Information Asymmetry Research Articles

The audit committee’s IT expertise and its impact on the disclosure of cybersecurity risk

This paper examines the impact of the audit committee's IT expertise on corporate cybersecurity risk disclosure against the backdrop of increasing complexity and frequency of cyberattacks. We find that IT expertise of audit committees significantly improves the disclosure of cybersecurity risks. This effect is more pronounced in firms with less transparent financial reporting, firms with weaker governance, and firms with lower information asymmetry. Furthermore, the level of artificial intelligence adoption, the quality of internal controls, and the quality of information disclosure are potential influencing channels.

Does firm-level carbon assurance matter for trade credit?

We are among the first to examine the influence of carbon assurance on trade credit. Drawing on a sample of publicly listed U.S. firms, we document that firms with high carbon assurance obtain more trade credit from their suppliers. Our channel analysis tests show that high carbon assurance translates into higher trade credit by reducing risk and information asymmetry. Our results are robust with alternative model specifications, trade credit and carbon assurance measures, 2SLS IV analysis, PSM estimates, and Heckman-two stage approach to address possible endogeneity.

MD&A tone and stock returns

This paper examines the impact of the MD&A (Management’s Discussion and Analysis) tone on cross-sectional stock returns in the unique context of Chinese A-share companies. We find a significant and positive relationship between the MD&A tone and Chinese stock returns after controlling for quantitative financial metrics. Our results suggest that the MD&A tone provides additional value that further enhances the information quality in MD&A disclosures and market responses. Furthermore, we observe that the textual tone effect is more pronounced for firms with lower institutional ownership, lower financial transparency, in less competitive market environments, and both the information factor and the sentiment factor of MD&A tone positively affect stock returns. Thus, we provide convincing evidence that MD&A narratives can serve as an effective communication tool to facilitate disclosure and mitigate information asymmetry between corporations and investors.

Implementing Manufacturing Execution Systems (MES) for Industry 4.0: Overcoming buyer-provider information asymmetries through knowledge sharing dynamics

Manufacturing Execution Systems (MES) have been considered the ‘entrance door’ to the Industry 4.0 journey. As part of this journey, this system must operate in real-time and be integrated with several other systems, resulting in modular adaptation and customized implementation of this solution. This increased complexity underscores the importance of the relationship between companies and their technology providers, requiring intensive knowledge-sharing (KS) activities between the parties. In particular, information asymmetry between buyers and MES 4.0 providers may be critical for the successful implementation of the system, but little is known about this issue, which has a high impact on the first stage of the Industry 4.0 journey. Thus, we aim to understand how knowledge sharing affects information asymmetry between buyers and technology providers for MES 4.0 implementation. Our investigation is based on qualitative interviews with 56 key experts from 33 companies, which allowed us first to define MES configurations for Industry 4.0, i.e., MES 4.0 as a differentiation from early versions of MES. Then, we conducted a multiple case study with three buyer-provider dyads in the pre-and post-contract phases of MES purchasing to analyze KS dynamics during the implementation of MES 4.0. We propose a model that explains the relationship between MES 4.0 complexity and KS intensity and a decision framework that describes the steps for MES 4.0 implementation while focusing on reducing information asymmetry during the collaboration.

HEDehazeNet: Unpaired image dehazing via enhanced haze generation

Unpaired image dehazing models based on Cycle-Consistent Adversarial Networks (CycleGAN) typically consist of two cycle branches: dehazing-rehazing branch and hazing-dehazing branch. In these two branches, there is an asymmetry of information in the mutual transformation process between haze images and haze-free images. Previous models tended to focus more on the transformation process from haze images to haze-free images within the dehazing-rehazing branch, overlooking the provision of effective information for the formation of haze images in the hazing-dehazing branch. This oversight results in the production of haze patterns that are both monotonous and simplistic, ultimately impeding the overall performance and generalization capabilities of dehazing networks. In light of this, this paper proposes a novel model called HEDehazeNet (Dehazing Net based on Haze Generation Enhancement), which provides crucial information for the generation process of haze images through a dedicated haze generation enhancement module. This module is capable of producing three distinct modes of transmission maps - random transmission map, simulated transmission map, and mixed transmission maps combining both. Employing these transmission maps to generate hazing images with varying density and patterns provides the dehazing network with a more diverse and dynamically complex set of training samples, thereby enhancing its capacity to handle intricate scenes. Additionally, we made minor modifications to the U-Net, replacing residual blocks with multi-scale parallel convolutional blocks and channel self-attention, to further enhance the network's performance. Experiments were conducted on both synthetic and real-world datasets, substantiating the superiority of HEDehazeNet over the current state-of-the-art unpaired dehazing models.

The Role of Corporate Governance in Shaping IFR Practices of Listed Companies in Sri Lanka

Objective – This study investigates the relationship between corporate governance characteristics and Internet Financial Reporting (IFR) in the context of listed companies in the Colombo Stock Exchange (CSE).Design/Methodology – The key metrics for assessing corporate governance characteristics include board size, independence, CEO duality, women in the board, audit committee independence, and ownership concentration. These data were derived from the published annual reports. Employing content analysis, the study measures IFR disclosure using secondary data from the published annual reports of 201 listed companies in Sri Lanka.Results – The mean value of listed companies' IFR disclosure is 50.66% in Sri Lanka. Regression results show that audit committee independence and ownership concentration significantly impact the IFR. However, no statistical evidence supports other variables' significant impact on IFR.Research limitations/implications – This study relies upon only 201 listed firms’ data for a financial year in Sri Lanka and the statistical model includes only five corporate governance-related variables. The study's findings contribute to the reform of corporate governance practices, corporate governance literature, and information asymmetry theory. Moreover, results have practical implications for the composition of the board and audit committee.Novelty/Originality – This study contributes to the existing literature and lays the groundwork for future research by providing new insights into the adoption of IFR practices in Sri Lanka and other similar nations. Examining the impact of corporate governance on IFR practices in listed firms within a developing country sheds light on the significance of corporate governance and IFR.

Why do Indian exporting firms borrow in foreign currency?

Purpose Since the liberalization policy of 1991, India has focused on export-led growth. However, the performance of international trade remains poor. This study aims to examine the role of credit constraints on the choice of Indian manufacturing firms to borrow in foreign currency. First, it explores the role of export activities in foreign currency borrowing (FCB). Second, it investigates how credit constraints forced these firms for foreign currency loans. Design/methodology/approach The study analysed data from 1,412 firms listed on the Bombay Stock Exchange in the manufacturing sector, covering the period from 1991 to 2022. A random effects probit model was used to examine the role of credit constraints on FCB, incorporating the influence of micro, small and medium enterprises (MSMEs) status and export activities. Additionally, a two-step system-generalized method of moment was used for robustness checks. Findings Export activities significantly influence FCB, with exporting firms showing a higher propensity to borrow foreign currency compared to domestically operating firms because of the increased funding needs of export activities. Larger firms are more likely to secure FCB than MSMEs, benefiting from collateral advantages. MSME exporting firms exhibit a higher tendency to borrow in foreign currency compared to large exporting firms. Research limitations/implications This study focuses on firm-level data and considers only demand-side credit constraints. It does not examine supply-side credit constraints affecting FCB. Social implications This study underscores the credit constraints faced by MSME exporters in the domestic market, leading them to rely on FCB. These insights are valuable for policymakers aiming to reduce MSMEs' dependency on FCB and enhance their export performance. Originality/value The findings highlight that MSME exporting firms are more inclined to borrow in foreign currency than their larger counterparts. This tendency is driven by the credit constraints MSMEs face because of asymmetric information and underdeveloped financial markets, which compel them to seek FCB.

Navigating through cyberattacks: The role of tax aggressiveness

This research investigates the impact of cyberattacks on tax aggressiveness using a difference-in-differences analysis with a matched sample. We find that firms experiencing cyberattacks are more likely to have lower cash effective tax rates and greater discretionary book-tax differences. We further show that cyberattacks have a greater impact on corporate tax aggressiveness when firms are more exposed to financial distress. Additional analyses show tax aggressiveness increases less when firms are in states with enactments of notification laws and firms with ex ante higher cybersecurity investment. Our aggregate results suggest that firms take more tax risky positions in response to greater financial distress and information asymmetry, which are attributed to the consequences of cyberattacks.

The impact of democracy on liquidity and information asymmetry for NYSE cross‐listed stocks

The impact of democracy on liquidity and information asymmetry for <scp>NYSE</scp> cross‐listed stocks

The effect of collateral on small business rationing of term loans and lines of credit

Theories of loan contracting in the presence of asymmetric information highlight the key role of collateral in mitigating against credit rationing. However, theory also allows for the use of collateral by ‘bad’ borrowers in order to receive better loan contract offers. In this study, we explore the extent to which collateral can affect the incidence of absolute loan denial and partial rationing associated with smaller loans than requested being offered. Using data from a large survey of UK small- and-medium enterprises, we find significant evidence on the negative effect of collateral. Our results also reveal important distinction between lines of credit and term loans, where the presence of collateral is associated with 3 % less term loan approved compared to overdraft. We argue that even the request (or offer) of collateral for a term loan indicates that either the bank or the firm believes it is a risky bet.

Navigating the nexus of political risk, information asymmetry and liquidity: evidence from non-US stocks on the NYSE

Navigating the nexus of political risk, information asymmetry and liquidity: evidence from non-US stocks on the NYSE

Expert’s reputation concern and consumer information

Serious information asymmetry exists between consumers and expert sellers in the credit-goods market. This study develops a generic model to investigate the relationship between consumer information and expert fraud in the credence goods market. The unique features of the model are that (i) the state of the consumer is multidimensional, (ii) the expert seller has concerns about their reputation, and (iii) information asymmetry exists between the consumer and the expert seller regarding the necessity of the provided treatment ex-ante and ex-post. On average, the equilibrium amount of the recommended treatment is greater than the necessary level. The contingent effect of any consumer information on expert overtreatment can be evaluated by analyzing the posterior variance of the number of problems updated by the information. Consumer information on only part of the problem hardly reduces expert overtreatment in certain situations. The unconditional effect of consumer information on expert seller fraud varies considerably with state distribution.

Patient and family contributions to improve the diagnostic process through the OurDX electronic health record tool: a mixed method analysis

BackgroundAccurate and timely diagnosis relies on sharing perspectives among team members and avoiding information asymmetries. Patients/Families hold unique diagnostic process (DxP) information, including knowledge of diagnostic safety blindspots—information that patients/families...

What effect does the mandatory adoption of IFRS have on the decision to withdraw an IPO?

ABSTRACT This article fills a gap in accounting disclosure discipline and Initial Public Offerings (IPOs) withdrawal research by examining how mandating IFRS affects IPO withdrawal. This study is the first to examine more than 33,000 worldwide IPOs that were either unsuccessful or successful from 1995 to 2019 in a variety of countries with varying legislative, cultural, and economic environments. We discovered solid evidence that International Financial Reporting Standards (IFRS) standards reduced IPO withdrawal rates. Mandating IFRS before an IPO reduces information asymmetry and reduces the risk of IPO withdrawal for IPO founders. This suggests that mandatory IFRS adoption reduces IPO withdrawals due to many variables. Reduced IPO information asymmetry improves transparency, investor trust, market efficiency, comparability, and liquidity, outweighing any drawbacks. New firms, investors, scholars, and legislators could capitalize on the results of our research.

The Relationship between Retained Earnings and Financial Performance of Listed Non-Financial Firms: An Econometrics Examination

Internal funding sources such as retained earnings provide minimize information asymmetry in addition to being cheap and convenient for ailing firms such as listed non-financial firms trading at the Nairobi Securities Exchange (NSE). Research has however failed to do document precisely how the potential inherent in retained earnings can be exploited to improve financial performance of such firms in the long run. Therefore, this research conducted among 42 non-financial firms listed on the exchange explores the relationship between retained earnings and financial performance from an econometrics perspective. The study is anchored on the Pecking Order Theory, and employs the panel data research design founded in the positivist research paradigm, with data covering the time interval 2016 to 2022 inclusive. Data is sourced purposively from the annual reports of the non-financial sector, including agricultural firms, automobiles and accessories, commercial &amp; services, construction &amp; allied, energy &amp; petroleum, insurance, investment, investment services, manufacturing &amp; allied, telecommunication, and real estate investment trust. The research uses the fixed effects model under panel regression to show a positive and significant relationship between retained earnings and financial performance, and particularly the ultimate direct influence that retained earnings have on financial performance of listed nonfinancial firms. Therefore nonfinancial sector stakeholders should seek to leverage retained earnings to enhance financial performance and achieve resilience in the volatile market conditions, while scholars should seek to enhance external validity of these findings by replicating them in other study contexts. Keywords: Information asymmetry, retained earnings, financial performance, nonfinancial firms, Securities exchange, Econometrics, Panel data.

Can the construction of the social credit system improve the efficiency of corporate investment?

Based on the quasi-natural experiment of China's pilot reform of social credit system, this paper examines the effect and mechanisms of the construction of social credit system on corporate investment efficiency using the data of A-share listed companies in Shanghai and Shenzhen from 2005 to 2022. The study presents the following findings. First, the construction of social credit system significantly improves corporate investment efficiency, through three main paths: alleviating information asymmetry, improving internal corporate governance, and strengthening market competition pressure. Second, there is significant heterogeneity in the promotion effect of the construction of social credit system on corporate investment efficiency, which is more pronounced for non-state-owned enterprises and enterprises in monopolistic industries. Based on the above research conclusions, this paper puts forward policy suggestions such as establishing a comprehensive credit information sharing platform, promoting the credit rating system, strengthening credit supervision and risk early warning to improve the social credit system.

Do executive facial trustworthiness have impact on IPO underpricing in the Indonesia stock exchange?

PurposeThis study aims to investigate the impact of facial-based perceived trustworthiness on stock valuation, particularly, in the initial public offering (IPO). IPO settings provide the opportunity to investigate whether information asymmetry resulting from company newness in the market would influence the incorporation of soft information in the form of executive facial trustworthiness in stock valuation.Design/methodology/approachWe use a recent machine learning algorithm to detect facial landmarks and then calculate a composite facial trustworthiness measure using several facial features that have previously been observed in neuroscience and psychological studies to be the most determining factor of perceived trustworthiness. We then regress the facial trustworthiness of IPO firm executives to IPO underpricing.FindingsUtilizing machine learning algorithms, we find that the facial trustworthiness of the company executive negatively impacts the extent of IPO underpricing. This result implies that investors incorporate the facial trustworthiness of company executives into stock valuation. The IPO underpricing also shows that the cost of equity is higher when perceived trustworthiness is low. With regard to the higher information asymmetry in IPO transactions, such a negative impact implies the role of facial trustworthiness in alleviating information asymmetry.Originality/valueThis study provides evidence of the impact of top management personal characteristics on firms’ financial transactions in the Indonesian context. From the perspective of investors and other fund providers, this study shows evidence that heuristics still play an important role in financial decision-making. This is also an indication of investor reliance on soft information. Our research method also provides a new opportunity for the use of machine-learning algorithms in processing non-conventional types of data in finance research, which is still relatively rare in emerging markets like Indonesia. To the best of our knowledge, our study is the first to use personalized measures of trust generated through machine-learning algorithms in IPO settings in Indonesia.

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.