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Article
Publication date: 27 June 2008

H. Young Baek, Dong‐Kyoon Kim and Joung W. Kim

The aim of this paper is to investigate the effect of management earnings forecasts on the level of information asymmetry around subsequent earnings announcement.

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Abstract

Purpose

The aim of this paper is to investigate the effect of management earnings forecasts on the level of information asymmetry around subsequent earnings announcement.

Design/methodology/approach

Employing the adverse selection cost method suggested by George et al., the paper compares for each sample firm the adverse selection cost around earnings announcement in forecasting years with that in non‐forecasting years.

Findings

Consistent with Diamond and Verrecchia is the finding that the earnings announcement in non‐forecasting years decreases information asymmetry during a three‐day announcement period and increases in a post‐announcement period up to seven days. No significant change in information asymmetry between pre‐ and post‐announcement periods when firms released a “good” news forecast is found. The firms that previously released a “bad” news forecast experience a significantly lower information asymmetry than those that did not forecast during announcement or post‐announcement days, and experience a decrease in information asymmetry in a five to seven‐day post‐announcement period.

Originality/value

This paper provides the first empirical reports on the different information asymmetry changes around earnings announcements followed by a “good” news management forecast from those followed by a “bad” news forecast.

Details

International Journal of Accounting & Information Management, vol. 16 no. 1
Type: Research Article
ISSN: 1834-7649

Keywords

Book part
Publication date: 26 May 2022

Setyo Tri Wahyudi, Kartika Sari, Rihana Sofie Nabella and Dyah Dwi Zubaidah

Banks are intermediary institutions that play an important role in accelerating economic growth. Therefore, banks need to implement policies to improve the efficiency and quality…

Abstract

Banks are intermediary institutions that play an important role in accelerating economic growth. Therefore, banks need to implement policies to improve the efficiency and quality of digital finance, namely through the Extensible Business Reporting Language (XBRL), which developed amid Society 5.0. However, the application of XBRL does not completely rule out the possibility of information asymmetry. Therefore, this study aims to analyze the effect of Extensible Business Reporting Language (XBRL) on asymmetric information with corporate disclosure as a moderating variable (expected to reduce information asymmetry) and analyze the effect of XBRL and control variables (size, turnover, stock price) on information asymmetry. The sample used is conventional banks that have been listed on the IDX and are not delisted, from 2015, since the implementation of XBRL until 2019 using the panel data regression method. The results obtained are that information asymmetry decreases with the application of XBRL, where corporate disclosure is a moderating variable. For the results of the control variable, the larger the size, the less information asymmetry and turnover. As for the stock price, the higher the stock price, the higher the information asymmetry.

Details

Modeling Economic Growth in Contemporary Indonesia
Type: Book
ISBN: 978-1-80262-431-1

Keywords

Article
Publication date: 14 December 2023

Xing Zhang, Yongtao Cai, Yiwen Li and Yan Zhou

This paper aims to clarify the impact of information asymmetry on users' payment rates and examine the role of perceived uncertainty (PU) and acceptable price (AP) in the…

Abstract

Purpose

This paper aims to clarify the impact of information asymmetry on users' payment rates and examine the role of perceived uncertainty (PU) and acceptable price (AP) in the relationship between information asymmetry and users' payment rates.

Design/methodology/approach

To test the influences of information asymmetry on users' payment rates, this paper collects 18,489 transaction data from the Chinese knowledge payment platform Zhihu with a Python crawler. This paper constructs a mediation model to define the relationship between information asymmetry and users' payment rates by introducing PU and AP as the mediators.

Findings

Information asymmetry negatively affects users' payment rates. In addition, PU and AP mediate the information asymmetry in users' payment rates bond.

Research limitations/implications

This study only explores the mediators of the information asymmetry users’ payment rates bond, ignoring the effect of potential moderators, which would be an important direction for future research.

Practical implications

The findings of this paper suggest that information communication is essential in knowledge market transactions. Knowledge providers, as well as knowledge platforms, should enhance information exchange with consumers in order to increase product sales.

Social implications

This paper provides a new perspective for understanding how information asymmetry affects users' payment rates and helps to guide suppliers to improve product quality. The research framework of this paper is universal to a certain extent.

Originality/value

This paper is one of the first to propose using PU and AP to construct a mediation model to study the information asymmetry between users' payment rates relationship. It provides a new perspective for understanding the channel of information asymmetry in customer behavior.

Details

Asia Pacific Journal of Marketing and Logistics, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1355-5855

Keywords

Book part
Publication date: 24 August 2023

Olimpia Meglio, David R. King and Elio Shijaku

Acquisitions are complex and ambiguous events fraught with information asymmetries emphasizing market failure before an acquisition or organizational failure during integration…

Abstract

Acquisitions are complex and ambiguous events fraught with information asymmetries emphasizing market failure before an acquisition or organizational failure during integration. While often treated in isolation, market and organization failure are intertwined in acquisitions as integration planning starts before a deal is closed. Effective integration begins with a deep understanding of the target to be able to share assets and knowledge. However, acquiring firms currently have limited solutions to address information asymmetries. Most remedies primarily aim at market failure using due diligence and external advisors, leaving information asymmetry due to organizational failure primarily unattended. The authors develop a typology that leverages informal and formal social ties to address information asymmetries across the acquisition process that jointly considers market and organizational failure. The typology of this study combines existing research to develop how social ties with stakeholders influence acquisitions and can increase their success.

Details

Advances in Mergers and Acquisitions
Type: Book
ISBN: 978-1-83753-861-4

Keywords

Book part
Publication date: 24 October 2019

Tarek Ibrahim Eldomiaty, Panagiotis Andrikopoulos and Mina K. Bishara

Purpose: In reality, financial decisions are made under conditions of asymmetric information that results in either favorable or adverse selection. As far as financial decisions…

Abstract

Purpose: In reality, financial decisions are made under conditions of asymmetric information that results in either favorable or adverse selection. As far as financial decisions affect growth of the firm, the latter must also be affected by either favorable or adverse selection. Therefore, the core objective of this chapter is to examine the determinants of each financial decision and the effects on growth of the firm under conditions of information asymmetry.

Design/Methodology/Approach: This chapter uses data for the non-financial firms listed in S&P 500. The data cover quarterly periods from 1989 to 2014. The statistical tests include linearity, fixed, and random effects and normality. The generalized method of moments estimation method is employed in order to examine the relative significance and contribution of each financial decision on growth of the firm, respectively. Standard and proposed proxies of information asymmetry are discussed.

Findings: The results conclude that there is a variation in the impact of financial variables on growth of the firm at high and low levels of information asymmetry especially regarding investment and financing decisions. A similar picture emerges in the cases of firm size and industry effects. In addition, corporate dividen d policy has a similar effect on firm growth across all asymmetric levels. These findings prove that information asymmetry plays a vital role in the relationship between corporate financial decisions and growth of the firm. Finally, the results contribute to the vast literature on the estimation of information asymmetry by demonstrating that the classical and standard proxies for information asymmetry are not consistent in terms of the ability to differentiate between favorable or adverse selection (which corresponds to low and high level of information asymmetry).

Originality/Value: This chapter contributes to the related literature in two ways. First, this chapter offers updated empirical evidence on the way that financing, investment, and dividends decisions are made under conditions of favorable and adverse selection. Other related studies deal with each decision separately. Second, the study offers new proxies for measuring information asymmetry in order to reach robust estimates of the effects of financial decisions on growth of the firm under conditions of agency problems.

Article
Publication date: 5 September 2023

Aparna Bhatia and Amanjot Kaur

The purpose of this paper is to investigate whether information asymmetry mediates the relationship between disclosure and cost of equity.

Abstract

Purpose

The purpose of this paper is to investigate whether information asymmetry mediates the relationship between disclosure and cost of equity.

Design/methodology/approach

The study is based on a sample of 500 companies listed in Bombay Stock Exchange for a period of six years from 2015 to 2021. Panel data regression is applied to analyze the relationship between voluntary disclosure, cost of equity and information asymmetry. Mediation effect of information asymmetry is tested with the help of Barron and Kenny’s (1986) approach.

Findings

Findings suggest that in case of Indian companies, disclosure reduces cost of equity directly and indirectly through mediation of information asymmetry. Indian investors value credible information for better estimation of future returns, supporting the validity of estimation risk and stock market liquidity hypothesis, which proposes an inverse relationship between disclosure and cost of equity.

Research limitations/implications

Managers can use the findings to strategize their disclosure policy and secure funds at lower cost. Shareholders can monitor managerial actions by demanding credible disclosures. Government too can encourage voluntary disclosure by providing special incentives to the firms.

Originality/value

This study is a pioneering research that investigates the mediating influence of information asymmetry between disclosure and cost of equity with reference to the Indian corporate landscape.

Details

International Journal of Law and Management, vol. 66 no. 1
Type: Research Article
ISSN: 1754-243X

Keywords

Article
Publication date: 16 August 2023

Malik Muneer Abu Afifa and Mustafa Saadeh

This paper aims to investigate the relationship between voluntary disclosure and the cost of capital as a direct relationship and as an indirect relationship mediated by…

Abstract

Purpose

This paper aims to investigate the relationship between voluntary disclosure and the cost of capital as a direct relationship and as an indirect relationship mediated by information asymmetry. It provides evidence from Jordan as a developing economy.

Design/methodology/approach

The sample was selected from the companies listed in the first market of the Amman Stock Exchange during the period 2010–2019. Four exclusion criteria were used in selecting the companies for analysis.

Findings

The findings show that the cost of capital and information asymmetry are negatively affected by voluntary disclosure, as well as that the cost of capital is positively affected by information asymmetry. In addition, information asymmetry does not mediate the relationship between voluntary disclosure and the cost of capital.

Originality/value

This research looks at the mediating effect of information asymmetry in the relationship between voluntary disclosure and the cost of capital; thus, it provides new explanations about it using empirical evidence from a developing economy. As a necessary consequence, this research has the potential to significantly contribute to the existing body of knowledge and literature in this field.

Details

Journal of Financial Reporting and Accounting, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1985-2517

Keywords

Article
Publication date: 29 September 2023

Salma Mokdadi and Zied Saadaoui

This paper aims to study the impact of geopolitical uncertainty on corporate cost of debt and the moderating role of information asymmetry between creditors and borrowing firms.

Abstract

Purpose

This paper aims to study the impact of geopolitical uncertainty on corporate cost of debt and the moderating role of information asymmetry between creditors and borrowing firms.

Design/methodology/approach

This study uses 5,223 firm-quarter observations on German-listed firms spanning 2010:Q1–2021:Q4. This study regresses the cost of debt financing on the geopolitical risk, accounting quality and other control variables. Information asymmetry is measured using the performance-matched Jones-model discretionary accrual and the stock bid-ask spread. It uses interaction terms to check if information asymmetry moderates the impact of geopolitical uncertainty on the cost of debts and control for the moderating role of business risk. For the sake of robustness check, it uses long-term cost of debt and bond spread as alternative dependent variables. In addition, this study executes instrumental variables regression and propension score matching to control for potential endogeneity problems.

Findings

Estimation results show that geopolitical uncertainty exerts a positive impact on the cost of debt. This impact is found to be more important on the cost of long-term debts. Information asymmetry is found to exacerbate the positive impact of geopolitical risk on the cost of debt. These results are robust to the change of the dependent variable and to the mitigation of potential endogeneity. At high levels of information asymmetry, this impact is more important for firms belonging to “Transportation”, “Automobiles and auto parts”, “Chemicals”, “Industrial and commercial services”, “Software and IT services” and “Industrial goods” business sectors.

Research limitations/implications

Geopolitical uncertainty should be seriously considered when setting strategies for corporate financial management in Germany and similar economies that are directly exposed to geopolitical risks. Corporate managers should design a comprehensive set of corporate policies to improve their transparency and accountability during increasing uncertainty. Policymakers are required to implement innovative monetary and fiscal policies that take into consideration the heterogeneous impact of geopolitical uncertainty and information transparency in order to contain their incidence on German business sectors.

Originality/value

Despite its relevance to corporate financing conditions, little is known about the impact of geopolitical uncertainty on the cost of debt financing. To the best of the authors’ knowledge, there is still no empirical evidence on how information asymmetry between creditors and borrowing firms shapes the impact of geopolitical uncertainty on the cost of debt. This paper tries to fill this gap by interacting two measures of information asymmetry with geopolitical uncertainty. In contrast with previous studies, this study shows that the impact of geopolitical uncertainty on the cost of debt is non-linear and heterogeneous. The results show that the impact of geopolitical uncertainty does not exert the same impact on the cost of debt instruments with different maturities. This impact is found to be heterogeneous across business sectors and to depend on the level of information asymmetry.

Details

The Journal of Risk Finance, vol. 24 no. 5
Type: Research Article
ISSN: 1526-5943

Keywords

Article
Publication date: 25 October 2022

Dina El Mahdy, Jia Hao and Yu Cong

The purpose of this study is to examine the association between audit committee expertise and asymmetric information in the US equity market.

Abstract

Purpose

The purpose of this study is to examine the association between audit committee expertise and asymmetric information in the US equity market.

Design/methodology/approach

The authors use measures of information asymmetry for 705 US firms (5,260 firm-year observations) over the period from 2007 to 2018, and use the theory of expertise (Ericsson and Smith, 1991) to examine the association between audit committee financial expertise and information asymmetry. The authors use multiple econometric approaches such as firm fixed-effect regression and two-stage ordinary least squares regression to control for possible endogeneity and reverse causality and find that the results remain the same.

Findings

The authors find that the existence of an audit committee with financial expertise is negatively and significantly associated with information asymmetry. The authors further provide empirical evidence through which audit committee financial expertise affects the firm’s informational environment. Additional analysis supports the argument that the audit committee’s financial expertise enhances the firm’s informational environment by increasing (decreasing) analyst following (dispersion).

Research limitations/implications

One limitation to consider, like most studies on audit committees, is that the authors do not examine the actual role performed by the audit committee. The authors focus on the characteristics stipulated by the Sarbanes–Oxley Act 2002 and stock exchange rules regarding the financial expertise of audit committee members only.

Practical implications

This study is useful to policy makers, standard setters, investors, activists, managers, lenders and various stakeholders who rely on the financial statements of firms with an expert audit committee on board. The outcome of this study promotes recruiting audit committees with financial expertise due to the assumed benefits of this trait to the US firm.

Social implications

The results of this study are not event-dependent and therefore have persistent effects, which is important to the evaluation of the usefulness of a regulation. This study promotes recruiting audit committees with financial expertise on boards because of the assumed benefits to the firm and investors.

Originality/value

This study is the first to document that financial expertise of audit committee characteristics is not only negatively related to the magnitude of information asymmetry but also driven by the financial expertise of audit committee members rather than chairs.

Details

Journal of Financial Reporting and Accounting, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1985-2517

Keywords

Article
Publication date: 19 October 2021

Michael Grassmann, Stephan Fuhrmann and Thomas W. Guenther

Credibility concerns regarding integrated reports can harm the intended decrease of information asymmetry between a firm and its investors. Therefore, it is crucial to examine…

Abstract

Purpose

Credibility concerns regarding integrated reports can harm the intended decrease of information asymmetry between a firm and its investors. Therefore, it is crucial to examine whether voluntary third-party assurance enhances the credibility of integrated reports and, thus, decreases information asymmetry. Furthermore, this study aims to investigate the interaction effect between assurance quality and the disclosed connectivity of the capitals, a distinguishing feature of integrated reports.

Design/methodology/approach

Content analysis is performed of the 176 assurance statements included in the 269 integrated reports of Forbes Global 2000 firms disclosed from 2013 to 2015 and the 269 integrated reports themselves. Regression analyzes are applied to examine the associations between assurance, the disclosed connectivity of the capitals and information asymmetry.

Findings

The presence of an assurance statement in an integrated report significantly decreases information asymmetry. Surprisingly, assurance quality is not significantly associated with information asymmetry. However, an interaction analysis reveals that combining high assurance quality with high disclosed connectivity of the capitals allows a significant decrease in information asymmetry.

Research limitations/implications

The paper demonstrates that the connectivity of the capitals of integrated reports and assurance quality are connected and together are associated with information asymmetry.

Practical implications

The results imply, both for report preparers and standard setters, that assurance quality is advantageous only when combined with disclosed connectivity of the capitals.

Social implications

More information on non-financial information measured by the connectivity of the capitals of integrated reporting has an interaction effect together with assurance quality on information asymmetry.

Originality/value

This paper builds on a unique data set derived from the contents of integrated reports and accompanying assurance statements. Furthermore, it extends the integrated reporting literature by investigating the interaction between assurance quality and the disclosed connectivity of the capitals, which had not previously been examined in combination.

Details

Meditari Accountancy Research, vol. 30 no. 3
Type: Research Article
ISSN: 2049-372X

Keywords

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