Abstract
This study examines the influence of information asymmetry on the degree of reliance on bank loans and the effect of the degree of reliance on bank loans on capital structure in the UK. While the results obtained support the notion that information asymmetry is a major cause of reliance on bank loans, they contradict the US evidence reported by Johnson (1998) which shows that bank loans enhance capital structure. However, the results are consistent with the implication of capital structure theories that the source of debt is not an important part of the capital structure decision. The results also agree with the suggestion of Rajan and Zingales (1995) that there are some differences between the financing practices of firms in the US and the UK.
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