Decrease Information Asymmetry Research Articles

Enabling digital health companionship is better than empowerment

Enabling digital health companionship is better than empowerment

Information Asymmetry in the Post-IFRS Adoption Period: Evidence from Developing Countries

Objective - The adoption of IFRS aims to reduce the level of information asymmetry. Prior studies conducted in developed countries prove that the adoption of IFRS enhances transparency and diminishes information asymmetry. However, in developing countries with a low level of openness, limited regulation, and more centralized ownership, the ability of IFRS to reduce information asymmetry remains unknown. To address this issue, this study aims to investigate whether IFRS adoption will reduce information asymmetry in some developing countries in South East Asia. Methodology/Technique - This research is applied in three developing countries: Indonesia, the Philippines and Thailand. Information asymmetry is proxied by the cost of capital using the Easton model (2004) and a bid-ask spread. Listed firms from the three countries are selected as the research sample resulting in 5.313 firm-years for the period between 2007 and 2016. Findings - This study concludes that the adoption of the IFRS decreases information asymmetry in developing countries. These finding confirm that the benefit of the adoption is the same as in developed countries, despite the level of law enforcement in developing countries being lower. Managers, standard authorities and investors must note that the IFRS conveys benefits to the market, which increases transparency by asking lower returns and valuing company stocks appropriately. Novelty - This study examines the benefits of the adoption of the IFRS in reducing information asymmetry in some emerging countries to enhance the generalization of the results from prior studies that are mostly conducted in developed countries. Type of Paper Empirical Keywords: Bid-ask Spread; Cost of Capital; Information Asymmetry; IFRS Adoption. JEL Classification: M41, M48.

Triple-bottom-line impact analysis framework of fintech companies

Financial institutions play a crucial role in the market economy. Banks act as intermediaries between savers and borrowers, decreasing information asymmetry and enabling investment. They play a crucial part in society by offering financial services to people and enabling corporate investment. Traditional bricks-and-mortar banks cannot sufficiently financially include all people – they particularly fail to reach the Bottom-of-the-Pyramid (BoP). Newly emerging financial technology companies – fintechs – have already started to fill the gap by providing services to the BoP, enabled by information and communications technology (ICT) and new business models. The triple-bottom-line (TBL) impact analysis of fintechs is a new, emerging research area. This article fills the gap in current literature by providing a proposed analytical framework with which to assess fintechs from a TBL-value-creation perspective. The article presents the benefits of the TBL Impact Analysis Framework of Fintechs based on findings from more than hundred currently operating fintechs and existing sustainable banking initiatives. The framework contains the direct and indirect TBL value creation elements of fintechs organized along their economic, social and environmental impact and can be used as a simple, yet effective assessment tool for analyzing the TBL impact of fintechs, helping to make TBL-related adjustments, improving upon currently offered solutions, or aiding in the design of financial new products with TBL value-creation elements.

Investigating the Relationship Between Ownership Structure and Investment Efficiency in Emerging Markets: Evidence From the Egyptian Stock Market

This paper aims to examine the relationship between Ownership Structure Mechanisms (Managerial Ownership, Institutional Ownership, Block holder Ownership and Outside Director Ownership) and Investment Efficiency by using panel data analysis. To investigate this relationship used the multiple regression models. Findings of investigation of 35 firms listed on the Egyptian Stock Exchange in the period 2006 to 2015 by balanced Panel model representative. Results indicated that Managerial Ownership isn’t related with investment efficiency. In contract, institutional ownership, block holder ownership and outside director ownership have a negative relationship with investment efficiency. In addition, the researcher found that control variables (Firm size, Debt ratio, Tobin’s Q) not related to investment efficiency. These findings imply that the Majority of Egyptians firms relies on institutional without individual ownership and then reduces much of possible from agency problems and decreasing information asymmetry and facilitating the monitoring of investment decisions.

Multi-principal collaboration and supplier’s compliance with codes-of-conduct

Purpose The purpose of this paper is to articulate propositions on how collaborating multi-national corporations (MNCs) can manage their supplier base in order to reduce the risk of suppliers’ non-compliance with shared codes-of-conduct. Design/methodology/approach The study utilises a conceptual theory development approach. In doing so, it utilises key tenets of agency theory that are applied in a multi-principal–supplier relationship context and synthesised in a series of propositions. Findings The study shows that MNCs have a variety of mechanisms for reducing the risk of suppliers’ non-compliance by decreasing information asymmetry, increasing their bargaining power and simultaneously use of both rewards/sanctions, and reputation-based safeguards. Research limitations/implications This is a conceptual theory development study, offering testable propositions, which have then to be empirically validated. Practical implications The study showcases that managers of MNCs who find themselves in relationships with non-compliant suppliers have at their disposal a variety of mechanisms to reduce the risk of suppliers’ non-compliance. Originality/value This is one of the first studies that explore suppliers’ non-compliance with codes-of-conduct at the level of a relationship, rather than a single firm. In this way it proposes a theoretical framework grounded in agency theory on managing relationships between multi-principal collaborators and their suppliers.

Staffing practices and employee performance: the role of age

PurposeStaffing is a tool that employers use to decrease information asymmetry when hiring employees. However, how staffing effectiveness evolves according to employee demographic characteristics has not been thoroughly elucidated to date. The purpose of this paper is to develop and test a model linking staffing practices, age and employee performance.Design/methodology/approachUsing a stratified sample of 1,254 employees, the authors hypothesize: the main effects of staffing practices on employee performance, the main effects of age on employee performance and the moderating effects of age on the relationship between staffing practices and employee performance.FindingsThe results show significant positive effects of staffing and age on employee performance and a negative moderating effect of age on the abovementioned relationship.Practical implicationsThe organizations are urged to invest in recruitment and selection practices and implement focused practices that appeal to an aging workforce.Originality/valueThe paper is the first to explore the topic of aging workforce and the efficiency of staffing practices on employee performance in the context of the Greek labor force. The authors discuss the results, theoretical contributions, practical implications and future research directions in light of the challenge of managing an aging workforce.

The Effect of Voluntary Governance Rating Disclosures on SEOs and Acquisitions

Voluntary disclosures play an increasingly larger role in the corporate world, yet their implications remain controversial. On the one hand, voluntary disclosures create value by decreasing information asymmetry between managers and investors. On the other hand, they may be used opportunistically by the managers in capital market transactions and corporate development activities. We contribute to this debate by examining the effect of firms' voluntary disclosures of corporate governance ratings on the timing and performance of seasoned equity offerings (SEOs) and acquisitions. We conduct our analyses within the context of Turkey, one of the countries in which corporate governance scores are obtained on a voluntary basis. We find that firms which voluntarily disclose their governance ratings are less likely to undertake both SEOs and acquisitions which are commonly associated with managerial opportunism. Furthermore, these firms experience higher abnormal stock returns from the announcement of SEOs and acquisitions suggesting that voluntary disclosures of governance ratings provide credible signals to investors.

Political connections and firm performance: Evidence from government officials' site visits

This study uses government officials' corporate site visits as a measurement of political connection and examines how political connection affects firm performance. Using a novel dataset on government officials' site visits from 2004 to 2014, we find that firm performance increases following corporate site visits by government officials. This study finds that firms obtain more new investment projects and bank loans, improve corporate governance, and decrease information asymmetry as well. Government officials' site visits are also associated with positive abnormal stock returns, indicating that investors interpret government officials' site visits as a signal of government endorsement and support. Using China's recent anti-corruption campaign as an exogenous shock, we find that political connections are more valuable in the absence of political corruption.

The link between Internet investor relations and information asymmetry

Background: Information asymmetry manifests when one party has more or better information than the other. Information asymmetry is said not only to increase transaction costs and decrease liquidity, but also to diminish the quality of the investment decisions taken by investors, thus weakening the overall functioning of markets. Aim and setting: A well-developed Internet investor relations (IIR) strategy, coupled with increased disclosure levels, should theoretically decrease information asymmetry levels. The majority of related studies to date used either an indirect disclosure proxy or involved an examination of the annual report, and have used data from United States or European companies. Empirical studies to date have produced mixed results. The aim of this study was to ascertain whether a relationship exists between the quality of IIR (via corporate websites) and information asymmetry. Method: This study used data from Johannesburg Stock Exchange (JSE)-listed companies. Multiple regression analysis was applied with information asymmetry as dependent variable and IIR as one of a set of selected explanatory variables. A self-constructed measurement instrument was used to measure IIR for a sample of 85 companies. Given the inherent difficulty with direct observation of information asymmetry, three different proxies were used to estimate information asymmetry. Results: A significant negative association was found between IIR and information asymmetry for all three information asymmetry proxies that were used: bid-ask spread, price impact, and analyst following. Conclusion: Empirical support is provided for the notion that companies may potentially benefit from a well-developed IIR strategy through reduced information asymmetry.

The impact of a gender and business training on income hiding: An experimental study in Vietnam

We use a randomized controlled trial and behavioral game to study the extent and determinants of income hiding in rural Vietnam. We focus on a training program that aims to promote gender equality and entrepreneurship among women in poverty who are engaged in running a small business. In one treatment arm, we allow husbands to participate in the training as well. While the impact of the training on income hiding is not significant at usual significance levels if only women are allowed to follow the training, we provide some evidence that the training invites women to hide income. Our study also suggests that allowing husbands to be present at the training intensifies this effect. We discuss several mechanisms that may explain these findings, including an increase in expected income and a decrease in information asymmetry between the spouses.

Social Media Sentiment and Bank Loan Contracting

This study analyzes how social media affects bank loan contracting. Using a sample of 642 US bank loan contracts, we hypothesize that social media can enhance information dissemination and mitigate the information asymmetry between borrowers and lenders. Consistent with this hypothesis, we find that borrowers that receive positive social media user opinion on social media enjoy more favorable price of bank loan contracts. Additional analyses indicate that the relations among social media user opinion and bank loan price vary with the firm size, loan structure and availability of public information of borrowers. Overall, this research provides evidence that social media reduces cost of bank loans by decreasing information asymmetry between borrowers and lenders in the capital markets.

Staffing Practices and Employee Performance: The Role of Age

Purpose: Staffing is the tool that employers use to decrease information asymmetry when hiring employees. However, how its effectiveness evolves according to employee demographic characteristics, is under-researched. In this paper, we develop and test a model linking staffing practices, age and employee performance. Design/methodology/approach: Using a stratified sample of 1254 employees we hypothesize (i) main effects of staffing practices on employee performance, (ii) main effects of age on employee performance and (iii) moderating effects of age on the relationship between staffing practices and employee performance. Findings: The results show significant positive effects of staffing and age on employee performance and a negative moderation effect of age on the above relationship. Practical implications: The organizations are urged to invest in recruitment and selection practices and implement focused practices that appeal to an ageing workforce. Originality/value: The paper is the first to explore the topic of ageing workforce and the efficiency of staffing practices on employee performance in the context of Greece. We discuss the results, theoretical contributions, practical implications and future research directions under the light of the ageing workforce management challenge.

THE EFFECTS OF BIG BATHS ON BANK OPACITY

AbstractInformation asymmetry in the banking sector is important to regulators, analysts, and investors. We examine the change in the information environments of banks following large nonrecurring write‐downs (baths) and find a reduction in information asymmetry in the three years following a bath. This result is conditional on the type of asset being written down. Loan‐related baths result in a permanent decrease in information asymmetry, but merger‐related baths are associated with a transitory increase in information asymmetry. Conversely, baths not related to either loans or mergers result in increased opacity. Consistent with a permanent decrease in information asymmetry, we find an increase in earnings responsiveness in the three years following loan‐related baths.

Capital market effects of mandatory IFRS 8 adoption: An empirical analysis of German firms

In this paper, we analyze capital market effects associated with the mandatory adoption of IFRS 8 for a sample of German firms. Our research is motivated by the change in segment reporting rules due to the adoption of the management approach resulting from the IASB and FASB short-term convergence project. In particular, we use a difference-in-differences design to investigate whether firms applying IFRS 8 experience a decrease in information asymmetry and/or an increase in forecast accuracy. We document no significant decline in information asymmetry, measured by bid-ask spreads and depths, and no significant increase in forecast accuracy, measured by forecast errors, between the pre and post IFRS 8 periods for mandatory adopters relative to a group of control firms. Thus, we find no unique effects of the mandatory adoption of IFRS 8 for German firms. Our results indicate that adopting supposed US ‘best practice’ might not necessarily be the best choice for every IFRS-applying country. Our findings should be of interest to the IASB, which finished its post-implementation review of IFRS 8 in 2013 and is currently considering potential changes to IFRS 8.

Explaining a Surge in IPR Filings: Uncertain Design Rights and Learning Their Boundaries in the Finnish Sauna Heater Market

We present a case study of a surge in design right filings in an industry transforming from technology-based to design-based competition. The motives for and outcomes of filing, and how these changed over time are discussed. We go on to explore the events, which offered the agents opportunities to update their beliefs about the scope of design right protection. We find that filing motives change from specific protection goals to freedom to operate over time. We also find that the actors faced several, but sometimes contradictory, learning opportunities. Finally, we argue that uncertain design rights may have fostered entrepreneurial optimism. Policy makers could level the playing field and decrease information asymmetries between experienced and inexperienced players by mandating digital open access to design right databases and existing court cases. However, the expected welfare effects of this libertarian paternalistic policy are contradictory.

Does Gender Diversity on Boards Reduce Information Asymmetry Problems? Empirical Evidence from the French Market

This study investigates the effect of gender diversity on boards on information asymmetry problems in the French stock market. We use Bid-Ask Spread BASP estimator of Corwin and Schultz (2012) as a proxy for asymmetric information in stock markets. The study shows the following results. First, gender diversity in boardrooms has a negative and significant effect on BASP, only in family-controlled firms. This effect varies according to the position of female directors on the board. In fact, female inside directors have a positive and significant effect on BASP while female independent non-executive directors have a negative and significant effect. This latter effect overbalances female inside directors’ effect. Finally, female attributes such as high educational level, business or corporate law degrees, multiple directorships, more than 55 years old could decrease information asymmetry.

SEC comment letters and firm disclosure

In an effort to enhance informational transparency for investors, the SEC periodically reviews public firms’ filings for regulatory compliance. Although the SEC dedicates significant resources to the filing review process, the efficacy of this process is unclear. Upon receipt of a comment letter consequent to the SEC’s review, the firm can either remedy perceived disclosure deficiencies or attempt to avoid making substantive disclosure changes, including by requesting that certain additional information be treated as confidential or by negotiating with the SEC. In this paper, we first examine the nature, extent, and impact of modifications to firms’ disclosures requested by an SEC comment letter. While our initial evidence suggests that firms enhance their disclosure, we find that Rule 406 confidential treatment requests and registrant negotiation have an attenuating effect. Further, consistent with proprietary cost concerns, we show that firms in high tech industries and with greater amounts of R&D are more likely to request confidential treatment. We then examine informational transparency in order to test the SEC’s stated intention of the filing review process. We find that improvements to firms’ disclosures following a comment letter are associated with a decrease in information asymmetry and a reduction in litigation risk. Collectively, our paper contributes to the literature on disclosure regulation by providing evidence that the SEC comment letter process generally enhances firms’ disclosures, improves informational transparency for investors, and mitigates firms’ litigation risk, but that some firms take actions that diminish these enhancements.

Sovereign Debt and Moral Hazard: The Role of Collective Action and Contractual Ambiguity

The ambiguous phrasing of pari passu (equal treatment) clauses in sovereign debt contracts has long baffled commentators. We show that in the presence of asymmetric information on a sovereign borrower's ability to pay, an uncertain clause gives rise to a collective action problem among creditors that can reduce sovereign moral hazard. By varying the clause, parties can calibrate a sovereign's expected default costs and payments to creditors and thereby optimally trade off the sovereign's moral hazard and (deadweight) default costs. As information asymmetry decreases, a pari passu clause becomes a coarser instrument for configuring creditors' incentives and mitigating moral hazard.

Investor relations and information asymmetry

ABSTRACT Companies invest significant volumes of resources in investor relations (IR) departments. The professionals working in the IR department are responsible for communication between the company and the market, so that the information generated is widely disseminated and understood by investors. In this context, this research aims to investigate whether there is evidence that the IR activity decreases information asymmetry between the company and the market. Specifically, we evaluate the hypothesis that Brazilian companies with IR websites classified as more informative have a reduced bid-ask spread (proxy for asymmetry). Therefore, this paper classifies the informative content from IR websites of Brazilian companies for the years 2013 and 2014 and relates the outcomes obtained with information asymmetry metrics. Initially, the estimation considers the pooled ordinary least squares (POLS) model and, at a second moment, in order to mitigate potential endogeneity problems, the pooled two-stage least squares (2SLS) model is used. The results indicate that more informative IR websites are able to decrease the bid-ask spread of Brazilian listed companies. This finding strongly encourages companies to provide information to stakeholders on well-structured IR websites of their own.

Uncertain Design Rights and Design Spillovers: The Case of Sauna Heater Market

We present a case study of a surge in design right filings in an industry transforming from technology-based to design-based competition. The motives for and outcomes of filing, and how these changed over time are discussed. We go on to explore the events, which offered the agents opportunities to update their beliefs about the scope of design right protection. We find that uncertain design rights may have fostered entrepreneurial optimism. We also find that the scope of design right protection has been dynamically evolving in this context: the more designs were introduced to market the smaller improvements qualified for design right protection and the narrower the scope of existing design rights became. Policy makers could level the playing field and decrease information asymmetries between experienced and inexperienced players by mandating digital open access to design right databases and existing court cases. However, the expected welfare effects of this libertarian paternalistic policy are contradictory.