A Study on the Financing Behavior and Adjustment Speed of Capital Structure under Information Asymmetry in the Korea Stock Market
Authors:   Asia-Europe Perspective Association, Lee So-Hyun , An Seung-Cheol , Kwon Soon-Yong 
Published: June 2018

The purpose of this paper is to test empirically the financing behavior and the adjustment speed of capital structure by information asymmetry in a integrated framework. In this paper, we use firm-size measuring-value of information asymmetry. Target leverage ratio use two way that one is estimated value and the other is average leverage ratio value. The sample of firms comes from the period of 2003∼2007. According to static tradeoff theory, an optimum financial structure exist by the tradeoff between tax saving by debt and bankrupcy costs. The main results of this study can be summarized as follows.
First, Korean listed firms pursue the target capital structure. The results of this study show that Korean listed firms have a significant positive degree gap between the target leverage ratios and the actual leverage ratios. This results suggest that firms may have debt financing behavior toward the target capital structure.
Second, Korean firms whose the target leverage ratio is above the actual ratio are expected to increase actual leverage ratio to meet target capital structure. Using samples of this category, there are no significant differences of the gap between the target leverage ratios and the actual leverage ratios between large firms and small firms. Low information asymmetry firms are likely to know their target capital structure compare to high information asymmetry firms. Thus, low information asymmetry firms can change the capital structure when they needed. But, the small firms with high information asymmetry have difficulties to know their target capital structure. The insignificant results may comes from their problems of capturing the target capital structure.
Third, firms whose target leverage ratio is below the actual ratio are expected to reduce the actual leverage ratio. Using the average ratio as measure of the target ratio, the results indicate that the gap between the target leverage ratios and the actual leverage ratios is significant negative for the large firms of this category. The results suggest that the large firms can easily change the target capital structure compare to the small firms.
Fourth, it is expected that high information asymmetry firms tend to borrow money rather than issue corporate bonds due to the costs of issue. However, the results are insignificant. This may be sampling error due to the selection limitation of the listed firms. For the finer measurement of the information asymmetry, various proxies such as analysts reports and the ratio of book and market values are recommended for the further study.
Fifth, the adjustment speed of the capital structure for total Korean listed sample firms is close to 0.27. which is similar but lower than the results of the previous Korean listed firms studies. The results show the adjustment speed for the large firms is lower than that of the small firms. The adjustment speed of the capital structure for the large firms close about 24 percents of the gap between their actual and target debt ratio within one year. The adjustment speed of the capital structure for the small firms close about 36 percents of the gap between their actual and target debt ratio within one year. This results suggest that the small firms' adjustment speed of capital structure is faster than the large firms' adjustment speed of capital structure. The results are similar to the previous Korean listed firms studies. However, this is not supported by the hypothesis that the large firms have fast adjustment speed due to the low information asymmetry.
When there is a gap between the target leverage ratio and the actual leverage ratio, firms are expected to reduce this gap by taking financing behavior. This paper empirically examined the financing behavior and the adjustment speed of the capital structure for Korean listed firms based on information asymmetry framework. Firm size is used as the proxy for information asymmetry.