Reduce Information Asymmetry Research Articles

Discussants

We study the role of informal collaboration in academic knowledge production using published research papers previously presented and discussed at the NBER Summer Institute. We show that papers that have a discussant are published in highly-ranked journals and are more likely to be published in a top journal. Conditional on having a discussant, the quality of a paper’s journal outlet increases in the discussant’s prolificness and editorial experience. This supports the idea that discussants help reduce information asymmetries that are inherent in the academic publication process. Conversely, using social network analysis we find no evidence that citations accumulate because discussants diffuse information about the paper.

Effects of shared characteristics between eco‐labels: A case for organic and local food

AbstractFood labels are created to reduce information asymmetry and help consumers make better food choices. However, the labels may have unanticipated effects, especially when they share common characteristics that may introduce confusion in making food choices. This study investigates how perceived relationships between different food labels may affect the price premiums of organic and local attributes for milk and fresh strawberries. Results show that the impacts of perception vary by product and label, and different food labels could positively affect price premiums on organic and local products. Results provide policy implications for better labeling and educational programs to reduce inadvertent confusion and improve consumer decision‐making.

Does bank shareholding affect corporate debt restructuring? Evidence from financially distressed firms in China

ABSTRACT This paper investigates the impact of bank shareholding on corporate debt restructuring. Using a sample of financially distressed firms in China from 2007 to 2016, we find that distressed firms with bank shareholders are more likely to restructure their debt than firms without bank shareholders. Moreover, the alleviation of renegotiation friction in both distressed state-owned enterprises (SOEs) and non-state-owned enterprises (non-SOEs) and reducing information asymmetry in non-SOEs facilitate the positive impacts of bank shareholding on debt restructuring. In addition, the impact is more evident in distressed non-SOEs characterized by higher profitability prior to restructuring. Further, distressed non-SOEs with bank shareholders are more likely to recover from distress than their peers, while the results are opposite for distressed SOEs. We argue that while bank shareholding facilitates restructuring in distressed non-SOEs, it aggravates the soft budget constraint in troubled SOEs. Our results are robust after accounting for the selection bias of bank shareholding.

Bureaucratic connections and local development: A study of Palwal district in India

ABSTRACT Numerous countries have established local elected governments to improve public goods delivery and reduce information asymmetry between the state and citizens. These governments remain dependent on upper levels for funding which has been found to be influenced by patronage politics and partisan alignment. In this paper, we show that the networks of locally elected officials and bureaucrats determine the allocation of discretionary funds and resources to local governments. Villages whose elected heads reported stronger connections with local bureaucrats were more likely to win a one-time inter-village competition for funds organized by the district administration of Palwal - a district in the North Indian state of Haryana. Locally elected officials in the district also report that bureaucratic connections are at least as necessary as political ties with higher-level politicians to obtain funds for their villages. This centrality of bureaucratic connections can be partly attributed to the institutional design in India.

The price of frequent issuance: the value of information in the green bond market

Information asymmetry related to environmental impacts and greenwashing-related reputational risks poses a key challenge for green bond market development. Information enhancers-such as green labels, certifications, and external reviewers-help reduce information asymmetry, thereby lowering bond yields. This study examines whether frequent green bond issuance, as a new information channel, is priced in as frequent issuers offer greater information transparency and signal stronger environmental commitment. Using global green bond issuance from 2014 to 2019, we found that on average, infrequent green bond issuers pay 114–177 basis points more than frequent green bond issuers. Results from the Blinder-Oaxaca decomposition further show that 8 basis points of this yield difference cannot be explained by common pricing factors, partly reflecting the value of information. These findings show that green bond issuers can cost-efficiently convey information via frequent issuance. Policy makers should encourage frequent green bond issuance to lower information asymmetry, thereby boosting green investment and fostering green recovery.

The Corroboration Role of Management Earnings Forecasts in Private Loan Markets

Management earnings forecasts (MEFs) may reduce information risk by corroborating the inferences that lenders draw from their private communication with borrowers. Consistent with this idea, we find that among firms with a general policy of issuing MEFs, those providing MEFs in the 6 months before loan origination with a forecast horizon beyond the origination date enjoy lower loan spreads. The frequency and precision of MEFs are also negatively associated with loan spreads. The associations are stronger when lenders’ need for corroboration of their private information is expected to be greater. The associations are not driven by a firm’s general information environment, signaling of managerial ability, opportunistic disclosure, or competition between public and private debt markets. Moreover, the issuance, frequency, and precision of MEFs are associated with loan amounts more spread out among participating lenders, suggesting that MEFs also reduce information asymmetry within a loan syndicate. Our study provides insight into the corroboration role of publicly disseminated MEFs in private loan markets.

Does venture capital investment enhance corporate innovation? Evidence from Korea

AbstractWe examine whether venture capital (VC) investment enhances corporate innovation in Korea. Using a matched sample of 802 firms from 1998 to 2012, we find that after the first round of VC investment, VC‐backed firms are more innovative than non‐VC‐backed firms. Our results suggest that the positive influence of VC investment largely comes from the ability of VC firms to reduce information asymmetry between investors and ventures: VC funds managed by independent venture capitalists significantly enhance corporate innovation, whereas those managed by governmental venture capitalists do not. Furthermore, this positive influence becomes more pronounced where there is greater information asymmetry. Finally, we show that funds with profit‐based compensation structures are more likely to encourage corporate innovation than those with fee‐based compensation structures.

Shariah vs non-shariah IPO underpricing: evidence from Indonesia Stock Exchange

PurposeThis study aims to investigate the effect of shariah status on initial public offering (IPO) underpricing, long-term performance and relationship between short-term and long-term IPO performance, and attempt to gain an insight into the nature of shariah IPO underpricing: a signal or an overreaction.Design/methodology/approachThis study uses IPOs during 1990–2018 from Indonesia. This study uses clustered regressions to address clustering phenomenon in IPO. To investigate long-term performance, this study uses cumulative returns, cumulative abnormal returns and Fama–French three factor regressions. This study also runs cross-sectional regressions on the relationship between short and long-term performances.FindingsThis study finds that shariah status reduces lowers non-trading returns (return from offer to open prices), suggesting that shariah status may reduce information asymmetry and compensation. This study finds that both shariah and non-shariah IPOs underperform the benchmarks, with shariah IPOs underperform more. Further analysis shows a negative relationship between initial return and long-term performance for both shariah and non-shariah IPOs, whereas the negative relationship is stronger for shariah IPOs. The results indicate that shariah compliance help reduce information asymmetry; however, shariah compliance does not necessarily signal quality. Instead, shariah compliance seems to induce investor sentiment, resulting in underperformance and reversal patterns in the long run.Research limitations/implicationsThe results have various implications. Issuers may use shariah screening to lower underpricing. Investors may manage their investment horizons to mitigate IPO underperformance. Future research is needed to understand the nature of short and long-term performance of shariah IPO across countries. The use of ex-ante shariah definition becomes our limitation. This study also does not use buy and hold return to investigate long-term performance.Practical implicationsThe results have various implications. Issuers may use shariah screening to lower underpricing. The results show that sharia certification may play an important role in the IPO process. However, sharia status induces individual investors, leading to more overreaction in the long term. Thus, companies need to balance between sharia certification and overreaction in the long term. Investors may manage their investment horizons to mitigate IPO underperformance.Originality/valueThis paper extends studies on the effect of shariah status on IPO performance using Indonesia data. Using non-trading returns, this study provides sharper analysis on the underpricing study. This study shows that shariah status leads to an overreaction, instead of a signal for quality.

Konservatisme Akuntansi dan Kinerja Perusahaan di Indonesia

This study aims to confirm the relationship between accounting conservatism and the financial performance of companies in Indonesia in the 2019 period. Accounting conservatism is still debated between standard setters and accountants. The accountants argue that accounting conservatism is still needed to reduce the opportunistic behavior of managers. Meanwhile, accounting standard setters stated that accounting conservatism had an impact on biased financial statements. The research sample was selected with several criteria so that 564 companies were obtained. Panel data were analyzed by regression and the results showed that conservative accounting had an effect on Return On Assets (ROA). Accounting conservatism will reduce information asymmetry, which will reduce managers’ opportunistic behavior and increase investment efficiency and improve company performance. However, accounting conservatism has no effect on firm value (Tobin’s Q). Accounting conservatism will cause financial statements to tend to be biased because financial statements cannot describe the actual situation. Therefore, financial statements are not able to predict future cash flows.

Untying the role of board gender diversity in dividend policy of politically embedded Chinese firms

PurposeThis study aims to investigate the role of board gender diversity (BGD) in dividend payout decisions of politically embedded firms (PEFs) including government-linked firms (GLFs) and non-GLFs in comparison to non-PEFs from the perspective of an emerging market, China.Design/methodology/approachThe study uses the fixed-effect regression to examine the relationship between BGD and dividend payout decisions of PEFs including GLFs and non-GLFs in comparison to non-PEFs for a sample of Chinese publicly listed firms over the period 2010–2018.FindingsThe paper presents robust evidence that BGD is associated with higher dividend payments in PEFs than non-PEFs. Similarly, female directors on GLFs' boards are more likely to pay higher dividends than non-GLFs. Moreover, findings also reveal that the female directors' impact on dividend payout decisions is more pronounced in high corporate social responsibility (CSR) PEFs compared to low CSR peers, regardless of the nature of political ties.Research limitationsThe major limitation of this research that it is restricted to Chinese firms that operate under distinctive economic, social, and political environments. However, the study findings are generalizable to other emerging economies which have similar institutional settings and corporate environments with high government intervention like China.Practical implicationsThe findings will enable policymakers to design policies targeted at the inclusion of female directors on PEFs' boards to reduce information asymmetry and agency conflicts. However, considering the heterogeneity of female directors' role in dividend payout decisions of GLFs and non-GLFs, the policymakers should be cautious while establishing the female quota in these firms.Originality/valueThe role of BGD in dividend policy decisions of politically connected firms remained unexplored. This study is the first to unveil the role of female directors in dividend payout decisions of PEFs and non- PEFs. In addition, this research further contributes to the literature by exploring the BGD-dividend policy link in PEFs with high- and low-CSR engagements.

Uncertainty Volatility, Investment, And Cash Holding In ASEAN Countries

This study aims to show the effect of uncertainty on firms’ corporate investment and cash holding in five ASEAN countries, namely Malaysia, Indonesia, Singapore, Thailand, and Vietnam. The study was conducted using data from non-financial public listed firms in these five ASEAN countries during the 2006 to 2020 period. The uncertainty volatility is measured using the standard deviation of the economic policy uncertainty index. The results of this study find that uncertainty volatility increases corporate investment and decreases corporate cash holding. This result indicates that high uncertainty economic condition cause firms to invest to reduce information asymmetry by giving signals to external investors through investment, and as result, it reduces the corporate cash holdings. Moreover, we also find that uncertainty volatility is more economically significant than Economic Policy Uncertainty it self. It is possible that uncertainty volatility can better capture the real uncertain condition in the economy.

Policy and oversight of corporate political activities and the cost of equity capital

This paper investigates the effect of voluntary adoption and disclosure of policies/oversight of corporate political activities/spending on the cost of equity capital for S&P 500 firms over the period 2015–2018. Using the CPA-Zicklin Index to measure the level of policies, oversight, and disclosure of corporate political activities, we find that firms with a greater level of policies and oversight enjoy a lower cost of equity capital. We also document that a higher index is associated with higher stock liquidity. The negative relation is more pronounced among firms with higher exposure to political risk and firms with higher dependence on government spending. We also find that a firm’s information environment plays an important role in moderating the relation between policies and oversight of corporate political activities and the cost of equity capital. Our findings suggest that voluntary adoption and disclosure of policies and oversight mitigates risks and uncertainties related to firms’ political activities, thereby reducing information asymmetry and the cost of equity capital.

THE ROLE OF INVESTOR RELATIONS IN THE INDONESIAN STOCK EXCHANGE

Good corporate governance and information transparency are needed to maintain investor confidence and reduce information asymmetry. Investor Relations plays an important role in a company to maintain two-way communication and investor confidence, by bridging the gap in communication between companies and investors. This study aims to analyze the theory and practice of Investor Relations in Indonesia from the perspective of Investor Relations practitioners. This study uses a qualitative method using an open-ended questionnaire to Investor Relations Officers who work in public companies that are listed in the Indonesia Stock Exchange. The results of the study found that Investor Relations have practiced in line with the theory and results of previous research on Investor Relations in terms of stakeholders, organizational structure, objectives, functions, expertise, standard practices, and obstacles of Investor Relations in Indonesia. The study found that Investor Relations in Indonesia has not fully carried out the function of internal communication which can be attributed to the lack of support from management who have not seen Investor Relations as a strategic part of the company.

The Role of Sustainability Reporting in Reducing Information Asymmetry: The Case of Family- and Non-Family-Controlled Firms

This study aims to examine the link between sustainability reporting and information asymmetry in family- and non-family-controlled firms for a sample of 641 UK firms listed in the FTSE all-share index during the period 2010–2017. The findings show a negative and significant relationship between sustainability reporting and IA. The results also show that the sustainability reporting–information asymmetry nexus is weaker in family-controlled firms. The findings of this study should improve our understanding of sustainability reporting motivations, particularly in companies that are controlled by families. Moreover, an explanation of the role of family-controlled firms in mitigating or exacerbating this relationship will surely help the British regulators improve corporate governance rules related to various ownership structures. For policy makers, it is important to confirm that sustainability reporting is representative of actual corporate activities and is not only used to mislead stakeholders.

Gender (dis)balance in local government: how does it affect budget transparency?

Balanced gender representation in local political life has been a subject of increasing interest to researchers. This paper, based on a unique database, analyses the representation of women in local representative and executive bodies and its impact on budget transparency (BT) in Croatian local governments. The panel analysis shows that a greater representation of women in local councils has a positive effect on the level of local government digital budgetary reporting. This is in line with gender literature settings and theories that explain BT, suggesting that the greater representation of women helps reduce information asymmetry, increase transparency, and promote government legitimacy. We do not find significant results in regard to women’s representation in local executive functions. A particularly indicative policy implication suggests the aim of increasing the gender balance in local political spheres, especially when deciding on good governance practices and fiscal disclosure requirements.

CSR Disclosure and Information Asymmetry: The Role of Financial Reporting Quality

Based on firm-level data from 39 countries, over a nine-year period, this study analyzes whether financial reporting quality and CSR disclosure are related to each other in improving the quality of corporate information. The findings show that firms disclosing a greater amount of CSR information have a lower degree of information asymmetry (bid-ask spread). This relationship is less pronounced in firms with high financial reporting quality. It suggests a substitution association between financial reporting and CSR disclosure in reducing information asymmetry. Financial transparency is therefore an important factor to explain the informativeness of CSRD. With a high financial transparency, CSRD provides less incremental information content to the investors. However, the robustness tests show that CSRD decreases the quality of financial analysts’ forecasts. This seemingly contradictory result might be explained by firms engaging in differentiated information disclosure to cope with contradictory social and institutional pressures (investors versus financial analysts).

The Effect of Earnings Management and Profitability on Stock Prices Future: Information Asymmetry as Moderating

Purpose: One of the most popular types of securities in the capital market is stock securities. Stocks that are considered good are stocks that are able to provide realized returns that are not too far from the expected returns, which are reflected in future stock prices. Through information asymmetry, it is expected to see the magnitude of the influence of earnings management on stock prices in the future. The purpose of this study is to examine the effect of earnings management on stock prices in the future with asymmetry as a moderating variable.
 Methods: The method used in this study is a quantitative analysis method with cross-sectional data, using secondary data in the form of financial statements of consumption sector manufacturing companies listed on the Indonesia Stock Exchange (IDX) from 2015 to 2019, with analytical tools using SPSS.22
 Findings: The higher the information asymmetry, the greater the bid-ask spread, in this case, the disclosure of earnings (ROA) in the financial statements is expected to reduce information asymmetry so that the bid-ask spread also decreases which leads to an increase in stock prices the future.
 Novelty: The higher the information asymmetry, the greater the bid-ask spread, in this case, the disclosure of earnings (ROA) in the financial statements is expected to reduce information asymmetry so that the bid-ask spread also decreases which leads to an increase in stock prices the future.

Evaluating the quality of WHS disclosures by ASX100 companies: Is mandatory WHS reporting necessary?

The current research aims to evaluate the quality of work health and safety (WHS) disclosures by the top 100 companies listed on the Australian Securities Exchange (ASX100) with the view to determining whether mandatory WHS reporting may assist in improving health and safety standards. The 2018 and 2019 annual reports of ASX100 companies were analysed for WHS reporting of injury, illness, near misses and fatalities. Content analysis revealed that very few companies reported WHS metrics; however, companies in more hazardous industries reported more than those in less hazardous industries. Of the metrics that were reported, lagging rather than the more valid and predictive leading metrics were presented. Very few companies disclosed content related to the number of current or ongoing internal or external investigations of serious injury or near misses. These findings demonstrate a lack of reporting overall, as well as inconsistencies in the quality of WHS reporting across companies. Given that the primary purpose of WHS reporting is to improve standards to safeguard workers, the current work suggests that voluntary reporting provides inadequate protection. Mandatory WHS reporting of specific indices by publicly listed companies in their annual reports is proposed as a potential solution to improve and standardise reporting quality and quantity. This form of regulation would also ensure parity of information disclosure among firms and reduce information asymmetries. The need for and merit of standardised reporting, as well as how best to achieve this via policy and practice, are discussed.

Could the Opening of HSR Reduce the M&A Premium?

This study takes the merger and acquisition (M&A) events completed by A-share listed companies in Shanghai and Shenzhen stock markets from 2006 to 2019 as the research samples and uses the dual difference method to test the impact of a “high-speed railway (HSR) opening”, a quasi-natural experimental event, on M&A premium. The results show that the opening of an HSR can significantly inhibit the M&A premium of listed companies in corresponding prefecture-level administrative regions. The results of the mechanism test show that an HSR opening affects M&A premium through two channels: “reducing information asymmetry” and “alleviating agency problems”. This study discusses the impact of an HSR opening on M&A, which helps to provide new empirical evidence for the economic consequences of an HSR opening from the micro level and provides a new perspective for research on the factors affecting M&A premium.

InsurTech in insurance

The Indian insurance sector is characterised by the presence of information asymmetry and moral hazard. Resultantly, the adoption of InsurTech has become a necessity. While telematics, a form of InsurTech, is gaining significant impetus globally, it is still at a nascent stage in India. Against this backdrop, the present study analyses the role of Telematics in reducing information asymmetries in the Indian motor insurance sector, thereby improving the risk assessment process and ensuring that the insurance premium is reflective of the risk taken by the policyholder. The novelty of the study is that it is one of the very few studies that have explored the implementation of Telematics in the Indian context. The study is exploratory and uses a mixed-method approach by analysing the use of telematics in developed countries through document analysis followed by semi-structured interviews with Indian vehicle owners and industry experts. The study highlights that Telematics devices can assist companies in reducing information asymmetries and enable precise ascertainment of insurance premiums based on factors such as driving habits, distance travelled, and driving patterns of the policyholders.