Information Asymmetry Research Articles

Taking action to reduce board-level information asymmetry: the adoption of enterprise information systems

Taking action to reduce board-level information asymmetry: the adoption of enterprise information systems

Can investor-firm interactions mitigate ESG rating divergence? Evidence from China

This study empirically examines whether investor-firm interactions significantly influence the ESG rating disagreement among A-share listed companies in China. We use Q&A data between 2015 and 2021 from the Easy Interaction and E-Interaction platforms of the Shenzhen and Shanghai Stock Exchanges (SZSE and SSE). Our results reveal that investor-firm interaction can significantly reduce the ESG rating divergence, and this result remains robust after robustness tests. The mechanism test suggests that interactions related to ESG theme can improve the ESG disclosure quality and increase ESG practices; this leads to reduced information asymmetry, thus easing rating divergence. Further, the effect is more pronounced when listed companies' ESG disclosures are similar to those in their industry, non-centralized enterprises, low corporate governance level, and fewer green investors. From the ESG rating divergence mitigation perspective, this study provides empirical evidence on the economic consequences of emerging capital markets regarding investor-firm interactions.

Inside-out and outside-in: How entrepreneurial ecosystems can build legitimacy through signaling

ABSTRACT The entrepreneurial ecosystem is increasingly drawing the attention of scholars and practitioners, underscoring the importance of collective dynamics between entrepreneurs and entrepreneurial-support intermediaries in fostering entrepreneurial activity. The entrepreneurial journey is characterized by information asymmetry, with entrepreneurial actors sending signals as representations of their underlaying qualities, hoping to acquire necessary resources. Current entrepreneurship research predominantly applies signaling theory to individual and venture-level activities. However, studies that explore signaling within the broader context of entrepreneurial ecosystems are scarce. This paper aims to bridge the entrepreneurial ecosystem-signaling gap by offering insight into how emerging entrepreneurial ecosystems gain legitimacy. We analyze a nascent, privately governed entrepreneurial ecosystem located in Valencia, Spain. Employing a conceptual model based on our findings, we introduce a key boundary condition for the study of signaling in an entrepreneurship context.

Company reputation and dividend payout

Purpose The purpose of this paper is to examine the association between company reputation and dividend policy. Design/methodology/approach In this study, sample of 98,809 firm-year observations from 22 countries covering 2005–2016 were used. Findings Firm reputation concerns are associated with higher propensities to pay dividends and payout ratios. Further, this positive effect is more pronounced for firms with high free cash flows, high information asymmetry and low institutional monitoring. The results are robust to an instrumental variable approach, propensity score matching and the Heckman two-stage correction approach while addressing endogeneity concerns. Practical implications These findings have significant implications for various stakeholders, such as existing and potential investors, managers, policymakers and regulators, by providing insights into the relationship between corporate reputation and firm dividend payout decisions. Corporate reputation is highlighted as crucial for accessing finance, emphasizing the role of national regulators and policymakers in facilitating firms' efforts to improve their reputation. The study highlights the dynamics of corporate reputation and dividend payout, calling for proactive engagement from regulators and policymakers. Crafting policies conducive to reputation-building can enhance firms' financial prospects, indicating the need for strategic interventions at managerial, regulatory and policy levels. Understanding the influence of economic context is crucial for firms to tailor reputation management strategies and optimize funding opportunities in different economic environments. Originality/value Overall, results suggest that reputation serves as a disciplining mechanism, where firms will pay dividends to maintain their reputations.

The commercialisation of NTFPs and conservation of forest: a systematic review for forestry policy

PurposeThis current review examines the scientific literature report on non-timber forest products (NTFPs) commercialisation and forest conservation in different jurisdictions.Design/methodology/approachA systematic review using Scopus-indexed articles on NTFP commercialisation and forest conservation was done using the PRISMA framework.FindingsThe review categorised the factors influencing the commercialisation of NTFPs and forest conservation into five broad factors and sub-factors: socioeconomic, market-based, ecosystem, cultural and institutional factors. The scholarly publications on NTFP commercialisation and forest conservation have been undulating, with two years recording no publication on the subject matter under review. Besides, China and India in Asia are leading in the number of publications on NTFPs’ commercialisation. The review revealed ambivalence and symbiotic relationship among the factors influencing the commercialisation of NTFPs and forest conservation. Specifically, tenure arrangement, strict regulations to forest entry, market information asymmetry, bureaucracy in certification acquisition, seasonality and distance were identified as barriers to NTFPs’ commercialisation. While market demands for NTFPs increased, NTFPs’ prices and unsustainable harvesting activities were threats to forest conservation. Policymakers should focus on safeguarding customary property rights and indigenous knowledge in forest conservation, designing workable capacity-building schemes for NTFP entrepreneurs and reducing the cost and processes in certification acquisition.Originality/valueThere are reviews on NTFPs’ commercialisation and livelihoods, but a synergy between NTFPs’ commercialisation and forest conservation for forest policy direction is yet to be done in the literature. Also, while earlier studies systematically reviewed literature on NTFPs’ commercialisation, they did not relate the studies to forest conservation.

Blockchain Technology Adoption by Critical Stakeholders in Prefabricated Construction Supply Chain Based on Evolutionary Game and System Dynamics

Blockchain technology (BT) is a promising solution to address information asymmetry and trust issues in the prefabricated construction supply chain (PCSC). However, its practical application in PCSC remains limited under the influence of stakeholders’ adoption strategies. While previous studies have analyzed drivers and barriers to BT adoption, they often take a static view, neglecting the long-term dynamic decision-making interactions between stakeholders. This study addresses this gap by examining the interests of owners, general contractors, and subcontractors, and by developing a tripartite evolutionary game model to analyze the interaction mechanism of the strategy of adopting BT in PCSC. Additionally, a system dynamics simulation validates the evolution of stabilization strategies and examines the impact of key parameters. The results indicate that successful BT adoption requires technology maturity to surpass a threshold between 0.5 and 0.7, along with a fair revenue and cost-sharing coefficient between general contractors and subcontractors, ranging from 0.3 to 0.5 at the lower limit and 0.7 to 0.9 at the upper limit. Notably, general contractors play a pivotal role in driving BT adoption, acting as potential leaders. Furthermore, appropriate incentives, default compensation, and government subsidies can promote optimal adoption strategies, although overly high incentives may reduce owners’ willingness to mandate BT adoption. This study provides practical insights and policy recommendations for critical stakeholders to facilitate the widespread adoption of BT in PCSC.

Digital technology innovation and corporate resilience

This study identifies over 220,000 digital invention patent applications for digital invention and creates an index of enterprise-level digital technology innovations. Using an empirical analysis based on a two-way fixed-effects model, this study examines the impact of digital technology innovation on enterprise resilience. Results show that digital technology innovations improve enterprise resilience. This improvement is mainly achieved by reducing internal and external information asymmetry, reducing operating costs, improving management levels and operational efficiency, and increasing market profitability and sustainable earning capacity. Moreover, this study extracted all announcements containing phrases such as “strategic alliance,” “strategic co-operation,” and “business alliance” from 3.208 million announcements on the JUCHAO website and further filtered them to select those strategic alliances in digital technology as their content of collaboration and identified them as digital technology strategic alliances. The findings show that companies that join digital technology strategic alliances have a greater impact on improving enterprise resilience. Furthermore, this study found that digital technology innovation can significantly improve the enterprise resilience with better network infrastructure and a more comprehensive intellectual property protection system. This study expands the research scope of the microlevel effects of the digital economy and provides valuable insights for governments to optimize digital economy policies and enterprises to develop digital innovation strategies.

The Impact of Supply Chain Finance on the Investment Efficiency of Publicly Listed Companies in China Based on Sustainable Development

The development and utilization of supply chain finance play a pivotal role in both enhancing financial structures and delivering substantial support for the sustainable progress of the real economy. This assistance is essential for promoting high-quality economic growth and ensuring stable, long-term development. This study empirically examines the effects of supply chain finance on investment efficiency, exploring the underlying mechanisms involved. Additionally, it assesses whether financing constraints and information asymmetry serve as mediating variables in the relationship between supply chain finance and investment efficiency among enterprises. The analysis is based on data from publicly listed companies in China covering the period from 2013 to 2022. The results indicate that supply chain finance effectively addresses both overinvestment and underinvestment issues, leading to a notable improvement in overall investment efficiency. Utilizing a two-way fixed effects model to analyze the role of financing constraints and information asymmetry as mediating variables, the study demonstrates that both factors significantly mediate the relationship between supply chain finance and investment efficiency within enterprises. Supply chain finance improves investment efficiency by mitigating financing constraints and lessening information asymmetry between enterprises and external stakeholders. The heterogeneity analysis reveals that the positive impact of supply chain finance on investment efficiency is notably greater in non-state-owned enterprises and in regions with more advanced development.

Do Investors’ Site Visits Improve Bond Market Pricing Efficiency? —An Empirical Study from the Secondary Bond Market

ABSTRACT Taking bonds issued by A-share companies listed on the Shenzhen Stock Exchange from 2014 to 2020 as a sample, this paper explores the effect of corporate site visits on bond trading spreads. The study finds that the more investors visit a given firm, the lower the trading spreads of bonds issued by that firm, and this phenomenon is more pronounced in companies with greater information asymmetry or agency conflicts. Further research shows that investors evaluate the financial status of the company more accurately through site visits and reduce irrational decisions caused by information uncertainty. Consequently, site visits reduce the financing gap caused by macroeconomic factors. The results show that personal communication between investors and listed companies could provide effective information for bond investors and reduce their information risk. This paper expands the existing research on issues related to secondary bond market pricing and investors’ site visits and provides important empirical evidence for regulators to use to further optimize the bond market disclosure system to reduce information asymmetry.

Market Failure, Information Asymmetries, and Monopoly Profits: The Barranquilla Railway and Pier Company in Colombia, 1888–1933

Market Failure, Information Asymmetries, and Monopoly Profits: The Barranquilla Railway and Pier Company in Colombia, 1888–1933

Buying inferior to selling: Explore the impact of transaction direction on the effects of related-party transactions

Throughout, the effects of related-party transactions (RPTs) have been a hot topic in financial markets and corporate governance research. This paper analyzes the theoretical foundation of the effects of RPTs and constructs a new indicator, the quasi-profit margin, to assess the effects of RPTs by studying their impact on the quasi-profit margin. Based on the information asymmetry between transaction parties and the information screening theory, the paper proposes the buying inferior to selling theory, systematically explaining the impact of transaction direction on the effects of RPTs. Subsequently, using panel data from Chinese A-share listed companies from 2016 to 2021, the paper constructs fixed-effects models and conducts empirical studies from both exogenous and endogenous perspectives, employing estimation methods such as high dimensional fixed effects method, two-stage least squares method, and three-stage least squares method. The research indicates that RPTs of Chinese A-share listed companies generally exhibit a tunneling effect, and the transaction direction significantly affects the effects of RPTs. The higher the proportion of RPTs conducted as sellers to the total RPTs, the smaller the overall tunneling effect of the RPTs. This study has implications for reducing the tunneling risk of RPTs and improving corporate governance for listed companies, as well as providing some references for financial regulatory authorities to identify and rectify illegal RPTs.

Digital transformation and corporate tax avoidance: An analysis based on multiple perspectives and mechanisms.

Promoting the seamless integration of the digital economy with the real economy, mitigating the adverse impacts of widespread corporate tax avoidance, and optimizing tax governance are critical imperatives in the era of digital economy. This study examines all A-share listed companies from 2007 to 2022 as research samples. It utilizes multiple perspectives including signal theory, information asymmetry theory, and the T-O-E (Technology-Organisation-Environment) framework to investigate the primary impacts of digital transformation on corporate tax avoidance, along with the intermediate mechanisms and foundational conditions that influence its effectiveness. After conducting both theoretical and empirical analyses, this paper presents the following conclusions. (1) The implementation of digital transformation significantly reduces corporate tax avoidance, a conclusion supported by rigorous robustness tests. Moreover, digital transformation enhances corporate productivity through the suppression of tax avoidance. (2) Digital transformation diminishes corporate tax avoidance through enhanced innovation and efficiency in resource allocation (technology level), improved quality of internal controls (organization level), and decreased industry competition (environment level). (3) The impact of digital transformation in reducing tax avoidance is significantly greater for enterprises in their growth phase, experiencing lower financing constraints, particularly those situated in the central and western regions. (4) Lower business risk is essential for maximizing the effectiveness of digital transformation and reducing corporate tax avoidance. This is crucial for governments seeking to improve tax administration, guide market and regional development, and enhance the impact of corporate digital transformation on mitigating tax avoidance.

Clearing Up Confusion: The Effect of Outlier Similarity on IPO Underpricing

Prior research demonstrates that audiences tend to converge in their valuations of firms similar to preexisting category prototypes or exemplars. Much less is known of the influence of salient outliers, specific firms that receive market-wide attention due to their extreme, ambiguous performance, on audiences’ valuations. We argue that outlier similarity, by contrast with prototype similarity, leads to divergent valuations among individual investors. We explore this insight in the context of initial public offerings (IPOs). In this context, converging valuations among investors lead to limited information asymmetry concerns and hence reduced underpricing on the first day of trading of an issuing firm. Hence, we expect that prototype similarity leads to lower underpricing while outlier similarity leads to higher underpricing. We test our hypotheses using a sample of 2,488 U.S. IPOs from 1996 to 2015, measuring prototype and outlier similarity through a natural language processing technique applied to nearly 160,000 financial documents. We find that in low-tech industries, where prototypes are informative about category members, prototype similarity reduces underpricing, but not in high-tech industries. Additionally, we find that outlier similarity increases underpricing, especially for more recent outliers. This paper contributes to the literature on market valuation and market categories, and advances research on meaning and culture using new text-based computational methods.

Corporate environmental responsibility’s influence on risk-taking in Chinese A-share listed companies

PurposeThis study aims to investigate the relationship between corporate environmental responsibility (CER) and risk-taking in Chinese A-share listed companies from 2011 to 2020. It seeks to understand the influence of CER on risk-taking behavior and explore potential moderating factors.Design/methodology/approachA quantitative approach is used, using data from Chinese A-share listed companies over the specified period. Regression analysis is used to examine the relationship between CER and risk-taking, while considering moderating variables such as performance aspiration, environmental enrichment and contextual factors.FindingsThe findings indicate that CER positively influences corporate risk-taking, with significant impacts on information asymmetry and corporate reputation. Moreover, positive performance aspiration strengthens the effect of CER on risk-taking, while negative performance aspiration and environmental enrichment weaken this effect. Cross-sectional analysis shows that the positive association between CER and risk-taking is more prominent for firms located in areas with strict environmental regulation, for nonstate-owned firms, and for firms with higher levels of internal control.Originality/valueThis research contributes to the literature by providing insights into the dynamics between CER and risk-taking in the Chinese market context. It expands existing knowledge by considering the influence of performance aspiration on this relationship, offering practical implications for firms seeking to enhance corporate performance through strategic management of environmental responsibilities.

Research on Overseas Aid Mechanisms for Intellectual Property Rights

In order to solve the dilemma of information asymmetry in the international market of intellectual property rights, China needs to improve the corresponding overseas intellectual property rights protection assistance mechanism. At the present stage, China's governmental assistance in domestic intellectual property rights protection is relatively comprehensive, but there is a lack of unified legal norms, incomplete assistance measures, and irrational establishment of assistance organizations in overseas intellectual property rights protection assistance. Combined with the practice of the United States and other countries, it is recommended to formulate unified laws and regulations on the protection of intellectual property rights overseas, set up additional measures of insurance premiums for the protection of intellectual property rights overseas, and establish overseas branches of assistance organizations to improve the assistance mechanism and provide help to domestic enterprises.

How does the Chinese digital transformation of enterprises affect the auditor switch?

The digital transformation of enterprises has brought great changes to the audit service demand of enterprises and the audit service supply of auditors. Therefore, there is a pressing need to study the digital transformation of enterprises and its impact on auditor switch. This paper aims to explore the influence of enterprise digital transformation on auditor switch and its potential implications for improving auditor efficiency. Using Python's machine learning tools and text analysis methods, This paper measure the digital transformation of Chinese listed companies and study the impact of digital transformation on the frequency of auditors witches. Our findings suggest that companies that have undergone digital transformation have reduced the frequency of changing auditors by alleviating information asymmetry, enhancing the effectiveness of companies' internal controls and increasing audit fees. This unique measurement mode of digital transformation provides new evidence for the relationship between the audit service demand of enterprises and the audit service supply of auditors under the digital transformation environment. The research can assist businesses in understanding how digital transformation affects auditing professionally and in improving their audit processes accordingly.

Harnessing the Power of Social Media for Promoting Transparency in Collaborative Governance through Non-State Actors: A Comparative Case Analysis of South Africa and Zimbabwe

Objective: Collaborative governance is an innovative approach to address complex societal challenges, involving partnerships between state and non-state actors. Consequently, social media is powerful tools for promoting transparency and accountability. Methodology: The study examines the role of non-state actors in leveraging social media to enhance transparency in collaborative governance initiatives. The research analyses two case studies - the #FeesMustFall campaign in South Africa and the #Tajamuka/Sesijikile campaign in Zimbabwe. Results: Through a qualitative analysis of the case studies, the study explores how non-state actors, such as civil society organizations and activist groups, have utilized social media to amplify their voices, mobilize public support, and exert pressure on government entities. Findings reveal that effective use of social media can empower non-state actors to overcome information asymmetries, facilitate public scrutiny, and foster collaborative problem-solving. Conclusions: However, contextual factors, such as political environments and digital access, shapes the dynamics of social media-driven transparency efforts.

Research on low-carbon supply chain emission reduction strategies based on blockchain technology

The difficulty of regulating carbon trading due to information asymmetry and low consumer trust in low-carbon products are key factors hindering companies from reducing emissions. This paper examines a manufacturer-led secondary low-carbon supply chain consisting of a single supplier and a retailer, focusing on the impact of blockchain technology on carbon transaction costs and consumers' low-carbon preferences. Utilizing Stackelberg game theory, the paper constructs a supply chain decision model for emission reduction, determining the payment matrix and analyzing the stable strategy for blockchain adoption through evolutionary game theory. The findings indicate that retailers' adoption of blockchain technology significantly promotes emission reduction within the supply chain, whereas manufacturers' adoption has minimal impact. Additionally, the study reveals that variations in blockchain adoption costs and carbon quotas result in multiple evolutionary stable strategies. Specifically, when blockchain adoption costs and carbon quotas are below certain thresholds, the system reaches a unique equilibrium where both parties adopt blockchain technology.

Accounting comparability and customer concentration

This study examines the relationship between accounting comparability and customer concentration. Higher accounting comparability enhances customers’ ability to evaluate suppliers’ performance against their industry peers. This allows suppliers to attract more customers, hence reducing their customer concentration. We find a negative association between accounting comparability and customer concentration. This relation is stronger for firms with better profitability, higher information asymmetry, and more innovations. By establishing a link between accounting comparability and customer concentration, our study provides additional evidence about the consequences of accounting comparability and is helpful to both academics and practitioners.

Climate risk and split ratings: evidence from Korea

ABSTRACT This study examines the effects of climate risk on split ratings. Numerous studies have examined the correlation between financial reporting quality and split ratings. However, few studies have explored the effect of business ethics on split ratings. Thus, this study focuses particularly on environmental factors within the broader context of Environmental, Social, and Governance (ESG), that have recently attracted significant attention. We conducted a multiple regression analysis of the impact of climate risk on split ratings using a dataset of companies listed on the Korea Exchange. The analysis indicates that climate risk, which encompasses a firm’s greenhouse gas emissions and energy consumption, contributes to the split ratings of corporate bonds. This observation implies that heightened exposure to climate risk amplifies the likelihood of split ratings owing to diminished accounting transparency resulting from practices such as earnings management and a decline in the quality of disclosures. This study not only expands the understanding of the determinants of split ratings theoretically, but also offers investors empirically supported insights into the relevance of considering climate risk in their investment and credit decisions. Furthermore, this suggests the necessity for government policymakers to establish a monitoring system aimed at alleviating potential information asymmetry issues for firms facing elevated climate risk.