Information Asymmetry Research Articles

Is online interactive media monitoring effective? Evidence from corporate tunneling in China

We examined the impact of the volume of Q&As from minority shareholders on interactive questions and answers (IQA) platforms in restraining tunneling. The findings suggest that Q&A volumes contribute to less tunneling. We find that by lowering information asymmetry and enhancing firms' internal control effectiveness, IQA platforms play a monitoring function, effectively restraining tunneling. The moderating analysis reveals that the impact of IQA platforms on restraining tunneling is more salient when a firm has (1) only small shareholdings from other large blockholders, (2) low-quality auditors, (3) low institutional investor shareholdings, (4) a large wedge of ownership and control, or (5) controlling shareholders who pledge their shares to financial institutions. Additional analysis suggests that the effectiveness of IQA platforms improves with more timely, thorough, readable, and related replies. Our results support the public policy of providing online platforms for minority shareholders to exercise their rights.

Does information content of a corporate social responsibility report matter for stock mispricing? Evidence from China

We examine the impact of the information content of a firm's corporate social responsibility (CSR) report on stock mispricing using a sample of Chinese firms from 2007 to 2021. By leveraging the recent advances in textual analysis, we apply the Word2Vec technique to detect the information content of a focal firm's CSR report. Our findings suggest that the degree of a focal firm's stock mispricing decreases with increased information content of its CSR report. The results remain robust after considering a variety of sensitivity tests. Mechanism analyses reveal that the information content of a CSR report mitigates stock mispricing by reducing information asymmetry and alleviating investor irrational behavior. Heterogeneity analysis shows that the effect is more salient when firms face higher degree of uncertainty, both at the macroeconomic and industrial levels. Additionally, we document that a higher degree of information content of a CSR report contributes to a higher firm value.

Exploring the economic role of cybersecurity in SMEs: A case study of the UK

This study explores the economic role of cybersecurity in Small and Medium Enterprises (SMEs), situating cybersecurity within the framework of merit-goods within the economic theory of market failures and public goods. By examining 240 SMEs across the UK, the empirical findings of this investigation underscore its classification as a merit-good due to its extensive social benefits and the critical gap in its optimal provision. The results confirm the existence of market failure, such as the lack and asymmetry of information regarding cybersecurity, acknowledging the myopia and lack of information within SMEs, leading to suboptimal implementation of cybersecurity. Moreover, the lack of optimal implementation is evidenced by the findings indicating that neither cybersecurity incidents nor cybersecurity impacts in SMEs drive the implementation of cybersecurity. Additionally, we observe that implementation is more focused on control systems than on management systems, which is a significant differentiating factor from large enterprises. The study contributes theoretically by framing cybersecurity as a merit-good, provides managerial insights into SME cybersecurity practices, and emphasizes the importance of nuanced policies to bridge the implementation gap.

Analysis of the Reasons for Multiple Rounds of Inquiries of Newlife Company under the Registration System

The article will use Guangzhou Newlife New Material Co, Ltd., as the case study object after four rounds of inquiries. Through reading pertinent literature, compiling Guangzhou Newlife New Material Co, Ltd.,'s four rounds of inquiries letters and its reply information as well as the prospectus, and applying the AMPS model, the article will analyze the reasons for and the impacts of the enterprises' multiple rounds of inquiries. Under the Science and Innovation Board's registration system, some enterprises will be subject to multiple rounds of inquiries in their initial public offerings. The study's findings demonstrate that businesses must fully and completely disclose all relevant information and make sure that it is clear and simple in order to comply with the Science and Technology Board's (STB) audit process. Inquiry is helpful to alleviate information asymmetry and improve the pricing efficiency of initial public offering (IPO). Companies may improve their business plans and increase their competitiveness in the market by using many rounds of inquiry to gain a deeper understanding of their current state of affairs and prospective threats.

EXPERT-ANALYTICAL PRODUCT: APPROACHES TO FORMATION AND IMPLEMENTATION IN THE COMMUNICATION ENVIRONMENT OF POLITICAL SECURITY

The article is devoted to the unification of approaches to the analysis of the public information environment, as well as the coordination of efforts to counter information aggression on a decentralized basis. The purpose of the study is to establish the main features and principles of the formation of an expert-analytical product within the framework of strengthening the security capacity of Ukrainian society. The value of a quick asymmetric information response in the form of discrediting the source, disavowing the information provided and/or using errors or mistakes in the information provided to one’s advantage is characterized. It was emphasized that the targeting of political and security content should also take into account the socio-demographic and behavioral characteristics (data) of the community to which the information is directed. The creativity of the expert-analytical security product is analyzed, which means a creative approach to counter hostile informational provocations and invasions. The importance of the principle of responsiveness, which means the compliance of the appearance of content with time dimensions and the requirements of the political and security situation, is revealed. It was found that the appearance of expert political and security materials should precede the events, be carried out according to the plan of media events, as well as within the framework of crisis situations. It was revealed that the empirical nature of the expert-analytical product involves the use of various models for assessing threats to political security. It is proven that the development of various scenarios of expert public content contributes to the development of the political situation in the future in the desired direction. It has been established that the expert-analytical product of public direction (reports, assessments, analytical summaries, etc.) should not only be broadcast in an accessible (understandable) language. It is assumed that the complexity and completeness of information means its completeness in terms of known and unknown facts. It has been established that the value neutrality of communication messages means avoiding the promotion of ideological messages and motivational components, except when such materials are not included in special promotions and operations. It was found that open discussion leaves the possibility of the information consumer to interactively interact with the text of the message and data. It was concluded that a promising direction of information security activity is asymmetric action in relation to operational massive support of political actions of hostile power institutions on the international arena.

Flowers and Bees: Spatial Network Effects in the Adoption of a Sharing-Economy Platform

This article empirically analyzes the spatiotemporal diffusion of a car-sharing platform that connects consumers with individual car owners. The authors develop a model of adoption by both consumers and providers that accommodates network effects across locations, as consumers travel to pick up cars, and information asymmetry, as only the providers’ locations are shown on a map. They apply it to data at the earliest stage of the platform and find that proximity and consumer mobility play a significant role in the spatial network effects of existing providers on consumers across locations. Consequently, the impact of additional supply at a destination on consumer adoptions at an origin varies by origin–destination pair and is asymmetric, as certain destinations draw more visitors than others and given differences in local characteristics. In contrast, existing consumers have a limited impact on provider adoptions. Through seeding experiments, the authors investigate how the geographic distribution of initial participants impacts the platform diffusion and find that targeting the supply side in big cities leads to the highest platform growth. They also use their parameter estimates to measure the long-term impact of a local promotional campaign and show that it is mostly local despite spatial network effects.

Concerted action agreements, corporate innovation, and financial market outcomes: A pre-registered report

This pre-registered study aims to investigate whether and how concerted action agreements enhance corporate innovation and create financial value. Based on theoretical analysis and numerous case studies, we expect to find that concerted action agreements significantly improve corporate innovation. The channels are at least two folds. First, by shielding entrepreneurs from short-term market pressure and enhancing their job security through enhancing their control rights, concerted action agreements spur long-term projects such as innovation. Second, through transferring control rights to entrepreneurs, concerted action agreements also strengthen entrepreneurs' stewardship role, which in turn mitigates agency problems and stimulates innovation. We further test the economic consequences of concerted action agreements and we expect to document that the agreements have a positive influence on firm performance and financial market valuation through enhanced corporate innovation. We also predict that because short-term market pressure and agency costs are high for high-tech firms due to information asymmetry, and because innovation is especially important for high-tech firms, concerted action agreements are most beneficial for high-tech firms. Finally, we predict that as time passes, the positive effects of concerted action agreements may diminish.

Business strategy and stock price crash risk: The mediating role of financial constraints

The global financial crisis increased uncertainty in economic policy. Firms manage challenges through business strategies and financial constraints and deal with crash risk more proactively to overcome these impediments. This paper investigates the mediating role of financial constraints in the association between business strategy and crash risk, and the type of business strategy that influenced crash risk in Egyptian firms from 2014 to 2021. Data were obtained from financial statements and reports available in the Thomson Reuters database. A total of 792 observations were collected, representing 99 Egyptian firms. The statistical techniques employed in the analysis included ordinary least squares, modified least squares, and path analysis. The results indicate that a higher financial constraint ratio increases crash risk and has a mediating effect on business strategy and crash risk. Results show a positive impact of prospector strategy on crash risk using OLS and GLS, in line with the bad news hoarding hypothesis. Further research shows that prospector strategies have a positive effect on financial constraints. Egyptian firms have higher levels of information asymmetry, which leads to adopting a prospector business strategy and exerts a more pronounced positive influence on the likelihood of crash risk. A robustness check confirms the positive effect of financial constraints as a mediator variable on the relationship between prospector business strategy and crash risk.

Social responsibility and corporate borrowing

We study the impact of social capital, measured by corporate social responsibility (CSR) performance, on corporate borrowing. Using a sample of 120,204 bank loan applications of China's listed firms, we find that an increase in CSR performance increases the loan amounts of approved loans, although it does not alter the likelihood of loan approval. Using aggregate loans at the firm level, we show that CSR performance positively impacts firms' long-term borrowing from banks but does not affect their short-term borrowing. The economic magnitude of the positive effect is large at both the loan and firm levels. We attribute this positive relationship to reduced information asymmetry and improved risk mitigation. Surprisingly, we find that banks do not discipline their borrowers' CSR investments through the lending relationship. Specifically, when borrowers exhibit high CSR performance and borrow from banks with high CSR performance, further increases in CSR no longer correlate with larger loan amounts. Our findings suggest that China's state-led green credit policies should be more market-oriented.

Building consumer trust in secondhand fashion: A signaling theory perspective on how consumer orientation and environmental awareness shape engagement

The secondhand fashion market suffers from information asymmetry, creating consumer distrust and limited engagement in secondhand fashion (ESHF). The existing research on how sellers and product signals can mitigate this distrust is limited and produces conflicting results. This is particularly true in terms of understanding how signaling interacts with consumer-specific factors such as orientation and environmental awareness. Thus, this study contributes to understanding the factors driving consumer trust (CT) and ESHF through signaling theory and the nuanced role of consumer orientation and environmental awareness. Structural equation modeling, including multigroup analysis, is employed to test the proposed hypotheses with a sample of 203 Indonesian consumers from a secondhand market platform. The findings indicate that signals such as seller reputation, product history, and refurbishment details significantly enhance CT, with seller reputation being the most influential of the factors. The effectiveness of these signals varies by consumer orientation: functionality-oriented consumers respond more to remarketing information, whereas newness-conscious consumers are influenced more by refurbishment details. Additionally, consumer environmental awareness significantly strengthens the positive relationship between CT and ESHF, highlighting the importance of aligning environmental values with trust-building measures to enhance consumer ESHF. These insights enrich the theoretical understanding of signaling in secondhand markets and offer practical guidance for addressing the challenges associated with CT and ESHF.

Rules for the rulemakers: asymmetric information and the political economy of benefit-cost analysis

Rules for the rulemakers: asymmetric information and the political economy of benefit-cost analysis

Desensitization and Deception in Differential Games with Asymmetric Information

Desensitization and Deception in Differential Games with Asymmetric Information

Bank-affiliated directors' monitoring, earnings management, and financial reporting quality in emerging markets: Evidence from India

In this novel investigation of creditor governance in an emerging market, this paper examines the monitoring by Indian lenders of firms' earnings management and financial reporting quality through the appointment of a bank-affiliated director to the borrower's board. Specifically, we study the effect of having a bank-affiliated director on the board (a “BDB”), prior to the implementation of India's Insolvency and Bankruptcy Code (IBC). This setting represents a business environment characterized by underdeveloped financial institutions, a weak legal system, and inefficient bankruptcy resolutions. Unlike the U.S., where BDBs play a limited monitoring role, our evidence suggests bank-affiliated directors played an active role in firm governance and lowered earnings management as well as improving financial reporting quality in India during the period of our study. Specifically, we find lower discretionary accruals among firms with BDBs in cross-sectional, pre-post, performance matched, and propensity score matched analyses – signaling higher reporting quality and less earnings management. This finding holds after controlling for endogeneity and when measures of accounting conservatism or earnings persistence are utilized as additional measures of reporting quality. Further, the dampening effect of BDBs on discretionary accruals is more pronounced for companies subject to greater information asymmetry and those prone to agency problems. In addition, firms with BDBs on the board have less volatile ROAs and lower idiosyncratic risk, consistent with BDBs encouraging borrowers to pursue less risky investments to safeguard creditors' interests. As the first examination of the monitoring influence of BDBs on financial reporting quality – and earnings management in particular – in an emerging market, our results provide unique insights for policymakers and creditors seeking to enhance governance and reporting quality of firms in evolving business environments.

Assessing regulatory governance for the water and sanitation Agencies in Brazil

This paper focuses on evaluating and benchmarking the governance of regulatory agencies in Brazil's water and sanitation sector. Using a unique database obtained through the application of a questionnaire, we developed an index of regulatory governance and ranked all the agencies in Brazil that participated in the study. The index is an aggregate number of the evaluation of four key governance characteristics: Autonomy, Transparency, Accountability, and Tools & Capacity, including not only formal aspects of regulation but also indicators related to actual implementation. Based on 18 different indices, we analyze the positions of agencies with regard to different aspects of their regulatory governance, considering not only performance in each variable but also scores in the different components of each category. This evaluation identifies particular agency shortcomings regarding governance and indicates needed improvements. Although Brazil has strived to consolidate the governance design of its regulatory agencies, implementing the independent regulator model still faces several challenges. Various aspects of governance can be improved to pursue greater efficiency and quality in providing services, particularly in Accountability and Political Autonomy, where the country shows the largest number of regulatory agencies with the lowest scores. Conversely, almost half of the participating agencies show optimal scores in the Regulatory Autonomy aspect of governance. The results, for the most part, corroborate the institutional theory, in which the role of institutions is paramount for greater efficiency in providing public services, as it reduces information asymmetries and transaction costs and maximizes economic incentives.

Asymmetric Information in the Field of Healthcare

This essay explores the pervasive challenge of asymmetric information in healthcare, where the ideal of transparent markets often conflicts with the reality of information disparity. This essay analyzes critical sources, including academic papers and industry insights, and delineates the far-reaching impacts of asymmetric information on healthcare delivery and economics. The paper underlines the urgent need for comprehensive solutions to bridge the information gap and foster equitable access to healthcare. The research employs a multifaceted methodology, encompassing surveys, interviews, and literature reviews, to dissect asymmetric information in pivotal healthcare domains. The findings emphasize the necessity of improving doctor-patient communication, enhancing access to accurate medical insights, and incentivizing transparent information sharing for a healthcare landscape characterized by fairness and informed decision-making. The essay concludes by advocating for collaborative efforts involving policymakers, healthcare professionals, researchers, and consumers to realize a healthcare system free from the constraints of asymmetric information. Future research should delve into the long-term effects of improved information dissemination, the role of technology, and the behavioral economics aspects of healthcare decision-making.

Does financial market liberalization promote corporate radical innovation? Evidence from China

This paper investigates the impact of financial market liberalization on corporate radical innovation using Chinese non-financial firm-level data from 2000 to 2022. The results show that increased financial market liberalization promotes corporate radical innovation by alleviating financing constraints, enhancing capital allocation efficiency, and improving credit allocation quality. These findings remain robust even after replacing variable measurements, changing model specifications, and addressing endogeneity concerns. The positive impact of financial market liberalization on corporate radical innovation is more pronounced for firms facing higher financing constraints, governance efficiency, information asymmetry, marketization, and capital intensity. Our study underscores the critical role of thoughtful financial market reforms in driving high-quality corporate development.

THE MODERATING ROLE OF FIRM TRANSPARENCY IN INCREASING THE IMPACT OF IFRS ADOPTION ON THE FINANCIAL STATEMENTS COMPARABILITY: A CASE STUDY ON NORTH AFRICAN COUNTRIES

Objective: This study investigates how firm transparency affects the relationship between adopting International Financial Reporting Standards (IFRS) and the comparability of financial statements in North African countries. Theoretical Framework: The research is grounded in agency theory, suggesting increased transparency reduces information asymmetry between firms and stakeholders. Method: The study employs a quantitative research design, using data from publicly traded companies in North Africa. A multiple PLS-SEM analysis is conducted to examine the interaction between firm transparency and IFRS adoption, and their combined effect on financial statement comparability. Data sources include financial reports and transparency indices over five years. Results and Discussion: The findings indicate that while IFRS adoption alone improves financial statement comparability, the effect is significantly stronger for firms with higher levels of transparency. Transparent firms benefit more from IFRS adoption, as stakeholders find it easier to compare financial statements across different firms. The study highlights that transparency acts as a crucial moderating variable, amplifying the positive impacts of IFRS on comparability. Research Implications: The results underscore the importance of enhancing firm transparency in conjunction with adopting IFRS to maximize financial reporting benefits. Policymakers and regulators in North African countries should focus on promoting transparency to support more effective financial reporting and decision-making. Originality/Value: This research contributes to the limited literature on IFRS adoption in developing regions, particularly in North Africa. It provides new insights into how transparency influences the effectiveness of international accounting standards, offering valuable implications for both researchers and practitioners.

Corporate governance, information asymmetry and firm performance: evidence from Thailand

Corporate governance, information asymmetry and firm performance: evidence from Thailand

Tournaments and contracts under asymmetric information

In a principal–agent model, we compare tournament and contract schemes, which are both common methods of inducing effort. We assume that an agent’s type, which was private prior to contracting, becomes public during a tournament due to players’ interactions. We show that first-best effort levels can always be achieved in an efficient tournament scheme (ETS), where each agent can upgrade the prize by paying a fee to the principal. Furthermore, we provide sufficient and necessary conditions for the ETS to generate a higher payoff for the principal than the optimal contract scheme (OCS), with examples under mild conditions. In the absence of performance shocks, we provide a rationale for using a combination of tournaments and contracts in the presence of asymmetric information.

Followers beat content: social media and the managers in initial coin offerings (ICOs)

AbstractOur research investigates the role of social media communication in amplifying high-quality information and its impact on the success of ICOs in achieving their soft cap. We analyzed data from 3,644 ICOs and the demographics of 1,987 CEOs, CFOs, and CTOs to compare their quality attributes against their number of social media followers. Our findings reveal that the most significant factors for reaching the soft cap are the number of followers and team size, while the competencies (education and skills) of the management team have a very marginal effect, even when enhanced through social media. This indicates that widespread social media signals can positively influence investor behavior without necessarily reducing information asymmetries regarding the quality of the team. We propose that this effect arises from the combination of minimal investment amounts and stimulated herding behavior among investors.