listed on Tehran Stock Exchange]
    B --> C[Methodology: Hybrid Data Regression Model]
    C --> D[Compute Capital Structure Adjustment Speed & Information Asymmetry]
    D --> E[Outcome 1: Adjustment Speed directly correlates with Expected Returns]
    D --> F[Outcome 2: Information Asymmetry positively moderates<br>the relationship between Adjustment Speed & Expected Returns]