Reduce Information Asymmetry Research Articles

Wicked problems of early-COVID-19 response: A content analysis of public emergent norms

COVID-19 acted as a "Disease X", challenging governments around the world in early 2020. Rightly or wrongly, a local government in China handled the pandemic response with great uncertainty, triggering immediate consequences. While the world has entered the post-COVID era, it is still unknown how residents perceived the governmental responses in aligning policies to the public needs under such a great level of uncertainty. This study reevaluated the public's perception of the earliest Chinese government response to the COVID-19 pandemic using the interpretivist paradigm and content analysis. The qualitative and inductive research design used a snowball sampling method and collected 111 semi-structured questionnaire responses in February 2020. A framework of three themes, eight categories, and forty-five codes was developed from the findings, covering knowledge of the virus, information sources, information reliability, quarantine communication, quarantine support, needs during quarantine, improvement recommendations, and hopes and questions. Built from the lived experiences of the Chinese public during the first COVID-19 lockdowns, the posited framework encapsulated the public's perception of the government's response to this pandemic. To conclude, we drew three policy recommendations based on the three key themes to improve preparedness for future health crises and pandemics—disaster communication, integrated pandemic preparedness system, and hope and uncertainty. In particular, (1) a government-developed public information system can promote two-way communication and reduce information asymmetry; (2) an integrated system can better coordinate resource allocation; (3) the warning messages can correspond to the hope and positive feelings in the public norms.

Auditor choice, board of directors’ characteristics and ownership structure: Evidence from Greece

Auditing is a key factor of financial reporting quality which reduces information asymmetry, improves regulatory compliance, and enhances internal control effectiveness. The decision to select an audit firm is complex and the reasons for choosing a specific auditor are likely to differ across organizations (Knechel et al., 2008). Several factors drive auditor selection, including ownership structure, governance attributes, the risk of information asymmetry, and country-level determinants (Habib et al., 2019). This study aims to examine whether corporate governance mechanisms affect auditor choice. For this purpose, using a sample of the biggest companies listed on the Athens Stock Exchange (ASE) for the period of 2014 to 2018, a logit regression model was developed to investigate the influence of the board characteristics and ownership structure on the decision to appoint a Big Four or non-Big Four audit firm. Results indicate that corporate governance mechanisms do affect auditor selection in Greece. Firms with larger boards, with more independent members and women on their boards’ composition, are more likely to appoint a Big Four audit firm. On the other hand, family-owned firms are less likely to engage a Big Four audit firm. The study’s results add new evidence on the factors that affect auditor choice in a European emerging market and could be useful to the regulatory authorities, investors, boards, and all other parties engaged in corporate governance.

The Effect of Local Internet Development on Employees’ Salary: Evidence from China

ABSTRACT Using empirical data from China, this study examines the impact of local internet development on non-executive employees’ salaries. Research findings show that internet development can increase employees’ salary and pay-performance sensitivity. This effect can be more significant in non-state-owned enterprises (Non-SOEs for short), firms faced with fierce competition, and firms paid little attention to employee protection. Mechanism analysis finds that the positive impact of internet development on increasing total factor productivity and reducing information asymmetry can partly interpret the effect. From the perspective of employees’ salaries, this study sheds light on the impact of technological progress on micro-production relations.

Assessing the Scholarly Landscape: A Bibliometric Journey through Credit Rating Agency Research

Credit Rating Agencies play a crucial role in the financial markets by providing independent assessments of borrowers' creditworthiness. Rating agencies give useful information about performance and creditworthiness of companies, which aids in reducing information asymmetry and it serve as a signal for the likelihood of default which allows investors and market participants to make informed decisions . It is considered as powerful institutions capable of influencing bond and stock prices. The credibility of rating agencies has been question due to their role in the 2008 financial crisis. Their credibility may be impacted by a number of reasons. The study reviewed literature added in credit-rating agency domain from January 2004 to October 2023. Bibliometric analysis is used to comprehend the existing literature. The review recouped 237 research articles on Credit Rating Agency from the Scopus database and envisioned the data using VOS viewer software and Biblioshiny from R studio. We found that most of the studies emerged as after-effects of financial crisis reported in 2008. We have provided a feasible research agenda to further explore credit-rating agency domain. The study not only enhanced the understanding of the scholarly landscape within the scope of the study but also provided a comprehensive assessment of the literature.

Accounts Receivable Reform and Financing Constraints: Evidence from China’s A-Share Market

ABSTRACT The commercial bill, as a regulated commercial credit mode, offers better creditor protection, more financing channels, and stronger bargaining power in financing. This paper creatively constructs bills receivable index in the micro level of enterprises and examines the potential impact of billing of accounts receivable on the financing constraints faced by enterprises. This paper also explores the mechanism that causes the impact and check whether the establishment of the Shanghai Commercial Paper Exchange Corporation (SHCPE) has had positive effects. The results show that billing can alleviate the financing constraints of enterprises due to its benefits offered by the commercial bill. Furthermore, the establishment of the Shanghai Commercial Paper Exchange Corporation (SHCPE) can lead to the development of a standardized and transparent bill market, further alleviating the financing constraints. The study also reveals that billing of accounts receivable affects financing constraints mainly by enhancing the quality of debt-like assets and reducing information asymmetry between enterprises and the outside world. For enterprises with longer maturity structure, the effect of billing on the alleviation of financing constraints is more significant.

Innovation Activity and Social Responsibility of Big Business: The Role of Political Connections

The presented article is devoted to identifying the role of political connec-tions of big business in the process of implementing innovation activity and social responsibility. It is shown that political connections and innovation activity can be both substitutes and complements depending on the institutional environment in which interaction between economic and political actors occurs. Investments in political connections can facilitate innovations that to help firms to overcome non-market barriers. The negative consequences of its using are determined with the lack of motivation, organizational inertia, government control and agency prob-lem. It is noted that political connections reduce the amount of resources allocated to R&D but they increase the effectiveness of the protection of intellectual property rights. This means that political connections bring support and valuable know-ledge about public policy to the firms reducing information asymmetry. It is shown that the flip side of using political connections is social responsibility. It is used by big business to legitimize its activities in the eyes of society. The more a company uses political connections, the more likely it is to provide a higher level of social responsibility reporting. Large Russian companies are actively involved in the im-plementation of social responsibility in the territories where they operate. The key factor ensuring the functioning of large business on domestic markets is social re-sponsibility, while accumulated political connections allow it to enter global mar-kets with the support of the state.

'Till Death Do Us Part: An Examination of the Impact of Unbroken Auditor-Client Relationships on Audit Efficiency and Audit Quality

SUMMARY We examine whether audit engagements where the client has never switched auditors (original auditors) are associated with different audit fee and audit quality outcomes, relative to engagements that have experienced an auditor change. We document that clients with original auditors accrue nontrivial audit fee savings. Further, we find original auditor engagements are associated with lower levels of discretionary accruals and lower likelihood of misstatements, implying higher audit quality. We also find that investors appear to recognize the audit fee and quality benefits, as these auditors receive fewer votes from investors against their ratification. These results are consistent with a reduction in information asymmetry from greater client specific knowledge with original auditors, leading to more efficient and effective audits. Finally, we document that the audit fee and audit quality benefits diminish for engagements that exceed 40 years, providing some support for the benefit of an eventual fresh look in the audit. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: G18; H83; M4.

Do industry-specific accounting standards matter for capital allocation decisions?

This study examines whether the implementation of industry-specific accounting standards helps capital market participants in making decisions about providing capital to firms. We predict and find an, on average, increase in firms’ capital growth in years following implementation of the relevant industry standard. The increase in capital growth arises primarily from equity issuances and is attributable to the implementation of the standards rather than industry-specific trends or economic shocks. We explore heterogeneity in industry standards and find more pronounced effects for (i) industry standards that reveal new information, provide explicit guidance, or increase accounting uniformity, and (ii) small firms, firms with greater information asymmetry, and firms with greater capital constraints before implementation of the standards. We also find evidence consistent with two channels explaining the documented increase in capital flows: reduction of information asymmetry and increase in financial statement comparability.

Can enterprise digital transformation reduce the reliance on bank credit? Evidence from China

Academics are inconclusive on whether enterprises' digital transformation can reduce their reliance on bank credit. We examine this question using a Chinese sample of 2325 A-share-listed companies from 2007 to 2021, finding a significant negative correlation between a firm's digital transformation and reliance on bank credit; the results remain robust after a series of endogeneity tests. Digital transformation alleviates bank credit dependence mainly by easing firms' financing constraints and reducing information asymmetry. Specifically, the alleviation effect of enterprise digital transformation is stronger among enterprises with private ownership and smaller asset sizes. In addition to the nature of firms, increased competition in the banking sector and a favorable business environment contribute to curtailing bank credit dependence. This paper's findings point to companies' digital transformation agenda, confirming that financial development supports economic growth.

Top managers with information technology backgrounds and digital transformation: Evidence from small and medium companies

Small and medium-sized enterprises (SMEs) often struggle to successfully realize digital transformation (DT) due to constraints of size, technology, capital, and the ability and willingness to transform. This study first investigates the effect of top managers with information technology (IT) backgrounds on SMEs' DT from the perspective of within the business organization by using Chinese-listed company data from 2005 to 2020. The results show that IT top managers significantly facilitate SMEs' DT, especially for non-state-owned companies and those located in highly market-oriented regions. Mechanism analysis reveals that IT top managers promote SMEs' DT by increasing IT investment, reducing information asymmetry, and lowering financing constraints. Our findings provide new insights into solving SMEs' DT dilemma and improving the endogenous dynamics of digitalization among SMEs from a top-down perspective within the company.

CORPORATE SOCIAL RESPONSIBILITY DISCLOSURE AND COST OF EQUITY EVIDENCE FROM PUBLIC LISTED COMPANIES IN MALAYSIA

Corporate social responsibility (CSR) has been rolled out in recent years as it has become vital owing to the massive growth of financial institutions, mutual funds, online resources, and other publications. CSR disclosure could reduce the cost of equity. The study's main objective is to investigate the CSR disclosure by companies listed in Malaysia towards the cost of equity. This study is based on three hundred four (304) samples of Malaysian listed companies from 2013 to 2014. The data of the samples were mainly collected from annual reports, except for financial data which were collected from DataStream. The result revealed that the CSR disclosure in the annual report could reduce the company's cost of equity by reducing information asymmetry, reducing agency costs, and reducing companies' risk. The result also shows that liquidity has a significant negative relationship with the cost of equity. The higher information disclosure enhances stock market liquidity, thus, reducing the cost of equity through the reduction of risk as well increasing demand for a company's securities. The size, liquidity, and growth have a significant relationship with the cost of equity.

Corporate ESG Performance and Accounting Information Quality

This paper empirically examines the impact of ESG rating performance on the quality of corporate accounting information with 10015 listed companies in China's A-share market from 2012 to 2021. The results show that the better the ESG rating performance, the lower the level of real surplus management and the higher the quality of accounting information. Mechanism analysis shows that corporate ESG performance improves accounting information quality by reducing financing constraints and reducing information asymmetry. Heterogeneity analysis finds that the contribution of corporate ESG performance to accounting information quality is more significant in non-state-owned enterprises, non-polluting industry enterprises, enterprises in the eastern region. The research in this paper reveals the promotion effect of ESG on accounting information quality and provides a reference for the research on ESG in China.

Peer effects in the online peer-to-peer lending market: Ex-ante selection and ex-post learning

This study investigates peer effects in the online peer-to-peer (P2P) lending market using data from a Chinese online lending platform, Renrendai. The empirical results indicate that both the borrowers' success rate in obtaining loans and the default rate after loans are deemed non-coercive among their peers, referred to as the peer effects of lending and peer effects of default, respectively. The peer effect of lending is more pronounced in high-risk cities, whereas the peer effect of defaulting is more pronounced for borrowers with more difficulty obtaining loans, indicating ex-ante selection and ex-post learning mechanisms, respectively. The peer effects of lending promote P2P lending market efficiency, and the peer effects of defaulting inhibit market efficiency. Collectively, our results suggest that both lenders and borrowers follow peer effects to reduce information asymmetry in P2P lending markets.

Catering behaviors in corporate digitization disclosures: Identification and analyst forecast accuracy loss

This paper identifies the catering behaviors in corporate digitization disclosures (CDD) and examines their effects on analyst forecast accuracy. By creating a peer-relative catering behavior score, we measure the extent to which firms cater to investors and provide evidence that catering behaviors in CDD decrease the improvement effect of CDD on analyst forecast accuracy. We further find that catering behaviors reduce the improvement effect of CDD by decreasing information quality and information comparability. Finally, we document that the reduction effect of catering behaviors is more pronounced in firms with poor information environment and firms followed by fewer expert analysts. Overall, our findings are consistent with the argument that narrative disclosures can be used both to reduce information asymmetry and to cater to investor demand.

A computational approach to transparency in corporate governance across borders

This article delves into the intricate relationship between information asymmetry and financial reporting comparability, with a particular emphasis on earnings management (EM) in cross-border corporate governance settings. Utilising data from 2,475 non-financial firms across 19 frontier markets from 2003 to 2019, the study employs pooled OLS, fixed effects, and between-effects models to scrutinise the impact of factors like financial comparability, reputable auditing, analyst coverage, and legal systems on earnings management. The findings reveal that enhanced financial comparability, facilitated by strong governance mechanisms such as reputable auditors and analyst coverage, leads to a reduction in earnings management and information asymmetry. Interestingly, leverage does not serve as a constraining factor as commonly believed. The results contribute to the growing body of literature on the application of data science, and challenge the pecking order theory (POT), while lending support to the knowledge-based view (KBV)and convergence theories, thereby offering valuable insights into the role of corporate governance in mitigating information asymmetry.

Panacea for M&A dealmaking? Investor perceptions of earnouts

We survey 129 investors from private equity firms, investment banks, corporate M&A and other M&A-related roles about their perception of earnouts. The results indicate that earnouts are applied to reduce information asymmetries and to bridge negative agreement zones in transactions. While these findings are largely aligned with the academic perspectives, we reveal several discrepancies to existing theory with respect to motives, valuation and associated costs. This is the first study that incorporates the view of M&A professionals and thus attempts to bridge the gap between academics and professionals. In addition, it provides impulses for further academic work on earnouts.

Financial technology, inclusive finance and bank performance

In recent years, the Chinese banking industry has increasingly used financial technology (FinTech) to increase the credit supply to key areas of inclusive finance, as “impulse” and “fee reduction and profit-sharing” behaviours have exerted pressure on bank performance. This paper analyses the impacts of FinTech on bank performance and the risk adjustment mechanism of FinTech.The results show that, first, when banks issue inclusive loans, the phenomenon of increasing the balance without a corresponding increase in profits, or even resulting in no profits develops because of cost-benefit asymmetry. “Doing business at a loss” negatively impacts bank performance; these losses are primarily associated with small and micro enterprises (SMEs). Second, digital inclusive finance effectively mitigates the negative impacts of traditional inclusive loans, and FinTech boosts bank performance. Third, the positive effects of FinTech are attributable to risk adjustment effects that reduce information asymmetry and transaction costs.This paper demonstrates that digitalisation empowered by FinTech has improved the service efficiency and customer experience of inclusive finance, as well as other business income and bank performance. Banks must be cautious when analysing the risks and benefits afforded by internet platform flow-data. Each head office should formulate a digital financial strategy and unify the deployment of innovative FinTech applications. Bank branches should promote such transformation but must engage in digital inclusive finance differently, based on the level of local FinTech development. This optimises the allocation of credit resources.

Impact of digital finance on enterprise green innovation: From the perspective of information asymmetry, consumer demand and factor market distortions.

The study endeavors to empirically assess the influence of digital finance on promoting enterprise green innovation, while simultaneously probing its underlying mechanisms, by leveraging panel data from a sample of 2071 China A-share listed firms over an extensive time frame spanning from 2011 to 2021. The findings demonstrate that digital finance plays a crucial role in promoting enterprise green innovation, and that both the coverage breadth and usage depth of digital finance have a significant effect on enterprise green innovation, but the digitization level of digital finance also has a non-significant effect on enterprise green innovation, and the conclusions hold even after multiple robustness tests and consideration of endogeneity issues. Furthermore, heterogeneity analysis reveals that digital finance is only has a significant promoting effect on green innovation of SMEs, and high-tech enterprises. After conducting the mechanism analysis, it has been noted that digital finance serves as a facilitator in promoting green innovation in enterprises by reducing information asymmetry, stimulating consumer demand, and attenuating the distortion of regional factor markets. Intellectual property protection and environmental governance will strengthen the positive impact of digital finance on enterprises' green innovation. The research results provide policy implications for the green development of digital finance enabling enterprises.

Green bond issuance and trade credit access: Evidence from Chinese bond market

The Chinese bond market has achieved rapid development and gained widespread social attention. This study constructed a sample of corporate bonds in China and tested the impact of green bond issuance on trade credit. We found supply chain spillovers from green bonds, with firms that issue green bonds receiving more trade credit than firms that issue credit bonds. Results remain robust after the propensity score matching, entropy balancing, and instrumental variable approaches to mitigate endogeneity issues. Information asymmetry and social trust can enhance the impact of green bonds on trade credit. The spillover effects are more pronounced among unlisted companies, companies with higher bond ratings, non-polluting industries, and state-owned companies. This study provides insights into the role of green bonds in reducing information asymmetry and enhancing mutual trust in the supply chain.

INCOME SMOOTHING AND CORPORATE GOVERNANCE

Income smoothing is a strategy aimed at altering accounting results in order to reduce fluctuations. In the other hand, by adopting corporate governance mechanisms it may be possible to reduce information asymmetry and, consequently, reduce the possibility of smoothing results. The general objective of the present study was to investigate the relationship between the adoption of corporate governance mechanisms and income smoothing. Financial data were selected from 211 Brazilian public companies between 2000 and 2015. The firms were separated according to whether or not they adhered to B3’s differentiated corporate governance segments. Income smoothing was measured using both the model by Eckel (1981) and a version of the model proposed by Leuz et al., (2003). The analysis was performed using non-parametric Wilcoxon rank sum tests and descriptive analyses. Based on the descriptive analysis, it was not possible to state that the group of firms adhering to the corporate governance levels had a smaller proportion of companies that smooth results; and the hypothesis that the degree of income smoothing is lower for such companies was not confirmed. The assumption that levels of corporate governance reduce the possibility of income smoothing was not validated based on non-parametric tests. Based on the descriptive analysis, it was concluded that both the proportion of companies that smooth results, and the degree of smoothing by organizations following the B3’s corporate governance levels are not lower than the ones shown by companies that do not follow the levels.