Reduce Information Asymmetry Research Articles

THE IMPORTANCE OF SIGNALLING ENTREPRENEURIAL ORIENTATION AND RELATIONSHIP LENDING FOR SMES’ BANK CREDIT ACCESS

Although SMEs matter for the development of economies, they need financing that is the main impediment to their survival. To overcome this barrier, SMEs might reduce information asymmetries between them and banks by signaling their entrepreneurial activities that are based on Entrepreneurial Orientation (EO) and by having frequent contact with banks in a lending relationship. In this regard, this paper purposes to find out the impacts of signaling EO and relationship lending on bank credit access of SMEs. To fulfill this aim, the researcher has applied stratified random and purposive sampling methods to create the research sample from SMEs that operate in various geographical regions of Turkey. The researcher also employs a self-administered internet-mediated questionnaire to collect data from 479 SMEs. Moreover, this paper runs Binary Logistic Regression Test to analyze the impacts of signaling EO and lending relationship on bank credit access. According to the results, trademark ownership, R&D subsidies received by SMEs and closeness of communication between SMEs and banks positively affect bank credit access of SMEs. On the other hand, patent ownership, R&D investments and alliances of SMEs with prominent firms do not influence their credit access.

The role of accountability and transparency in government during disasters: the case of Ukraine–Russia war

IMPACT This article provides interesting ideas on transparency and accountability and economic management during times of emergencies. The publication and dissemination of information allows citizens to monitor government performance. Greater transparency reduces information asymmetries and increases public trust in politicians. The possible relationship between an indicator related to government transparency of different countries in the management of aid to Ukraine during the Ukraine–Russia war and various indicators of corruption, together with measures of the quality of accounting systems and open access to information, is analysed and discussed. Lessons for policy-makers include creating a committee responsible for auditing government actions and the publication of each decreed action through a government transparency portal. The article will be of value to professionals in the field of public financial management as it allows them to question the transparency problems that still exist and to offer various solutions.

The effect of corporate annual report quality on the relationship between institutional blockholder monitoring and firm's information environment

AbstractExpanding on current research, this study finds that firms with better financial report readability demonstrate a stronger relationship between institutional blockholder monitoring and information asymmetry. This result supports our hypothesis that enhanced readability improves firm information and aids the institutional investor monitoring of firms, reducing information asymmetry. By demonstrating that readability amplifies the marginal effect of institutional blockholder monitoring, we highlight the significance and policy implications of better corporate disclosure readability.

Ratings meet prices: The dynamic relationship of quality signals

AbstractThe impact of product ratings is significant in the experience goods market, whose intangible products are difficult to evaluate before consumption. Product ratings can reduce information asymmetries because they represent a credible signal of quality and thus positively affect product sales. In this study, we shed light on how professional critics behave by focusing on the influence of product characteristics and former reviews on rating behavior and market prices as additional quality signals in wine markets. Using 13,911 observations from professional wine tastings, we analyze 8,444 worldwide-produced wines and their ratings over 20 years. We find clear evidence to suggest that prices and product ratings are significantly related. Finally, the results suggest that review consistency evolves and determines current ratings.

Does XBRL adoption eliminate misclassification of income statement items?

PurposeThe financial world of today is evolving at a rate that can be challenging to keep up with and comprehend due to developments in information and communication technology. When compared to a conventional disclosure, the eXtensible Business Reporting Language (XBRL), which was named one of the top ten accounting technologies, has a clear advantage in reducing information asymmetry by providing interactive data disclosure. This study aims to examine whether forcing companies to adopt XBRL would cause them to prefer misclassifying income statement items as an alternative to more risky earnings management methods.Design/methodology/approachThe study sample includes nonfinancial UAE companies listed on Dubai Financial Market and Abu Dhabi Securities Exchange from 2012 to 2019. Fixed effect and system General Method of Moments regressions were used to analyze the study data.FindingsThe study found that XBRL reporting resulted in lowering the quality of financial reporting as companies have a higher tendency to misclassify income statement items as earnings management mechanism.Practical implicationsThe findings of this research can be used by stakeholders and practitioners in the UAE to better understand whether the use of XBRL is linked to the engagement of financial reporting manipulative practices. The findings of this study also inform policymakers and regulators about the consequences of companies formally adopting digital disclosure language in an effort to improve the quality of their reporting. Besides, the results offer guidance to regulators considering imposing XBRL usage regulations.Originality/valueLimited number of studies have tested the association between XBRL mandatory adoption and misclassification of income statement items as an earnings management tool in the Gulf Cooperation Council region.

How to promote open innovation in restricted situations? Digital transformation perspective

PurposeIn the context of innovation-driven development strategy, open innovation has become an important way for enterprises to gain competitive advantages on the path of innovation and development. However, with the increasing competition, enterprises' open innovation is restricted by some constraints. How to promote open innovation in the restricted situations has become an existing research gap. Based on the perspective of digital transformation, this paper discusses how to promote the open innovation of enterprises under the restricted situations and find its breakthrough path, and analyzes the moderating effect of innovation persistence and political relevance.Design/methodology/approachDue to the complexity and confidentiality of military–civilian integration enterprises, they have become typical innovation-restricted enterprises. In this study, it selects a-share listed companies in the field of military–civilian integration in China in 2016–2020 as the research sample, and uses the two-way fixed-effect model to analyze the proposed variables. Finally, the robustness of the results in this paper is verified by a series of robustness tests and endogeneity tests.FindingsThe results show that digital transformation facilitates open innovation in military–civil integration enterprises, and that innovation persistence and political relevance positively moderate the relationship between the two. Further, digital transformation can promote open innovation in military–civil integration enterprises by easing the financing constraints and reducing information asymmetry. Innovation persistence has a more pronounced positive moderating effect among civilian-to-military and SMEs, and digital transformation of firms in the South has a negative effect on open innovation, but innovation persistence and political relevance dampen this negative effect.Originality/valuePrevious studies on the restrictions of open innovation or its dark side are mostly case studies and qualitative research. In contrast, the superiority and novelty of this study is in the form of a typical innovation-restricted enterprises “civil-military integration enterprise” as the research sample, based on the perspective of digital transformation, through empirical analysis method to explore how to better implementation of open innovation in the restricted situations. The findings of the study can not only enrich the application of digital transformation and open innovation theory, but also provide practical guidance for military–civil integration innovation in restricted situations.

Stock liquidity, cash flow sensitivity and the value of cash

Using a sample of U.S. public firms from 1990 to 2017, we find that firms with higher stock liquidity are associated with lower cash flow sensitivity of cash. An analysis of the market value of cash shows that each additional dollar of cash and investment in non-cash assets is worth significantly more in firms with high stock liquidity than in firms with low stock liquidity. Further analysis indicates that firms with high stock liquidity enjoy higher investment efficiency and invest more in capital expenditure and R&D. The reduction in cash flow sensitivity through improved stock liquidity is more pronounced when firms demonstrate lower financial constraint, information asymmetry and risk, and stronger corporate governance (i.e., fewer agency problems). Overall, these results suggest that stock liquidity reduces information asymmetry and the agency costs of free cash flow, thus contributing to value enhancing investments which improves company valuation.

Insight into the risk-resistant function of ESG performance: An organizational management perspective

PurposeThis study aims to examine the risk-resistant role of environmental, social and governance (ESG) performance in the capital market, focusing on an organizational standpoint. Furthermore, it aims to offer management decision advice to companies seeking protection against stock market risks. Conclusions obtained through this research have the potential to enrich the economic consequences of ESG performance, provide practical implications for enhancing corporate ESG performance, improving corporate information quality and stabilizing capital market development.Design/methodology/approachBased on the data of Chinese A-share listed companies from 2009 to 2020, this study examines the risk-resistant function of ESG performance in the capital market. The impact of ESG performance on management behavior is analyzed from the perspective of organizational management and the three mechanisms of pre-event, during the event and post-event.FindingsThis paper demonstrates that companies that effectively implement ESG practices are capable of effectively mitigating risks associated with stock price crashes. Heterogeneity analysis reveals that the inhibitory effect of ESG performance on stock price crash risk is more pronounced in nonstate-owned enterprises and enterprises with higher levels of marketization. After controlling for issues such as endogeneity, the conclusions of this paper are still valid. The mechanism analysis indicates that ESG performance reduces the risk of stock price crash through three paths of organizational management: pre-event, during the event and post-event. That is, ESG performance plays the role of restraining managers’ opportunistic behavior, reducing information asymmetry and boosting investor sentiment.Originality/valueThis paper provides new insights into the relationship between ESG performance and stock price crash risk from an organizational management perspective. This study establishes three impact mechanisms (governance effect, information effect and insurance effect), offering a theoretical basis for strategic corporate decisions of risk management. Additionally, it comprehensively examines the contextual differences in the role of ESG performance, shedding light on the specific domains where ESG practices are influential. These findings offer valuable insights for promoting stable development in the capital market and fostering the healthy growth of the real economy.

Technology acquisition following inventor exit in the biopharmaceutical industry

In technological acquisitions, a “focal” firm aiming to appropriate the technological knowledge of another “alter” firm faces information asymmetries in imperfect strategic factor markets. Little is known about whether the mobility of people between the firms may reduce this information asymmetry and contribute to an increased likelihood of an acquisition. To investigate this question, we argue that for an actively acquiring firm, inventor-exit to an alter firm increases the likelihood of acquisition because it helps identify an acquisition target. In addition, since an acquiring firm is more likely to have information about a potential target with more technological capital, inventor-exit is less likely to reduce information asymmetries and to increase chances of an acquisition. Based on an analysis of acquisitions between firms in the period between 1993 and 2010 in the global biopharmaceutical industry, we find support for these arguments. For an active acquirer firm, inventor exit increases the likelihood of acquisition of the alter (hiring) firm by 335% as compared to an acquisition of randomly selected alter firm. Moreover, the positive effect of inventor–exit on the likelihood of acquisition is negatively moderated by the technological capital of the alter firm. A policy implication is to treat non-compete clauses with caution because they may impede the reduction of information asymmetry that follows from inventor-exit and reduce the likelihood of some acquisitions eventually.

Financial distress prediction using the Q&A text of online interactive platforms

The text-based question and answer (Q&A) information of online interactive platforms reflects the concerns of investors and the responses of companies, which can reduce information asymmetry and risk accumulation. This paper proposes a framework to predict the financial distress of companies and explores whether the features extracted from Q&A text can significantly improve the performance of financial distress prediction (FDP) models. In this framework, we extract interactive features, a question sentiment feature, an answer satisfaction feature and topic features. Experimental results show that interactive features and topic features can significantly improve the performance of FDP models compared with the model using only financial features. In addition, we apply the Shapley value method to identify the key factors in predicting the financial distress of companies, providing a basis for investors and managers to make decisions.

Impact of carbon information disclosure on corporate financing constraints: Evidence from the Carbon Disclosure Project

With peak carbon dioxide emissions and a carbon-neutral background, the initiative of enterprises to disclose information voluntarily is insufficient, this study attempts to study the impact of carbon information disclosure on financing constraints to encourage companies’ carbon information disclosure. Previous literature usually uses a binary variable to measure whether an enterprise participates in Carbon Disclosure Project (CDP), and rarely study the impact of carbon information disclosure on economic consequences by acquiring all CDP levels manually. And most of these theories are mostly based on developed countries. Based on the whole sample of 1293 Chinese listed companies participating in the CDP from 2016 to 2020, this study employed the oversampling technology to end unbalanced CDP data, then an ordinary least squares (OLS) regression to account for time-invariant industry heterogeneity and time trends is employed. The empirical results indicate that the higher the CDP level, the smaller the financing constraints of enterprises. Moreover, the channel analysis indicates that carbon information disclosure is alleviating financing constraints by reducing information asymmetry and enhancing corporate reputation. This study bridges the gap in existing research on alleviating corporate financing constraints through the emerging CDP, which also presents the detailed implications for companies and policy makers.JEL Classification:G14; G20; M14; Q51

The fallout from the forex cartels: what legacy for foreign exchange regulation?

ABSTRACT This article analyses infringement and settlement decisions issued by the European Commission in recent years in relation to cartels in the foreign exchange (‘forex’ or ‘FX’) sector, assesses what these decisions tell us about the susceptibility of the forex sector to anticompetitive behaviour and proposes how these risks might be reduced. This includes a focus on addressing the lack of transparency that characterises the sector. It is argued that preventing similar abuses occurring in future cannot be left to competition law alone, but rather requires greater ex ante regulation of the forex sector. As such, a crucial first step is the need for greater data gathering and analysis in relation to the purposes for which most forex trading is undertaken and it is proposed that there should be a stronger division between traders’ market-making activities and proprietary trading to try to minimise opportunities for collusive conduct and reduce information asymmetries.

Insider Horizon and Disclosure Policies

ABSTRACT We investigate the relationship between insider horizon and disclosure policy. First, we develop and analyze a rational expectations model assuming insiders are able to commit to a disclosure policy. Insiders with a short horizon prefer more disclosure and are willing to bear costs of disclosure to reduce information asymmetries among capital market participants. We then empirically test our predictions in the setting of newly public firms and firms where the CEO is approaching retirement. We find that firms with insiders that have a shorter horizon disclose more and experience lower information asymmetry. Our study contributes to the understanding of firms’ disclosure choices by suggesting that the horizon of insiders shapes a firm’s disclosure policy. JEL Classifications: G14; G32; D83.

Financial market imperfections and sensitivity of cash holdings to R&D investment: Evidence from chinese listed firms

Previous studies on developed economies have shown that firms with more research and development (R&D) activities tend to hold more cash. In a transitional economy, such as China, where financial market imperfections prevail, the likelihood of firms reserving cash for R&D is even higher. This study identifies two alternative credit financing channels, equity state-ownership and bank connection, that can be used by Chinese listed firms to raise external funds and mitigate the market imperfection problem. Typical external financing facilitation channels (EFFCs) effectively mitigate financial constraints through reducing information asymmetry between firms and creditors, alleviating R&D dependence on cash holdings. However, as China’s financial reform deepens, market environment improvement weakens the EFFC effect. Hence, this study deliberates on the mechanisms by which the EFFC effect may be reduced, leading to useful policy implications for financial market reform in China to abate innovation costs.

Technocracy for the People? The Impact of Government-Imposed Democratic Innovations on Governance and Citizen Well-Being

Despite participatory institutions’ increasing ubiquity, we know little about their effects on governance and well-being. What we do know comes largely from Brazil, where positive outcomes have been attributed to civil society’s role in implementation. Often, however, participatory institutions are imposed by national governments, with little civil society engagement. In these cases, scholars have argued, participatory institutions are unlikely to improve governance and well-being, as civil society is not present to unlock the institutions’ potential. We test this proposition in Peru, the first country featuring government mandated participatory institutions for all subnational governments. We find, surprisingly, that Peru’s participatory budgeting process increased pro-poor spending and improved citizen’s quality of life. We attribute these outcomes to reduced information asymmetries, made possible by the central role played by an influential and autonomous government agency. We employ a unique panel dataset, as well as an original survey and extensive interviews with government and civil society actors.

Entrepreneurship in the age of the digital economy.

Entrepreneurship in the age of the digital economy.

Use of nutritional warning labels at the point of purchase: An exploratory study using self-reported measures and eye-tracking

Nutritional warning labels are gaining relevance in the region of the Americas as a policy tool to reduce information asymmetry and encourage healthier food choices. However, empirical evidence about consumer experiences with warning labels after implementation is still scarce. In this context, the aim of the present work was to explore the use of nutritional warning labels after policy implementation in Uruguay, using a combination of eye-tracking and self-reported data. The study was conducted in three supermarkets, in two regional capitals, 19 months after the entry into force of the policy. A total of 224 participants were intercepted while entering the facilities of the supermarket and asked to wear a mobile eye-tracker while making their food purchases. Then, they were asked a series of questions about their awareness and use of warning labels. Although participants reported high awareness and understanding of the labels, active search and use at the point of purchase was low. Only 6% of the consumers declared having actively searched for the warning labels and 7% fixated their gaze on the labels. The majority of the participants (72%) who declared having seen the warnings on a product, purchased it anyway. However, 56% declared having changed their food choice decisions as a consequence of the implementation of the policy. Participants' accounts about reasons for (not) taking into account the warning labels provide relevant insights for the development of strategies to encourage citizens to increase policy effectiveness and encourage healthier food choices.

How to combine ESG scores? A proposal based on credit rating prediction

AbstractThe diffusion of Environmental, Social and Governance (ESG) metrics is increasingly affecting corporates behaviour and their ability to attract investors. Corporate ESG practices are nowadays considered as a key element in evaluating creditworthiness and the cost of capital, to direct funds to the best‐performing companies that limit the harmful impact on the planet and the societies. Due to this increased interest in ESG by companies, investors and policymakers, a high number of ESG scores and metrics have been developed, each with different methodologies and scopes. Because of this variety, it could be therefore challenging for investors to understand and compare ESG measures. In this paper, we address this issue by proposing a method to combine the information provided by different ESG scores into a single aggregate measure of company sustainability and link this combined score to the credit rating of companies. The proposed methodology can help investors to improve their investment decisions by combining more diverse information on company sustainability as a driver of companies' credit rating, thereby reducing information asymmetries.

Financial integration and earnings management: evidence from emerging markets

PurposeThis study examines whether country-level financial integration affects firms' accounting choices and the quality of financial information.Design/methodology/approachThis study employs Propensity Score Matching (PSM), and panel regressions of a large sample of data from 20 emerging markets over the period 1987–2018.FindingsThis study finds evidence that increased level of financial integration is significantly positively associated with firms' accruals earnings management (AEM) and real earnings management (REM).Research limitations/implicationsFindings in the study have implications for standard-setting bodies that aim to enhance the usefulness of financial reporting quality. The study also has implications for various initiatives by governments in emerging markets aimed at raising investor confidence and fostering stock market development through greater financial integration.Practical implicationsFindings in the study have implications for standard-setting bodies that aim to enhance the usefulness and quality of financial reporting. The findings can be of interest to analysts, auditors and other monitoring institutions who play a crucial role in detecting earnings management and reducing information asymmetry. Finally, the study has implications for various initiatives by governments in emerging markets aimed at raising investor confidence and fostering stock market development through greater financial integration.Originality/valueFindings in the study reveal how country-level financial integration affects accruals and real earnings management in a sample of firms from 20 emerging markets. Further, the study adds to the growing body of literature on emerging markets where capital markets mechanisms, regulatory environment and firm's corporate governance are distinct to developed markets.

Akuntabilitas Publik dan Pengungkapan Laporan Keuangan Pemerintah Daerah (LKPD) di Indonesia

Purpose: Using a quantitative approach at the explanatory level, this research paper aims to examine the effect of the Regional Government Financial Report Disclosure variable on Public Accountability variables. Methodology/approach: The non-probability technique of the purposive sampling type obtained 450 observations from 150 samples of district local governments in Indonesia during 2017-2019 through documentation and literature review of secondary data Results/findings: The results of hypothesis testing using the EViews 9 data processing software provide findings that Disclosure of LKPD (Y) also has a direct effect on Public Accountability. Limitations: The measurement of the Public Accountability variable in this study is based only on audit opinions reported by the Supreme Audit Agency or BPK RI, due to time constraints, this study eliminates the measurement on the weak aspects of the LKPD internal control system as measured by the number of SPI cases and non-compliance with statutory provisions. LKPD invitations as measured by the total cases of non-compliance . Contribution: The implications of these findings explain that disclosure of financial statements can reduce information asymmetry between agents and principals through the publication of financial reports that disclose relevant information. In addition, the research results can become criticism and suggestions for the government as regulators and decision makers in formulating policies related to transparency to the public.