Pecking order, access to public debt market, and information asymmetry

We suggest that the limited access to the public debt market is a reason for the violations of pecking order behavior documented in literature. We show that as information asymmetry increases, two effects take place. On the one hand, firms do desire to increase the debt issuance. On the other hand, firms start to lose their access to the public debt market. As a result, firms associated with high degrees of information asymmetry can only issue private debt and face the relatively low debt capacities provided in the private debt market.