The Effect of Petrochemical Industry on Relationship between Information Asymmetry of Investment Risk and Financing Choices

Although it is generally accepted that information asymmetry has an impact on capital structure policy, the nature of the information asymmetry is not well understood. Recent theoretical works and empirical evidences suggest that financing choice depends upon the information asymmetry of the investment risk of using funds (Halov & Heider, 2012) (Rao, Mohanty, & Baxamusa, 2015). Consistent with this view, we analyzed the data gathered among 199 companies listed in Tehran Stock Exchange during 2009-2016 by the multiple linear regressions in order to check that the research hypotheses have been applied. We examined the influence of petrochemical industry on that relationship. The findings show that equity is used to fund projects with a greater information asymmetry of their risk such as intangible assets, while debt is used to fund investments with a lower information asymmetry of their risk such as capital expenditure and liquidity enhancement. We found out that the membership of petrochemical industry has no effect on the intangible assets, but, concerning the capital expenditure and working capital, the impact is significantly negative; the impact is significantly positive about cash holding.