Is Information Asymmetry Makes Sense As A Moderate Variable In The Relationship Betweeen Debt-Equity Ratio And Firm Performance In The Indian Context?

Abstract

This study investigates is actually information asymmetry make sense as a moderate variable in the relationship between debt-equity ratio and firm performance in Indian context. By using a balanced panel dataset of 76 number of firms over the period of 10 financial years from FY 2014-15 to FY 2023-24, we employed panel regression model to find the impact. Firm performance is measured by ROA and ROE, we used Amihud Illiquidity ratio (2002)  as a proxy of information asymmetry and some control variables. The findings revealed that, relationship between Debt-equity ratio and performance indicates, increased leverage generally diminishes company performance, particularly regarding ROE, aligning with pecking order and trade-off theories within the Indian setting. The Moderating Role of Information Asymmetry: Information asymmetry favourably enhances the relationship between leverage and ROA while negatively affecting the relationship between leverage and ROE, signifying a complex dual impact. The study will helpful for investor, policymakers and academician who eagerly watching the impact of information asymmetry of the companies.