Reduce Information Asymmetry Research Articles

Do social and environmental disclosures impact information asymmetry?

We examine the impact of social and environmental disclosures (SEDs) on information asymmetry. Employing data from 145 banks from 2005 to 2021 across 19 European (EU) countries. Our findings reveal that both SEDs reduce information asymmetry by increasing market liquidity. We further find that the observed impact of such disclosures is more pronounced for banks operating in countries that pay high attention to human development.

Does corporate ESG disclosure enhance investor relationship management? Evidence from China

AbstractThis study investigates the enhancing effect of environmental, social, and governance (ESG) disclosure on investor relations management (IRM). The better the ESG disclosure, the higher the level of IRM. furthermore, this enhancement is achieved by reducing information asymmetry, improving information dissemination efficiency, and attracting investors attention, and it is more prominent in a sound institutional environment and a concentrated shareholding structure. Moreover, institutional investors show greater receptivity to ESG‐driven IRM compared to individual investors. Finally, we indicate that IRM is enhanced by ESG disclosure, ultimately fostering high‐quality corporate development. These findings provide valuable insights for promoting the standardisation of ESG disclosure and optimising IRM practices.

Audit quality and debt restructuring: evidence from Italy

PurposeThis study aims to investigate the link between audit quality and in-court debt restructuring. The aim is to understand whether the confirmation of debt restructuring plans is affected by audit quality, which, in the light of agency theory, reduces information asymmetries between outsiders (creditors and the court) and insiders (shareholders and managers) of the debtor company.Design/methodology/approachA logistic regression is performed to test whether higher audit quality is associated with an increased probability of successfully completing a debt restructuring proceeding (RP). Consistent with the literature, audit quality is assessed ex ante based on auditor size, which is used as a proxy for independence. The analysis considers private Italian companies.FindingsAudit quality positively affects debt restructuring. Among financially distressed companies, those audited by an audit company are more likely to succeed in RPs than those audited by a single practitioner. There is no evidence of a Big N effect.Originality/valueThis study fills a gap in literature as, in contrast to other financial and governance characteristics, audit quality has never been studied before as a determinant of efficient restructuring. It contributes to the literature on auditing and governance by highlighting the importance of audit quality in complex situations such as RPs, and it expands on debt restructuring literature by considering the importance of the information exchanged during RPs.

Managerial capture of sustainability assurance. Empirical evidence and capital market reactions

PurposeThis paper aims to investigate the potential influence of managers on sustainability assurance. When the quality of sustainability reporting is questionable because of subsequent restatements, the authors explore whether assurance is used to enhance its credibility as a legitimization tool or as an impression management strategy. Additionally, the authors analyze how capital markets react to this potential managerial capture and, particularly, whether investors penalize this practice through the cost of capital.Design/methodology/approachUsing an international sample from 2012 to 2016 and panel data regressions, this study relies on DICTION’s master variables of optimism and certainty to examine the impact of managers on assurance and the market’s reaction to these practices.FindingsThe study shows that some managers might use assurance as a legitimization tool rather than as a means of reinforcing the credibility of sustainability reporting. In such cases, the results reveal that investors penalize (reward) managerial influence (no influence) on assurance.Practical implicationsThe new findings help companies understand that they will not improve their financing terms if investors perceive that managers have influenced assurance. Moreover, these findings emphasize the need for standardization to clarify assurance criteria and prevent managerial influence.Social implicationsManagerial influence on assurance raises doubts about its value in terms of reducing information asymmetry and especially improving investors’ decision-making.Originality/valueThe present study represents the first evidence of the potential use of assurance for non-informative purposes. The authors provide clear evidence of how investors penalize managerial influence on assurance, in contrast to the mainstream literature, which shows that this practice always improves investors’ decision-making and is rewarded.

Can environmental information disclosure spur corporate green innovation?

How can the disclosure of environmental information (EID) stimulate corporate green innovation (CGI)? This research challenges the prevailing assumption that environmental regulations impact CGI by influencing corporate compliance costs. Instead, it offers a fresh theoretical framework to explain how EID affects CGI. This study combines signal theory and resource dependence theory to develop a moderated mediation model, illustrating how EID reduces information asymmetry and alleviates corporate financial constraints (CFC). To test these hypotheses, this study utilized data from A-share listed companies spanning the period 2004 to 2017. This study considered the year 2009 as a crucial point of analysis, marking the period before and after the implementation of China's first EID policy in 2008. This study employed a Difference-in-Differences (DID) model. The results reveal that EID has a positive impact on CGI by mitigating CFC, with non-state-owned enterprises (non-SOEs) exhibiting a more pronounced mediating effect. These findings remain robust even when the parallel trend assumption was tested to eliminate interference from other factors. This study unveils the mechanism through which voluntary environmental regulation, represented by EID, influences CGI by mitigating information asymmetry and alleviating CFC. These results deviate from the predictions of compliance cost theory and Porter's hypothesis regarding the impact of traditional environmental regulations on CGI, providing a fresh perspective on the role of voluntary environmental regulation in driving CGI.

Does environmental innovation improve investment efficiency?

Using a sample of 12,550 firm-year observations for the US over the period 2009–2021, we empirically examine the impact of environmental innovation on firm-level investment efficiency. Using fixed-effect regressions, our results indicate that eco-innovation has a significant and positive impact on firm-level investment efficiency. We show that eco-innovation raises investment efficiency and reducing information asymmetry enhances this effect. In addition, we show that the impact of eco-innovation on investment efficiency is statistically significant at environmentally sensitive firms, unlike firms that are environmentally insensitive. Further, the impact is higher at firms with low leverage than at firms with high leverage, in terms of both magnitude and economic significance, and the relative significance of this relationship is more pronounced at large firms. Our results are robust to alternative measures of eco-innovation, endogeneity, and sample selection bias.

Companies' ethical certification and their attractiveness to institutional investors: An intermediate signaling perspective

AbstractOur research investigates how the inclusion of a company on an independent ethics index affects its attractiveness to institutional investors. Using a sample of 864 U.S. firms over the 2010–2018 period, we find that institutional investors significantly increase their holdings in companies in the quarter that they are included on the ethics index and maintain larger holdings in the four quarters following the inclusion on the Ethisphere list relative to pre‐inclusion period, with dedicated institutional investors being more swayed to invest than transient investors. This paper adds to the emerging literature on intermediate signaling by showing that a firm's inclusion on an ethics index reduces information asymmetry with institutional investors. Our evidence suggests that public companies should effectively, rather than ceremonially, adopt sound governance structures and invest in socially responsible activities, as these actions can increase their likelihood of being included on ethics indices. By doing so, these firms send credible signals about their ethical compass, granting them access to valuable institutional investments.

FACTORS AFFECTING EARNINGS MANAGEMENT IN THE PLANTATION INDUSTRY IN INDONESIA DURING 2015-2019

The objective of this research is to obtain empirical evidence about the effect of profitability, leverage, firm size, and liquidity on earnings management on plantation companies listed on the Indonesia Stock Exchange (IDX) during the years of 2015-2019. This research uses secondary data. This research is conducted with a sample of 62 plantation company data with the technique used in this study is purposive sampling. The research data was processed using Statistical Product and Service Solution program for Windows version 26 (SPSS version 26). The results of this research show that the leverage and firm size have a positive and influence on earnings management practices, while profitability and liquidity have no effect on earnings management. The implication of this research is that companies must communicate intensively with shareholders so that this does not occur or can reduce information asymmetry in carrying out earnings management. By maintaining good communication with shareholders, and maintain profitability, proper leverage ratio and liquidity as well as optimizing assets to earn profit, it is believed that the financial report information issued by the company does not involve earnings management practices so that it becomes a positive signal for investors which can ultimately increase stock prices and company value.

Institutional investors, heterogeneity, and capital structure decisions: Evidence from an emerging market

This paper uses data on Chinese A-share listed firms from 2008 to 2020 to examine the effect of institutional investors on capital structure by considering different types of institutional investors and firms. The results find that institutional investor shareholdings have a significant negative effect on capital structure. Further, compared with pressure-sensitive institutional investors, pressure-resistant institutional investors have a stronger negative effect on capital structure. And compared with non-state-owned firms, institutional investors have a stronger negative effect on the capital structure of state-owned firms. Institutional investors lower firm leverage by decreasing agency costs (governance channels) and reducing information asymmetry (information channels), and the effect of governance channels dominates. Finally, firms become more likely to reduce debt than issue equity to lower leverage in response to increased institutional investor shareholdings. These findings shed light on the role of institutional investors in capital structure decisions in emerging markets.

High-speed rail network and earnings management techniques usage trade-off: the moderating effects of governance and religion

PurposeThis study aims to investigate the impact of the development of high-speed rail (HSR) network on earnings management, especially on the trade-off between the usage of accruals-based earnings management (AM) and real earnings management (RM) techniques, and consequently, examines the extent to which the HSR network–earnings management nexus is moderated by governance and religion factors.Design/methodology/approachUsing a sample of Chinese A-listed firms over an 11-year period, this study uses regression techniques as the baseline methodology while controlling for industry and year-fixed effects. The authors also use endogeneity tests (including instrumental variable method, Generalized Methods of Moments estimation and difference-in-difference) and different robustness checks.FindingsThe key findings are threefold. First, the HSR network development reduces AM. This suggests that the presence of HSR network is effective in reducing information asymmetry. Second, the use of RM technique increases with the HSR network development. This indicates that managers do not seem to engage in less earnings management with the HSR network development but instead appear to switch from the easy-to-detect AM to the more costly RM approach. Finally, the HSR network and earnings management nexus is moderated by governance and religion factors.Originality/valueThis study provides new evidence on the trade-off between AM and RM by managers and pioneers in examining the impacts of governance and religion factors on the relationship between the HSR network and the trade-off of earnings management techniques.

Linking Spanish wine farmers to international markets: Is direct export better than indirect export in improving farm performance?

Selecting an appropriate export channel is one of farmers' most important strategic decisions as it determines farm performance. Although direct and indirect exports are two important channels linking farmers to international markets, little is known about whether direct export is better than indirect export in improving farm performance. This study addresses this research gap by analyzing the impact of export channel choice on wine export farm performance, utilizing data collected from 479 wine-exporting farmers from Spain. An inverse probability-weighted regression adjustment estimator addresses the selection bias issue of export channel choice. The results show that the wine export price received by the direct exporters is significantly lower than that received by the indirect exports. Using domestic intermediaries for exportation (i.e. indirect export) can reduce information asymmetry and transaction costs, which enable indirect wine exporters to sell their products at higher prices. However, there are no significant differences between direct and indirect exporters in export volume, value, diversity, and satisfaction. The findings highlight that direct and indirect exports do not generate differentiated profits, and wine farmers should choose one of them that can facilitate their access to international markets.

CEO–board connections and the cost of equity capital: International evidence

AbstractIn this article, we investigate the effect of chief executive officer (CEO)–board connections on the cost of equity capital in an international setting. We find that CEO–board connections have a significant negative effect on the cost of equity. Our results are robust to alternative variable measurements, model specifications, and potential endogeneity adjustments. Examining the channel, we show that social ties reduce information asymmetry issues. We further show that firm‐level operational complexities and investment intensity, as well as country‐level developmental attributes and culture, moderate the association between CEO–board connections and the cost of equity capital.

Nexus between mandatory ESG disclosure regulation and abnormal stock returns: a study of an emerging economy

PurposeThis study aims to study the response of the stock market to the announcement of compulsory environmental, social and governance (ESG) disclosure regulation in the context of the Indian economy – one of the largest emerging economies. The study also examines the role of carbon sensitivity and pre-ESG disclosure.Design/methodology/approachDaily stock price data of 940 listed companies has been collected for 276 trading days to compute abnormal returns. The current study is based on event study methodology to analyze the announcement effect of disclosure regulations. Furthermore, to check the robustness of results, cross-sectional regression has been applied to correct for potential heterogeneity.FindingsResults of the event study signify that the equity share market has reacted positively and significantly to the mandatory ESG disclosure regulation. Furthermore, the study also confirms the mitigating role of carbon sensitivity and pre-ESG disclosure as carbon nonsensitive (non predisclosure) firms have witnessed a more intense effect of regulation as compared to sensitive (predisclosed) corporations.Practical implicationsCurrent findings assist managers in understanding investor perception toward nonfinancial disclosures. Corporate managers can use disclosure as a tool to enhance the firm value and reduce information asymmetry by providing relevant information. Furthermore, policymakers can use the findings of present research to disseminate the advantages of adopting ESG disclosure practices thereby improving the transparency and governance among business firms.Originality/valueTo the best of the author’s knowledge, this study is the first to provide empirical evidence on the market response to compulsory ESG disclosure framework in the emerging context of India. Furthermore, considering the infancy stage of ESG research, the present research contributes to the body of knowledge by empirically testing the disclosure theories.

Environmental Health Check: How third‐party environmental evaluation project affects corporate environmental responsibility

AbstractThird‐party environmental evaluation by environmental organizations can provide an independent professional evaluation of firms' environmental behaviors. Because environmental organizations aim to improve environmental welfare, which reflects value rationality than instrumental rationality. We argue that third‐party environmental evaluation can reduce information asymmetries between central and local governments, and induce local governments to strengthen environmental enforcement, which in turn increases the pressure on polluters. At the same time, third‐party evaluation improves transparency and exposes firms' environmental opportunistic behavior, which increases the pressure on firms to take more responsibility for environmental protection. In an analysis of a large sample of Chinese listed firms over the period 2009–2018, we find that third‐party evaluation from environmental organizations has a positive impact on firms' environmental responsibility. This positive effect is stronger for firms located in regions with weak local protectionism and weaker for firms with less external shareholder monitoring.

Politeness matters: The role of polite languages in online peer-to-peer lending

Given the limited information for assessing borrowers in online peer-to-peer (P2P) lending, the textual content of loan requests has been recognized as a crucial factor influencing lenders' lending decisions. However, whether politeness, an important but largely neglected linguistic element in loan requests, is related to lenders' decisions remains underexplored. Drawing from signaling theory, this paper seeks to answer two important questions: (1) Is the use of polite language in loan requests related to lenders' decisions? (2) If so, for which types of borrowers or loans is politeness more beneficial? We test our theoretical framework using a sample of 127,044 loan requests from Renrendai, a leading online P2P lending platform in China. Our findings reveal a significant and positive relation between the use of polite language and the likelihood of successful funding. This positive relation is stronger for borrowers with higher credit ratings, higher education levels, as well as for loan requests with lower information richness and higher certainty in language. Our findings suggest that politeness functions as a costless signal that complements costly signals, reducing information asymmetry in P2P lending. This paper bridges the gap between the literature on the role of politeness in individual decision making and information asymmetry in financial markets, providing new insights into the role of language use in P2P lending.

Exploring buyer’s preferences to propose strategies to improve dog welfare in Brazil

ABSTRACT This study aimed to investigate trends and concerns related to the commercialization of dogs in Brazil. The authors analyzed 1,500 ads for the sale of Miniature Schnauzer, Chihuahua, and German Spitz breeds using the methodology of hedonic price analysis. Marginal and relative values of attributes were calculated for puppy sex, coat, age, pedigree, vaccination and deworming, seller type and region, using ordinary least squares. The most valued attributes for each breed were identified as selling by kennels, pedigree, and coat color. The results suggest that this market niche is willing to pay for guarantees of better dog breeding, which represents an opportunity for the development of certification labels for origin and good practices for kennels. Such labels could become an effective strategy to ensure greater transparency and better welfare standards in the Brazilian dog market. This study also provides valuable insights for the development of guidelines and public policies aimed at improving animal welfare and reducing information asymmetry in the pet market.

Derivative disclosures and managerial opportunism

AbstractDerivatives are increasingly used by managers not only to hedge risks but also to pursue nonhedging activities for fulfilling opportunistic incentives. The Statement of Financial Accounting Standards No. 161 (SFAS 161) requires firms to disclose their objectives and strategies for using derivatives. Using the adoption of this standard, we examine whether and how derivative disclosures influence managerial opportunistic behavior. We employ insider trades and stock price crash risk to capture managerial opportunism. Applying a difference‐in‐differences research design with hand‐collected data on derivative designations, we find that, after the implementation of SFAS 161, derivative users that comply with SFAS 161 experience a significantly greater decrease in both insider trades and stock price crash risk, compared with a matched control sample of nonderivative‐users. We further provide evidence to suggest that SFAS 161 curbs managerial opportunism via reducing information asymmetry between corporate insiders and outside investors and enhancing the effectiveness of derivative hedging.

Prosumers and Sharing Economy in the Organic Food Value Chain

Purpose This paper explores the contextual relevance of prosumers and sharing economy in organic food market in an emerging economy. Design/methodology/approach Case study approach was used to collect empirical data from different types of organic food value chains. Findings Farmer’s Organic food markets compared to online and health food stores tends to facilitate sharing economy more since it helps them to build value, scale and trust. By sharing resources, skills and spaces, farmers organic food markets have increased organic food availability, reduced its cost of certification & operation and managed consumer trust. Subjective influence through social media, prosumers and offline interaction reduces information asymmetry and irresponsible marketing opportunities. Originality/value The research offers a fresh perspective to the organic food sector, particularly with respect to the process of prosumption and sharing economy.

The Industrial Decision Analysis of Regional Coordinated Development Considering Information Distribution and Fairness Preference

Regional industry synergistic planning contributes to the achievement of Goal 11 of the United Nations’ Sustainable Development Goals. The reasonable layout of regional industries is an important measure for achieving sustainable development through distinguishing between different industries. Taking into account the competitive and cooperative relationships between regional cities, this study created a Stackelberg model considering information distribution and fairness preferences. It analyzed the industrial selection strategies and influencing factors under the requirements of output maximization and profit maximization between regions. The model discussions and numerical simulation results showed that regional industrial planning and adjustment should consider both internal and external behavioral factors. The impact of information distribution and fairness preferences on the selection of heterogeneous and homogeneous industries varies. Differentiated industrial selection should be conducted based on output maximization or profit maximization. Furthermore, following cities should take the initiative to integrate into the industrial development plans of nearby large cities, and leading cities should effectively layout and optimize regional productivity. Both industrial planning and choice require the establishment of regional coordination mechanisms. By enhancing the level of mutual trust and reciprocity among cities, reducing information asymmetry, and guiding fairness preferences, regional industrial synergy is promoted, and conditions are created for sustainable industrial development.

Determinan Internet Financial Reporting pada Perusahaan Manufaktur di Bursa Efek Indonesia

The use of the internet in the era of revolution 4.0 currently affects the traditional form of information presentation for companies. Technological developments, especially the internet, create opportunities to expand information dissemination through company websites in the form of up-to-date information in order to reduce information asymmetry in a company. This research aims to provide transparency and accountability to company stakeholders, including investors, employees, auditors and customers. One of the impacts of the internet for accountants is the emergence of IFR or online-based financial information providers. Internet Financial Reporting causes financial reporting to be easily accessible to anyone and can be traced for accuracy for investors. Thus, it is necessary to know the determining factors that encourage why companies need to implement IFR as a medium of communication with investors. This study used a sample of 85 manufacturing companies listed on the Indonesia Stock Exchange from 2018 to 2021. The method used in this research is regression analysis, simple regression coefficient test (t test), and simultaneous regression test (F test) to find out what factors affect IFR. The variables used in this study are company size, profitability, liquidity, leverage, audit committee and audit quality. The results showed the variables that had a significant effect on IFR were company size and leverage of 0.000 and 0.031, while the variables of profitability, liquidity, audit committee and audit quality had no significant effect on internet financial reporting.