Information Asymmetry Research Articles

Information matters: The effectiveness of mixed-ownership reform in mitigating financial constraints

Due to the unhealthy principal-agent relationships prevalent in state-owned enterprises (SOEs), these enterprises often lack transparency in financial reporting and other critical information. Drawing on signaling theory, this study examines the impact of mixed-ownership reform (MOR) on financial constraints in Chinese SOEs. Using data from listed manufacturing SOEs between 2009 and 2019, we find that every 0.1 increase in the proportion of non-state shareholders, a proxy for MOR intensity, is associated with an average 2.34 ‰ reduction in financial constraints. This mitigation in constraints primarily arises from decreased information asymmetry between enterprises and the external capital market. Specifically, MOR promotes corporate information disclosure, which sends quality signals to investors, while simultaneously reinforcing corporate governance, which projects intention signals to capital markets. Notably, the effectiveness of MOR in alleviating financial constraints is more significant in capital-intensive and information-sensitive industries, as well as in central SOEs. These findings not only highlight the critical role of MOR in alleviating information asymmetry within SOEs, but also provide valuable insights for similar reforms aimed at advancing sustainable development of SOEs in other countries.

Pengaruh Kinerja Keuangan, Asimetri Informasi, dan Manajemen Laba terhadap Harga Saham Perusahaan Perbankan yang Terdaftar di BEI Tahun 2020-2022

This study aims to analyze the effect of financial performance proxy Debt to Equity Ratio, information asymmetry, and earnings management on stock prices in banking sector companies listed on the Indonesia Stock Exchange for the period 2020-2022. The method used in this study is an explanatory method with a quantitative approach. While for the sampling technique itself using purposive sampling with a selected sample of 34 companies. For research analysis, namely using descriptive statistical analysis, classical assumption tests, multiple linear regression analysis, and hypothesis testing. From the results of the study, it can be concluded that financial performance with the Debt to Equity Ratio proxy does not have a significant partial effect on stock prices, information asymmetry has a negative and significant partial effect on stock prices, earnings management does not have a significant partial effect on stock prices, and financial performance, information asymmetry, and earnings management do not significantly affect stock prices simultaneously.

Estrutura de propriedade, divulgação social, ambiental e de governança, e assimetria de informação: o caso brasileiro

This research aimed to analyze the moderating effects of ownership structure on the relationship between environmental, social, and governance (ESG) disclosure and information asymmetry in Brazilian companies. A quantitative, descriptive, and documentary study was conducted with data from 68 companies listed on the Bolsa Brasil Balcão (B3) between 2015 and 2022, tested using the one-step GMM dynamic panel system. The main findings indicate that ESG disclosure can reduce information asymmetry, while ownership concentration and institutional ownership have a positive moderating effect on this relationship. The study emphasizes the need for regulatory actions to address potential issues faced by less informed investors and improve the disclosure of ESG practices.

Research on Emergency Logistics Optimization Strategy Based on Blockchain Technology

Emergency logistics is an important support for responding to emergencies, ensuring social stability, and ensuring the safety of people s lives and property. However, in reality, emergency logistics often faces challenges such as information asymmetry, non-standard management, low process transparency, and poor accountability. Therefore, utilizing emerging technologies such as blockchain to optimize and upgrade emergency logistics has important practical significance and application value. This article briefly analyzes the relationship between blockchain technology and emergency logistics, and conducts in-depth exploration of the significance of optimizing emergency logistics based on blockchain technology, then proposes an emergency logistics optimization strategy based on blockchain technology for reference.

Blockchain, tokens, smart contracts, and “decentralized autonomous organization”: Expanding and renewing the mechanisms of governance?

AbstractBlockchain, tokens, smart contracts, and decentralized autonomous organization (DAO) are increasingly shaping discussions in media and research. The aim of this contribution is to explore how governance theory can clarify these concepts and how the application of theory to this new problem can also enrich governance theory itself.We focus on the technical environment (blockchain and tokens) that is at the heart of this new form of organization. By exploiting the intrinsic attributes of blockchain (decentralization, immutability, and transparency), smart contracts and DAOs are coordination mechanisms that expand the possibilities of interagent interactions and horizontal coordination, eliminating information asymmetries and the need for trusted third parties. In addition, by taking advantage of the transparency and immutability inherent in blockchain, smart contracts and DAOs make it possible to find and record agreements securely, automating contractual clauses.We argue that these technologies have a significant potential to renew the contractual approach to governance and to overcome some of the limitations of traditional theory.

Automating efficiency: The impact of industrial robots on labor investment in China

This study examines the impact of industrial robot applications on labor investment efficiency. While previous studies have mainly focused on how industrial robots affect productivity, economic structures, and labor markets, their influence on labor investment efficiency has remained relatively underexplored. Using data from Chinese manufacturing firms, our results demonstrate that the adoption of industrial robots significantly improves labor investment efficiency. This improvement is mainly achieved by optimizing the human capital structure and enhancing capital deepening. We also find that this effect is more pronounced in non-state-owned enterprises, in environments with reduced information asymmetry, and in firms with low R&D investment and labor intensity. Overall, our results highlight the positive effect of industrial robot applications on the efficiency of corporate labor investments from a microeconomic perspective, providing important insights for labor investment decisions and resource allocation optimization.

Can digital technology promote market participation among smallholder farmers?

Abstract Digital technology holds significant potential for enhancing business efficiency in agricultural marketing. However, empirical research on the use of digital technology among smallholder farmers engaged in staple crop marketing in Sub-Saharan Africa remains limited. Recognizing the pivotal role of digital technology in agriculture, this study aims to analyse and synthesize existing knowledge regarding the impact of mobile phones on market participation among smallholder farmers. Through a comprehensive analysis, we seek to provide a robust understanding that can inform policies and programs aimed at enhancing smallholder market integration. To achieve this objective, we collected cross-sectional data from 360 farmers in southeast Nigeria and implemented a double hurdle model to analyse market participation decisions and the extent of farmers’ involvement in staple crop markets. In addition to traditional econometric methods, we employed propensity score matching to further investigate the impact of mobile phone ownership on market participation. Our analysis revealed that ICT tools, particularly mobile phones and radios, significantly influence both the decision and intensity of market participation among smallholder farmers. Specifically, mobile phones were found to play a crucial role in facilitating access to market pricing information and disseminating knowledge on improved production methods. Given the volatility of farm prices, the timely dissemination of market information through mobile phones is essential for farmers to make informed decisions. With a high percentage of mobile phone ownership and substantial investments in mobile networks in Nigeria, the digitalization of extension services and marketing information delivery systems could catalyse rapid improvements in agribusiness and marketing. This shift towards digital platforms has the potential to address information asymmetry, particularly among smallholder farmers, thereby fostering greater market integration and economic empowerment within rural communities.

Study of the Relationship between the Rotation of External Auditors and Audit Quality

Purpose - The objective of this research is to study the relationship between external auditor turnover and audit quality. To do this, we chose two measures of audit quality, namely discretionary accruals and the auditor's opinion. Design/methodology/approach - Using a sample of 37 Tunisian companies listed during the period from 2015 to 2021, the paper uses a logistic regression to investigate the association between the quality of the audit and the rotation of the auditors. Findings - The results obtained based on linear and logistic regression invalidate the two hypotheses which assume on the one hand that a long-term mandate negatively influences the quality of the audit, on the other hand the assumption that the rotation of the auditors has a positive impact on the quality of the audit. Contrary to what was expected in our research, the results of the logistic regression show that a long-term audit mandate has a positive effect on audit quality. Research limitations/implications – This research may be of interest to many developing countries that has not a lot of studies on the audit turnover. Future research should focus on the link between audit turnover consequences to overcome the gap which might exist in the literature. Practical implications – Previous studies has shown how it is important to focus on audit opinion to reduce asymmetric information between managers and stockholders. And, this study offers some insights about audit shipping that should be analyzed to understand audit turnover. Originality/value – This research highlights the role of audit opinion in the rotation of auditors in emerging markets. Consideration of this relationship may contribute to the understanding of the auditor turnover in developing countries.

Strategic Alliances and Lending Relationships

ABSTRACT We study how proprietary information flows in strategic alliances facilitate banks’ information collection in private debt markets. We argue that lenders that have previously worked with a borrower’s alliance partners have an information advantage and show that firms entering a strategic alliance receive a lower interest spread on loans from banks that have previously lent to their strategic partners than loans from other banks. Cross-sectional tests on alliances’ economic importance and participants’ information environment support our hypothesis that the loan price effect is driven by reduced information asymmetry between borrowers and their partners’ relationship banks. Last, we find borrowers are more likely to obtain debt financing from alliance-related banks than from other banks. Overall, our findings are consistent with lenders that have previously worked with an alliance counterparty possessing debt contracting-relevant information about the soft nature of alliance value and the partners’ commitment to alliances. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: G10; G21; G32.

Risk culture and cost of capital – Insight from European banks

This study examines the impact of risk culture on the cost of capital (i.e., WACC, Cost of equity and cost of debt) in European banks. We measure risk culture using comprehensive textual analysis approach. Based on 134 banks from 2005 to 2022, findings reveal that risk culture is negatively associated with all cost of capital measures. This indicates that robust risk culture reduces information asymmetry and boosts investor confidence, leading to lower costs of capital. Our findings reflect the importance of aligning risk management practices with regulatory requirements and investor expectations.

Value-Enhancing Effect of Climate Change Risk Disclosure by Firms: Empirical Evidence Based on Textual Analysis and Machine Learning

ABSTRACT This study utilizes textual data from the social responsibility reports of Shanghai and Shenzhen A-share listed companies in China between 2007 and 2019. Through the application of textual analysis and machine learning technology, an index is constructed to gauge the extent of climate change risk disclosure by corporations. The paper examines the impact of climate change risk disclosure on corporate value, drawing from theoretical reasoning and empirical evidence.The findings reveal a significantly positive relationship between corporate climate change risk disclosure and corporate value, indicating the existence of a value promotion effect. Mechanism tests demonstrate that firms’ climate change risk disclosure enhances corporate transparency by attracting attention from analysts and the media. Consequently, this reduces information asymmetry and fosters an increase in corporate value. Furthermore, the study highlights that non-state-owned and high-polluting corporations exhibit a more pronounced value enhancement effect from climate change risk disclosure compared to other corporations. Additionally, corporations with highly readable and positively-toned textual information experience stronger value-promoting effects. These results provide robust empirical evidence supporting the practice of climate change risk disclosure among corporations in China.

Platform-Provided Disclosure on Investor Base and Entrepreneurial Success: Evidence from Crowdfunding

ABSTRACT We employ a sharp regression discontinuity design to identify the causal effects of investor-base disclosure (IB DISCLOSE) on funding outcomes and entrepreneurship success. Since February 2016, Kickstarter has disclosed IB information, namely, backer statistics including geographic locations and previous funding experience of the backers, once the number of backers for a project reaches ten. Exploiting this discontinuity, we show the disclosure increases the likelihood of funding success by 10 percent and the amount of funds pledged by 13 percent. The effect is more pronounced when the project quality is high and for projects with less credible creators, high ex ante uncertainty, high information asymmetry between creators and backers, and high financial costs to backers. We also find IB DISCLOSE increases the likelihood of product delivery. Our study highlights the importance of platform-provided disclosure in improving the efficiency of capital allocation. JEL Classifications: M41; G24; L15; O31; D04.

Financial Analysis on Social Media and Disclosure Processing Costs: Evidence from Seeking Alpha

ABSTRACT Less-informed investors face greater costs of processing earnings news into actionable information. Our findings suggest financial analysis on social media reduces less-informed investors’ disclosure processing costs. We document an attenuated spike in earnings announcement (EA) information asymmetry for quarters containing more financial analysis on social media in the weeks prior to the EA. Cross-sectional evidence suggests this finding is stronger when coverage from traditional intermediaries is lower, for financial analyses written by more credible authors, and for financial analyses that are more likely relevant to evaluating the EA. Further evidence suggests retail trades, but not institutional trades, at EAs are significantly more profitable in quarters with greater financial analysis on social media, consistent with financial analysis on social media benefitting traders who are otherwise less-informed. Overall, our evidence suggests that financial analysis on social media plays an important role in aiding less-informed investors by helping them better process EA news. JEL Classifications: G14; M41.

Political Regimes, Stock Liquidity, and Information Asymmetry in a Global Context

Political Regimes, Stock Liquidity, and Information Asymmetry in a Global Context

Wholesale Pricing with Asymmetric Information About the Quality of a Private Label

AbstractThis article derives the optimal wholesale tariff that is proposed by the monopolistic manufacturer of a branded product to a monopolistic retailer if the retailer also sells a private label whose quality is unobserved by the brand manufacturer. The focus is on market-share contracts where the manufacturer controls the quantities of both products. To learn the quality of the private label and diminish the retailer’s information rent, it distorts the quantity of the branded product downwards and that of the private label upwards. The manufacturer can control the quantity of the private label if it combines an excess payment with an end-of-year repayment.

The impact of digital carbon communication on market response to carbon disclosure: The moderating effects of external supervision

This study investigates the influence of digital carbon communication quality (DCC) on market response to carbon disclosure within the reality of government environmental regulation and media attention, employing a DCC index constructed by an Autoencoder model. Using Chinese data from 2015 to 2022, we find that DCC mitigates negative market response to carbon disclosure by alleviating information asymmetry and enhancing corporate environmental performance, especially when government environmental regulation or media attention is insufficient. Moreover, DCC exhibits a stronger impact on the carbon disclosure market responses in firms with low institutional shareholdings, non-state-owned firms, and firms with high emission levels.

Can the digital transformation of finance companies within business groups alleviate the financing constraints of enterprises within the same group?

ABSTRACT This paper examines the influence of digital transformation in finance companies within business groups on the financing constraints of enterprises. In this paper, we demonstrate that the digital transformation of finance companies within business groups can markedly alleviate the financing constraints of enterprises within the same group through the ‘information effect’. Specifically, the digital transformation of finance companies can reduce the information asymmetry between the supply and demand sides of funds and thus help to alleviate the financing constraints of enterprises in the business group. Our findings remain robust after conducting various tests, such as replacing the dependent variables, excluding other policy disruptions, and employing a placebo test. Heterogeneity analysis indicates that the digital transformation of finance companies has a greater impact on the financing constraints of subsidiaries within business groups that have a higher proportion of shares held by the ultimate controller. The alleviating effect of digital transformation on the financing constraints of enterprises under their control is stronger for finance companies that originally had less prominent roles in lending, entrusted, and guaranteed businesses.

Signing auditors’ experience gap and audit quality

This study investigates how interactions between signing auditors with different levels of experience affect audit outcomes. Using the unique data from China, we find that a higher experience gap between signing auditors is associated with higher audit quality, as indicated by lower absolute discretionary accruals and a smaller likelihood of restatements. Further analyses suggest that the positive association between signing auditors' experience gap and audit quality is more pronounced for client firms that are more complex, have weaker corporate governance and higher information asymmetry, are audited by smaller audit firms, and are more economically important to auditors. Our results are robust to alternative research designs, alternative measures of auditor experience and audit quality, and other sensitivity tests. We contribute to the literature on auditor experience and audit team diversity with implications for audit firms’ personnel assignment.

The role of trademark rights expansion in the formation and abuse of market power

Trademarks play a critical role in the creation and abuse of market power, in the sense that when expansively protected, trademark rights yield legal advantages that can be leveraged to lock in consumers and raise entry barriers. But this role has long been underestimated or even overlooked. Based on empirical research and qualitative case analysis, we find that the legal advantages created by the expansion of trademark rights are a key factor in the formation of firms’ market power in product domains with a high degree of information asymmetry. In situations where firms have market power, the geographical and cross-category expansion of trademark rights can enable and rationalize the implementation of abusive practices such as price discrimination and tying. Limiting the anti-competitive effects of the expansion of trademark rights requires the combined efforts of ex post antitrust and ex ante regulation.

Does ESG decoupling reduce customer stability? Evidence from China

ABSTRACT This paper examines the influence of corporate environmental, social, and governance (ESG) decoupling on customer stability. Using a sample of Chinese listed firms, we discover a significantly negative nexus between corporate ESG decoupling and customer stability. Mechanism tests reveal that ESG decoupling reduces customer stability by damaging corporate reputation and increasing information asymmetry. Cross-sectional analyses demonstrate that ESG decoupling’s adverse influence on customer stability is more prominent in state-owned companies, non-high-tech firms, and firms with fiercer industry competition. Our results show that customers, as corporate primary stakeholders, punish suppliers’ ESG decoupling behaviour. This paper enriches the emerging literature on the consequences of ESG decoupling. Meanwhile, our findings offer implications for firms to maintain supply chain security and stability.