Level Of Information Asymmetry Research Articles

Culture and mutual funds’ performance

This paper investigates how culture affects US global mutual funds’ financial performance. I show that cultural dimensions are crucial not only for portfolio allocation choices but also for assessing the performance of institutional investors. Choosing securities from familiar cultural proximate markets significantly enhances the performance of mutual funds. The results suggest that fund managers can create positive performance for their clients if their portfolio allocation decisions are titled towards choosing cultural proximate markets that exhibit lower levels of information asymmetry.

The choice of equity financing: Floating-priced warrants versus SEOs

A floating-priced warrant (FPW) is an American warrant with a resettable exercise price at a discount from the market price. FPWs are frequently issued by Japanese firms as an alternative equity financing method to seasoned equity offerings (SEOs). This study reveals what kind of firms prefer to issue FPWs rather than SEOs and why. The results reveal that issuers of FPWs are poor performers and have higher levels of information asymmetry compared to issuers of SEOs. Such firms will face higher flotation costs when issuing common stocks directly. However, the flotation costs of selling equity via FPWs are relatively fixed and irrelevant to the issuer's firm characteristics. Although the average flotation cost of FPWs is higher than that of SEOs, issuers of FPWs would face an even higher flotation cost had they conducted SEOs instead. The result supports the flotation cost minimization hypothesis as a motive for issuing FPWs.

Foreign institutional ownership and the effectiveness of technical analysis

This paper investigates whether the effectiveness of technical analysis using a moving average (MA) approach varies with the level of information asymmetry. Using foreign institutional ownership as the proxy of information asymmetry, our empirical results indicate that moving average timing strategies for low foreign institutional ownership portfolios outperform buy-and-hold strategies. The effect holds after controlling the influence of information uncertainty suggested by Han et al. (2013). Moreover, the profitability of portfolios with low foreign institutional ownership increases along with information uncertainty. Finally, abnormal returns for MA strategies conditional on foreign institutional ownership are still significantly positive after controlling for Fama and French’s (1993) three-factor model, market conditions, and market timing abilities. Our evidence therefore concludes that, in addition to information uncertainty, information asymmetry is another driving force affecting the effectiveness of technical analysis.

Relevance of Fair Value information to Investors’ Decisions: Experimental Evidence from Egypt

Historical cost information is being criticized because it doesn’t provide timely or relevant information to firm stakeholders, in general and investors in particular. As investors are demanding more relevant information to take rational investment decisions, it is recommended to add fair value information to the financial statements to reduce the level of information asymmetry and increase the level of transparency. The objective of this study is to investigate the effect of adding fair value information to historical cost in the financial statements on investors’ willingness to invest, trading volume and stock valuation. Based on a sample of 44 MBA and postgraduate students in the Faculty of Commerce, Alexandria University, we found experimental evidence that adding fair value information (whether level 1 or level 3) will have a positive and significant effect on investors’ willingness to invest and trading volume. Additionally, adding fair value information (level 1) will have a positive and significant effect on investors’ stock valuation. Additional analyses showed that level 1 fair value information is more informative – in comparison to level 3 fair value information, and it has a positive effect on investors’ willingness to invest and stock valuation.

How information asymmetry influences platform-complementor relationship continuance

Platform owners adopt preferential treatment strategy to garner heterogeneous values. Complementors who do not receive preferential treatment get the short end of the stick. An interesting phenomenon is although certain complementors receive unfavourable treatments, they still choose to stay on the platform. To sustain disadvantaged complementors and maximize the overall ecosystem value, platform owner leverages information asymmetry in the preferential treatment governance. However, we have limited understandings regarding how information asymmetry influences platform-complementor relationship continuance. Drawing on the interviews with platform and complementors, our study identifies a process model that explains how information asymmetry influences disadvantaged complementor’s relationship continuance. This study highlights the role of algorithm in producing information asymmetry and identifies two levels of information asymmetry: the governance level between platform and complementor and the relational level between different complementors. We also find that information asymmetry produces two distinct sensemaking routes——a passive attitude via sensemaking route and a meaning-restructuring route via sensebreaking, that enables complementors to maintain relationships.

Do Credit Ratings Determine Capital Structure?

This paper examines whether the possession of a credit rating has an impact on firms leverage ratio. The issue of access to alternative sources of debt finance has received special attention in the wake of 2007–2009 financial crisis when banks significantly cut back on loans and firms became credit-constrained. Consequently, policy makers have been examining ways of facilitating access to non-bank finance. An overreliance on bank sourced debt finance when credit markets tighten has the potential to slow down the speed of economic recovery. This paper provides empirical evidence in support of the hypothesis that the possession of a credit rating is associated with higher leverage ratios. The effect for UK firms seems higher than that observed for similar US firms. This might be because there is greater financial transparency in the US implying lower levels of information asymmetry and so negating somewhat the effects of possessing a rating.

The Effect of Quality and Timeliness of Limited Review Report on Perceived Interim Financial Reporting Quality during COVID-19 Pandemic Crisis: Evidence from Egypt

In order for financial information to be used by investors to take informed decisions, it should be characterized by its relevance and faithful representation. In times of crisis, investors’ demand and reliance on financial information will be higher in order to reduce the level of uncertainty and information asymmetry and increase their confidence in management’s performance. The objective of this study is to investigate and analyze the impact of quality of limited review reports, measured by adding a key audit matters paragraph (KAM hereafter) related to COVID-19 pandemic to the limited review report and its timeliness, measured by the limited review report lag, on the perceived quality of interim financial reports issued at the end of the third quarter of 2020. Based on a sample of 95 firms listed on the Egyptian stock exchange (EGX hereafter), the researcher found that the timeliness of limited review reports is positively and significantly associated with the perceived quality of financial reporting from the investors’ point of view. Investors appreciate and value the timeliness of financial reports and the limited review report during COVID-19 pandemic crisis time. Concerning the impact of the quality of limited review report, the researcher didn’t find evidence regarding the informational value of KAM paragraph and its effect on the perceived quality of interim financial reports. This might be because adding KAM paragraph on COVID-19 pandemic is not firm specific and at the same time, not presenting additional information to investors other than that available in the interim financial reports.

Evolving a bi-objective optimization model for an after sales supply chain in presence of information asymmetry and service level requirement

PurposeOptimization of resources related to man, money, manpower and those related to organization is critical in context of after-sales supply chains. Many times, organizational objectives in terms of resource optimization and providing superior customer experience might be conflicting, however.Design/methodology/approachOne such instance is when customers expect near 100% service level in which case the organizational costs to meet such high service level goes up significantly. To this end, in this research a novel bi-objective optimization model has been evolved for a typical after-sales service supply chain network constituted of the manufacturer, the retailer and the customer. The first objective function pertains to maximization of the manufacturer's and the retailer's profit. The second objective function is related to the minimization of tardiness of order fulfilment (by the retailer) for the customer.FindingsEmploying a small problem instance, the authors generate a number of findings related to service level and information asymmetry. In particular, the authors observe that achieving best possible manufacturer-retailer profit and at the same time 100% service level is a mathematical impossibility. Furthermore, reducing information asymmetry between the customer and the retailer (as opposed to reducing information asymmetry between the retailer and the manufacturer) actually yields higher profits for the manufacturer-retailer pair.Originality/valueThis research describes the mathematical structure of a three-tier after-sales supply chain wherein information quality and service level requirements are key constraints. Furthermore, the study evolves the bi-objective optimization model as a formulation that can drive the operational decisions of manufacturers and retailers who are part of such after-sales service supply chains.

The impact of pre-contract disclosure on M&A performance in franchising

The franchise sector represents a unique opportunity to investigate pre-contract disclosure by target firms in mergers and acquisitions (M&As) due to the legal framework within which franchises operate. This study examines the role of Franchise Disclosure Documents (FDDs) as in-depth resources in cases in which franchise firms are M&A targets. Data were collected from 517 M&As in the US over a 20 year period (1999–2018) in the restaurant industry. The results show that franchise disclosures’ effect on alleviating ex-ante information asymmetry is significant when a higher level of information asymmetry between the parties exists, i.e., when they are farther apart geographically, or if their initial business sector is different from that of the target firm. The study’s implications regarding proprietary information disclosure for franchisors that may represent likely M&A targets are discussed.

Board secretary and market information efficiency: Evidence from corporate site visits

Using the setting of corporate site visits, this study examines the information interpretation role of board secretaries on market information efficiency. We find that the presence of the board secretary during corporate site visits can significantly improve the information content of such visits. From the perspective of information interpretation ability, when the board secretary has a dual role, receives high relative compensation, and has a high level of education, his or her participation in site visits has a greater effect on improving the informativeness of such visits. From the perspective of information asymmetry, the information interpretation role of the board secretary is more pronounced when the level of information asymmetry between the firm and its investors is high. Further analysis shows that when the board secretary attends more site visits, the level of analyst forecast error is lower. In summary, we confirm the information interpretation role of board secretaries, which is useful for opening the “black box” of their participation in the information assimilation process and for better understanding of how to improve market information efficiency.

Analisis Good Corporate Governance (GCG) Dan Biaya Utang Dalam Ekonomi Syariah (Bank Umum Syariah Tahun 2015-2018)

The effective interest rate that must be paid to creditors is often referred to as the cost of debt or the cost of debt. The right decision must be made by a manager in determining the cost of debt. if the debt is too large, it will result in an increase in interest costs which will have an impact on the soundness of the Bank. So that the implementation of corporate governance is then considered as the best management in decision making by managers and company management effectively and efficiently and in other ways to reduce the level of information asymmetry between company stakeholders. The main problem in this study is whether Good Corporate Governance (GCG) has an influence on the cost of debt in the view of Islamic economics. This study aims to determine whether the composite value on the GCG self-assessment report has an influence on the cost of debt and how Good Corporate Governance (GCG) and the cost of debt are in the perspective of Islamic economics. The value of the tcount is 1.277 and the significance value is 0.207, indicating that the results of the hypothesis test in the independent variable do not significantly affect the dependent variable on the cost of debt.

News media and insider trading profitability: An emerging country perspective

We test news media's disciplining by dissemination role and predictive power in insider trading related issues with a large and novel dataset on Chinese firms between 2008 and 2017. We find that more media coverage is associated with significantly lower level of insider trading profitability, which confirms the disciplining by dissemination role of media documented in the developed market. However, as a new evidence to the media and insider trading literature, we also find that media's negative tone has a positive correlation with future insider trading profitability, which is consistent with the media predictive power argument. In addition, we find that media's predictive power is amplified by a firm's good governance structure and low level of information asymmetry. Our study shows news media's effectiveness in predicting opportunistic insider trading in China.

The Effect of Quality and Timeliness of Limited Review Report on Perceived Interim Financial Reporting Quality during COVID-19 Pandemic Crisis: Evidence from Egypt

In order for financial information to be used by investors to take informed decisions, it should be characterized by its relevance and faithful representation. In times of crisis, investors’ demand and reliance on financial information will be higher in order to reduce the level of uncertainty and information asymmetry and increase their confidence in management’s performance. The objective of this study is to investigate and analyze the impact of quality of limited review reports, measured by adding a key audit matters paragraph (KAM hereafter) related to COVID-19 pandemic to the limited review report and its timeliness, measured by the limited review report lag, on the perceived quality of interim financial reports issued at the end of the third quarter of 2020. Based on a sample of 95 firms listed on the Egyptian stock exchange (EGX hereafter), the researcher found that the timeliness of limited review reports is positively and significantly associated with the perceived quality of financial reporting from the investors’ point of view. Investors appreciate and value the timeliness of financial reports and the limited review report during COVID-19 pandemic crisis time. Concerning the impact of the quality of limited review report, the researcher didn’t find evidence regarding the informational value of KAM paragraph and its effect on the perceived quality of interim financial reports. This might be because adding KAM paragraph on COVID-19 pandemic is not firm specific and at the same time, not presenting additional information to investors other than that available in the interim financial reports.

What’s really in a deal? Evidence from textual analysis of M&A conference calls

AbstractUsing a sample of 814 transcripts from 2011 to 2018, we examine information within merger and acquisition conference calls. Textual analysis reveals significant differences between the content of M&A call transcripts and both contemporaneous corporate press releases and prior earnings conference calls. We find participation of target executive types in M&A calls occurs more frequently in diversifying acquisitions and is related to payment choice consistent with promoting managerial sector‐specific skills and incentive alignment, respectively. Retention of participating target executives is associated with a negative market reaction. We also identify a negative relation between textual sentiment and market reaction consistent with a response to higher levels of information asymmetry. Greater quantitative information, however, is positively related to the market reaction of M&A calls. We develop targeted M&A motive dictionaries to identify financial and strategic content within call transcripts. Consistent with prior literature on merger motivation, deals with more finance (strategy)‐oriented words have a higher (lower) market reaction. Overall, our results show that deal‐related textual analysis explains a highly significant and economically important component of gains/losses to acquirers.

Is Cultural Proximity Good for Corporate Innovation? Evidence from Board Cultural Proximity

Cultural proximity is a kind of similarity of values at a deep level. The cultural proximity within the board of directors mainly examines the proximity between the culture of foreign directors’ country and the Chinese culture. If the Chinese board of directors introduces directors who are proximate to the Chinese culture, the board cultural proximity will be presented in the hierarchical order and authoritarianism of culture, that is, the board culture is proximity. Based on the sample data of China’s A-share listed companies from 2007 to 2017, this paper adopts the power distance cultural similarity of the deep values to measure the similarity variables of the board culture, so as to explore the relationship between the cultural proximity of the board of directors and enterprise innovation. The results show that the closer the board culture, the lower the level of corporate innovation; similar board cultures can restrain the level of corporate innovation by reducing the level of trust and increasing information asymmetry. Specifically, according to the theory of group fault zone, directors of different nationality backgrounds pursue their own recognized authority, which is likely to form fault zones, causing internal conflicts within groups, reducing corporate trust, and making it difficult to generate and effectively promote innovative thinking and innovative activities, thereby inhibiting enterprises’ innovation level. According to the information asymmetry theory, the closer the board culture is, the less information sharing within the board will be, and the more information asymmetry will occur, which is not conducive to the stimulation of innovative ideas, the scientific nature of innovative decisions and the transmission of innovative information, and will affect the effective development of enterprise innovation activities and inhibit the improvement of enterprise innovation output. Further examination finds that the chairmanship of a foreign director helps to weaken the negative impact of similar board culture on corporate innovation. Compared with the listed companies located in the eastern region, the similar board culture in the central and western regions has a greater negative impact on corporate innovation. In the case of high trust level and low degree of information asymmetry, the inhibiting effect of similar board culture on corporate innovation is weakened. After considering endogeneity and robustness test, the above conclusions are still valid. The conclusion of this paper not only enriches the topic research of “culture and innovation”, but also expands the research scope in the field of cultural affinity. Meanwhile, it also provides empirical support for how to build an appropriate board culture in China, and provides decision-making reference for enterprises to make policies on the introduction of foreign directors and arrange reasonable positions.

Corporate social responsibility performance and information asymmetry: The moderating role of analyst coverage

AbstractThe study investigates the moderating effect of analyst coverage on the relationship between corporate social responsibility performance and information asymmetry. Data for the period 2008–2018 encompass 208 listed firms from nine different sectors in China. The study employs the fixed effect regression to identify dynamic relationships. The findings suggest that firms engaged in corporate social responsibility activities confront a lower level of information asymmetry. The results also indicate that analyst coverage moderates the relationship between corporate social responsibility performance and information asymmetry and that analyst coverage may play an imperative role in reducing the level of information asymmetry for the firm. Our findings advance the understanding of the association between corporate social responsibility performance and information asymmetry with the moderating effect of analyst coverage. The study investigates the moderating effect of analyst coverage on the relationship between corporate social responsibility performance and information asymmetry. Data for the period 2008–2018 encompass 208 listed firms from nine different sectors in China. The study employs the fixed effect regression to identify dynamic relationships. The findings suggest that firms engaged in corporate social responsibility activities confront a lower level of information asymmetry. The results also indicate that analyst coverage moderates the relationship between corporate social responsibility performance and information asymmetry and that analyst coverage may play an imperative role in reducing the level of information asymmetry for the firm. Our findings advance the understanding of the association between corporate social responsibility performance and information asymmetry with the moderating effect of analyst coverage. Moreover, present study contributes to the corporate social responsibility practices in China, it provides a sound base for policymakers for adopting corporate social responsibility performance activities.

Does Media Attention Lower Debt Financing? International Evidence

ABSTRACT This article examines the association between media attention and debt financing through a number of channels associated with information asymmetry reduction and whether this relationship changes with cross-country institutional environment characteristics. Focusing on a comprehensive international dataset, we find that overall media coverage is negatively related to firm leverage levels. Media-focused variables directly associated with information asymmetry levels, including press-initiated news, non-financial news, and the extent of positive news sentiment, are also negatively related to firm leverage ratios. Furthermore, the country-level institutional environment provided a substituting rather than legitimizing influence on the relationship between media news coverage and firm financing decision-making.

How Does Information Asymmetry Affect REIT Investments? Cost of Capital, Performance, and Executive Compensation

This study empirically examines the impact of information asymmetry on firm-level investment behavior using data from U.S. equity real estate investment trusts (REITs). We show that firms with lower levels of information asymmetry, measured as bid–ask spread and stock return volatility, generally experience higher growth on their real estate investment, property investment, and total assets. Conversely, high-information-asymmetry REITs are less active in their property acquisition and disposition activities, as well as involved in fewer mergers and acquisitions than their counterparts. We also show that the levels of information asymmetry are, on average, positively related to capital costs and negatively related to operational performance. Lastly, the study sheds light on the importance of aligning interests of managers with those of stakeholders, by illustrating that executives in firms with a high level of information asymmetry receive higher total compensation compared with their peers.

Private Information Dissemination in the Secondary Loan Market: The Effect on Stock Bid-ask Spreads

We consider loans being marked to market to constitute new information that is only immediately available to large institutional traders, so-called qualified institutional buyers (QIBs). Smaller investors (non-QIBs) do not have instant access to such information. Investigating the effects of privileged information releases on bid-ask spreads of borrowing firms’ equity, we find a significant elevation in the level of information asymmetry that affects those spreads. Our paper reveals that private information dissemination in the secondary loan market affects the stock market information environment and yields benefits to large insiders with priority access to important information about the borrowing firms’ quality.

Modeling the effect of environmental corporate governance rating in the pricing information asymmetry

Information flow is a key parameter in an economic activity that acts as the main factor in the capital market emergence, stability, and efficiency. The purpose of the current research is to investigate the effect of the environmental points of cooperate governance on the pricing of information asymmetry. In this regard, we have extracted data related to companies accepted in the "Tehran Stock Exchange" from 2009 to 2018, and a panel-data regression model was utilized to test research hypnosis. The results show that information asymmetry and environmental points of cooperate governance have a significant effect on the expected return (cost of capital) on an investment. In addition, the effect of environmental points of cooperate governance on the relationship between the information asymmetry and the cost of capital has been verified. Finally, the results show that environmental points of cooperate governance leads to the differences in the cost of capital in the different levels of information asymmetry.