Financial Information Asymmetry Research Articles

Budget participation and financial information asymmetry: Behavior of budget users and financial report fraud

Financial statement fraud is a problem often faced by organizations that can reduce their performance. An organization that successfully achieves its goals must be aware of information asymmetry and the need for moral justice in managing its finances. The research population comprises employees of the finance, planning, reporting, and budget preparation sections of the Gowa Regency regional performance unit. This research selected a saturated sample of 76 employees from the total population. The results show that participatory budgeting has a significant effect on financial report fraud and that information asymmetry has a substantial influence on financial statement fraud. The research results show that moral justice moderates the effect of participatory budgeting on financial report fraud. Moral justice cannot moderate the influence of information asymmetry on financial statement fraud. Employees must still have good moral justice in participatory budgeting to minimize the possibility of fraudulent financial reports. It is hoped that the findings of this research will enable organizations to create innovative information facilities to reduce information asymmetry so that organizational performance can be achieved.

How Does Fintech Development Affect Financing Constraints of Smes? Evidence From China

Abstract Small and medium-sized enterprises (SMEs) play an indispensable role in China’s economy through making huge contributions to GDP, national employment, financial innovation and government taxation. However, SMEs in China have long faced financing constraints due to their inherent problems, such as financial information asymmetry, immature governance mechanisms, and lack of collateral under the traditional financial system, which have hindered their long-term development. In recent years, financial technology (Fintech) has entered a rapid development track, especially in China, providing new ideas and methods for solving the financing difficulties of SMEs from a technical perspective. In order to examine this, this paper measures the degree of financing constraints through the cash flow sensitivity of cash model and explores how the Fintech development affects financing constraints of SMEs in China and how this impact further communicated to the performance and the risks of SMEs by adopting two-way fixed effects models. The results show that Fintech could alleviate the financing constraints of SMEs. Furthermore, the mediating role of ownership is identified, presenting a better mitigating effect of Fintech on the financing constraints for private SMEs. In addition, both the performance and the risks of SMEs showed the upward single-sided U-shaped relationship with the increase of the Fintech development index, which indicates that Fintech could amplify performance while magnifying the risks of SMEs. The findings of this paper offer an important implication for China that regulatory authorities should consider and balance the financing constraint mitigation effect and risk amplification effect of Fintech.

Information asymmetry in the innovation adoption decision of tourism and hospitality SMEs in emerging markets: A mixed-method analysis

Investment decisions, particularly innovation adoption decisions, can sustain long-term viability of small and medium enterprises (SMEs). However, information asymmetry could limit the ability of SME management to make informed innovation adoption decisions. Even though information asymmetry is a multidimensional construct, prior literature has only focused on financial information asymmetry in such decisions. Therefore, the current study fills the research gap by conducting two separate studies: one analyzes World Bank Group data from 1250 observations in 11 emerging markets, and the other interviews eight SME owners and managers. The findings of the mixed-method studies suggest that financial, business regulation, and court information asymmetry decrease the likelihood of SMEs' product innovation adoption. The study contributes to a more comprehensive understanding of information asymmetry in SMEs’ decision-making rooted in agency theory. Moreover, its methodological contribution lies in measuring information asymmetry with micro-level data.

Fund accounting and government-wide financial reporting during the Pre-IPSAS implementation era from a Nigerian experience

PurposeThis paper assessed accuracy level in accounting for government funds in Nigeria's federal treasury and their faithful presentation in government financial reporting. It aimed to determine whether the reported annual balances in Nigeria's financial reporting were reliable or otherwise. Data used in analysis were obtained from secondary sources from federal treasury.Design/methodology/approachEx-post “facto” analysis method was adopted in the study involving the use of statistical techniques of absolute or aggregate mean percentage error derived from differences between recomputed and published fund balances and was employed. This was augmented with interactive review meetings of the initial case research report with the management of Nigeria's audit agency.FindingsResults distilled from the consolidated revenue fund (CRF), development fund and public debt show that recomputed values were greater than the fund balances in the gazetted financial statements. Results for contingency fund (CTF), federation account fund (FAF), special trust fund (STF) and sundry deposit fund yield equal figures and accurate. The paper concludes that there were serial understatements of the core public fund balances in the financial statements over the years. This trend of reporting incorrect in three core public funds in financial statements rendered Nigeria's financial position unreliable in the affected years for decisions. It also facilitated frauds, mismanagement of funds and corrupt practices.Research limitations/implicationsThe scope of the research is restricted to assessment of degree of accuracy in fund accounting, faithful representation of the respective fund balance in the liabilities side of FGN balance sheet and the reliability of the financial position. But, it did not consider or cover the implementation of International Public Sector Accounting Standards (IPSASs) in federal treasury since FGN had not issued any full IPSAS–oriented financial statements as on 2015.Practical implicationsIdentification of deficiencies in fund account balances, structural defects in fund accounting and acts of understatement of carrying balances in CRF and capital development fund (CDF) implies that the aggregate core fund liabilities reported in financial statement of government entities without corresponding assets do not actually reflect a true and fair financial position in some countries. It reveals remarkable degree of financial information asymmetry in government financial reporting. Illusionary fund accounting has direct linkage to poor fiscal governance in many sovereign with associated sub-optimal delivery of public goods and service level distress syndrome in many economies; lead to poverty, unemployment, crisis and macroeconomic disturbances.Social implicationsThe study contributes to the development of fund accounting system; strengthening government financial reporting architecture and practices. It provides framework for tracking financial information asymmetry in government financial reporting and mismanagement of public funds. It provides platform to effect necessary adjustment (correction) during the “first time 3-year adoption” adjustment window in Nigeria. Flowing from the findings, it advocates for institutionalization of government fund accounting standards and provides evidence for migration to accrual accounting system in countries that have not already implemented it. Evaluation system developed herein will improve fund management in federal treasury and contribute to efficient public financial management, good governance and enhance development of public accounting practice.Originality/valueThis exploratory empirical research is the one to ever evaluate accuracy level of fund accounting in sovereign entities and faithful representation in government's financial position prior to implementation of accrual accounting and financial reporting. The study established substantial level of illusionary accounting for public funds and information asymmetry in published government's financial reporting. It is necessary to rectify these discrepancies in fund accounting and financial reporting prior to and or during the first three years of the IPSAS transition implementation programme. These research deliverables provide adopters with relevant data for adjustment accounting during the transition period in strengthening public financial reporting in order to realize the benefit of full IPSAS accrual accounting.

Financial Information Asymmetry and Delisting of IPO Firms

본 연구는 2000년 1월부터 2011년 9월까지 국내 주식시장의 신규 상장기업을 대상으로 기업 공개과정에서 재무보고서의 정보 비대칭이 신규 상장기업의 생존확률에 미치는 영향을 살펴보았다. 재무보고서의 정보 비대칭은 이익조정에 따른 Jones(1991), Dechow et al.(1995), Kothari et al.(2005) 모형의 재량적 발생액을 이용하였다. 본 연구에 대한 실증 결과는 다음과 같다. 첫째, 상장폐지 기업은 생존 기업에 비해 설립일로부터 상장일 까지 소요 기간, 상장 후 생존기간이 상대적으로 짧았으며 수익성도 낮았다. 정보 비대칭의 수위도 상대적으로 높게 나타났으며 기업의 장단기 성과도 부진하였다. 둘째, Cox의 비례위험 모형(1972)을 통한 생존분석에서는 설립일로부터 상장일 까지 소요기간이 길고, 기업규모가 크면 상장폐지 확률은 감소하였다. 또한 핫 마켓에 신규 상장된 기업과 정보 비대칭의 수위가 높은 기업은 상장폐지 확률이 높았다. 셋째, 기업공개 이후 주가의 장단기 성과를 통제하였을 때 단기성과는 상장폐지와 유의적인 관계를 갖고 있지 않으나 60개월 간의 장기성과는 유의적인 음(-)의 관계를 갖고 있었다.We test for the association between information asymmetry for financial reports and delisting of IPO firms in Korea stock market over the period 2000 to 2011 by using discretional accrual measures as proxy for information asymmetry. By using Cox proportional hazard model, this research investigates whether low survival probability after going public is associated with higher information asymmetry in the IPO process. The results are as follows: First, delisted firms are more short-lived after going public and less profitable than survival firms. Second, survival probability after going public is significantly positively related to age and firm size. Firms that list in hot market and have larger information asymmetry in IPO process are more likely to delist. Third, survival probability of IPO firms isn’t significantly related to short run performance but significantly positively related to long run performance. Specifically, firms that have relatively better long-run performance have higher survival probability and lower hazard ratio as compared to firms that have worse long-run performance.