African Journal of
Business Management

  • Abbreviation: Afr. J. Bus. Manage.
  • Language: English
  • ISSN: 1993-8233
  • DOI: 10.5897/AJBM
  • Start Year: 2007
  • Published Articles: 4164

Full Length Research Paper

Information transparency and corporate financing decision: Testing the pecking order theory

Kuei-Yuan Wang1, Yi-Wen Meng2*, Fu-Shiang Huang1 and Derek Huang2
1Department of Finance, Asia University, Taichung 41354, Taiwan, Republic of China. 2Department of Business Administration, National Chung Cheng University, Chiayi 62102, Taiwan, Republic of China.  
Email: [email protected]

  •  Accepted: 03 August 2011
  •  Published: 30 September 2011


This research is mainly to study the impact of corporate information transparency on corporate financing decision. The “information disclosure and transparency ranking” survey results by the Securities and Futures Institute (SFI) were incorporated into the regression models to test the pecking order theory. The assumption was that information disclosure would lead to higher transparency, and in turn, higher market efficiency. While the financial deficit gets higher, the debt gets higher too, but does not follow the pecking order theory (management prefer debt financing to equity financing). On the other hand, when taking transparency into consideration, empirical results showed that with lower transparency and higher financial deficit, management is more inclined to follow the pecking order theory. It is apparent that information transparency is a vital indicator for corporations to follow the pecking order theory. Companies with lower transparency might raise debts extensively, and that would further impact on stockholders’ equity inducing a more serious agency problem. Thus, government as well as the corporate world should both promote information transparency and reduce information asymmetry to protect stockholders from suffering adverse selection.


Key words: Transparency, corporate financing decision, pecking order theory, information asymmetry, information disclosure.