Investigating the interaction of earning quality and information asymmetry in the banking industry using simultaneous equation system

Abstract

Objective: Economic decisions of depositors and borrowers in the banking industry are made based on the quantity and quality of their information. The information of these banks, including earnings, must have the necessary quality characteristics in order to distribute financial resources among the members of the society in the best way along the decisions of information users. Therefore, the purpose of this study is to investigate the interaction between earning quality and information asymmetry in the banking industry.Method: To achieve the purpose of the research, data of 11 banks listed on the Tehran Stock Exchange and Iran of OTC during a period of 11 years for the years 2007-2018 using the Rah Avard Novin, financial statements and the official site of the Tehran Stock Exchange was collected and analyzed using the structural equation method in the Smart PLS software platform and the two-way Granger causality test. Results: The findings showed that information asymmetry in the banking industry is high and their earning quality is low. Information asymmetry has a negative effect on earning quality. On the other hand, if the quality of earning is low, it will increase information asymmetry. As a result, earnings quality also has a negative effect on information asymmetry. Finally, bilaterally, these two variables are the cause and effect of each other and have interaction. Conclusion: In the banking industry, the information gap is high, so we argue that the manager can present the amount of declared earning in the financial statements differently from the actual earning.