Could someone explain the two statements below?
Statement 1: A higher degree of info asymmetry generally tends to encourage greater use of debt financing relative to equity financing
Comment - no idea why?
Statement 2: Companies in countries with lower taxes on dividends generally have relatively lower debt in their capital structures.
Comment - Is this because investors may prefer dividends due to lower tax rates?
Because information asymmetry increases the cost of equity greater than the cost debt. One theory behind this is due to better creditor rights/protections afforded to debtholders relative to shareholders. Also, you can look at this from a pecking order perspective and an NPV one (e.g. if an insider has information about the expected cash flows of a project he will want to discount that at the lowest rate possible to achieve the highest NPV, which is first internally generated funds and then debt).
Pretty much