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

TL;DR

This study investigates how information asymmetry influences the relationship between the speed of capital structure adjustments and expected stock returns, using data from Tehran Stock Exchange companies.

Contribution

It introduces the moderating role of information asymmetry in the link between capital structure adjustment speed and expected returns, based on empirical data.

Findings

Capital structure adjustment speed correlates with expected returns.

Information asymmetry positively moderates this relationship.

Empirical evidence from Tehran Stock Exchange supports the hypothesis.

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.