off idea, although the asymmetric information concerns in larger businesses are likely to be lesser As a result, larger firms would be able to issue fresh shares instead of debt financing without losi.
off idea, although the asymmetric information concerns in larger businesses are likely to be lesser As a result, larger firms would be able to issue fresh shares instead of debt financing without losing market value Again, there are two possible outcomes when examining the link between business size and debt financing, both supported by distinct theoretical perspectives A positive relationship emphasizes the value of diversification, while a negative relationship emphasizes the importance of information asymmetry • Corporation nature of asset (tangibility) Corporations with more physical assets are thought to have a greater debt capacity Because the collateral capability of physical assets in situ tends to raise debt financing levels, asset tangibility plays a significant role in debt financing decisions Furthermore, according to agency theory, companies with high debt financing levels tend to underinvest or invest below their optimal levels, transferring wealth from debt holders to equity holders They believe that loan holders demand collateral as a result of these projected underinvestment behaviors since secured debts can assist ameliorate the situation They also believe that the tangibility of assets raises the firm's liquidation value and reduces the risk of mispricing in the case of bankruptcy As a result, the presence of tangible assets among a corporation's assets serves two key functions: it allows the business to pledge the assets as collateral, lowering debt agency expenses such as risk shifting; and it protects the debt holder in the case of liquidation It indicates that companies who have trouble supplying collateral are more likely to pay higher interest rates or be obliged to issue stock instead of debt, implying a positive link between asset tangibility and debt financing Because a bigger share of tangible assets in a corporation's asset portfolio is intended to ease supply side limitations, asset tangibility might also discourage debt financing Because physical assets have minimal information asymmetry, the pecking order hypothesis predicts that stock issuances will be less expensive As a result, debt financing levels for enterprises with stronger tangibility should be lower • Corporation growth