Reduce Information Asymmetry Research Articles

Automating efficiency: The impact of industrial robots on labor investment in China

This study examines the impact of industrial robot applications on labor investment efficiency. While previous studies have mainly focused on how industrial robots affect productivity, economic structures, and labor markets, their influence on labor investment efficiency has remained relatively underexplored. Using data from Chinese manufacturing firms, our results demonstrate that the adoption of industrial robots significantly improves labor investment efficiency. This improvement is mainly achieved by optimizing the human capital structure and enhancing capital deepening. We also find that this effect is more pronounced in non-state-owned enterprises, in environments with reduced information asymmetry, and in firms with low R&D investment and labor intensity. Overall, our results highlight the positive effect of industrial robot applications on the efficiency of corporate labor investments from a microeconomic perspective, providing important insights for labor investment decisions and resource allocation optimization.

Strategic Alliances and Lending Relationships

ABSTRACT We study how proprietary information flows in strategic alliances facilitate banks’ information collection in private debt markets. We argue that lenders that have previously worked with a borrower’s alliance partners have an information advantage and show that firms entering a strategic alliance receive a lower interest spread on loans from banks that have previously lent to their strategic partners than loans from other banks. Cross-sectional tests on alliances’ economic importance and participants’ information environment support our hypothesis that the loan price effect is driven by reduced information asymmetry between borrowers and their partners’ relationship banks. Last, we find borrowers are more likely to obtain debt financing from alliance-related banks than from other banks. Overall, our findings are consistent with lenders that have previously worked with an alliance counterparty possessing debt contracting-relevant information about the soft nature of alliance value and the partners’ commitment to alliances. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: G10; G21; G32.

Value-Enhancing Effect of Climate Change Risk Disclosure by Firms: Empirical Evidence Based on Textual Analysis and Machine Learning

ABSTRACT This study utilizes textual data from the social responsibility reports of Shanghai and Shenzhen A-share listed companies in China between 2007 and 2019. Through the application of textual analysis and machine learning technology, an index is constructed to gauge the extent of climate change risk disclosure by corporations. The paper examines the impact of climate change risk disclosure on corporate value, drawing from theoretical reasoning and empirical evidence.The findings reveal a significantly positive relationship between corporate climate change risk disclosure and corporate value, indicating the existence of a value promotion effect. Mechanism tests demonstrate that firms’ climate change risk disclosure enhances corporate transparency by attracting attention from analysts and the media. Consequently, this reduces information asymmetry and fosters an increase in corporate value. Furthermore, the study highlights that non-state-owned and high-polluting corporations exhibit a more pronounced value enhancement effect from climate change risk disclosure compared to other corporations. Additionally, corporations with highly readable and positively-toned textual information experience stronger value-promoting effects. These results provide robust empirical evidence supporting the practice of climate change risk disclosure among corporations in China.

Risk culture and cost of capital – Insight from European banks

This study examines the impact of risk culture on the cost of capital (i.e., WACC, Cost of equity and cost of debt) in European banks. We measure risk culture using comprehensive textual analysis approach. Based on 134 banks from 2005 to 2022, findings reveal that risk culture is negatively associated with all cost of capital measures. This indicates that robust risk culture reduces information asymmetry and boosts investor confidence, leading to lower costs of capital. Our findings reflect the importance of aligning risk management practices with regulatory requirements and investor expectations.

Does enterprise digital transformation inhibit executives’ excess perks?—Evidence from China

ABSTRACT This study uses data on Chinese non-financially listed companies to examine the relationship between enterprise digital transformation and excess perks. We discovered that excess perks may be greatly mitigated by enterprise digital transformation and that these conclusions remain robust following a series of endogeneity and robustness tests. The mechanism test finds that reducing information asymmetry within firms is a path for enterprise digital transformation to suppress excess perks. Further analysis reveals the negative relationship between digital transformation and excess perks is more significant in firms with duality and lower institutional investor shareholdings. This study provides a theoretical basis for promoting enterprise digital transformation and improving corporate governance mechanisms.

Organic Product Labels: The Credence towards Customers Choice of Buying Behaviour

Purpose: The organic food sales are not gaining more potential, due to limited buyers, because the customers have a paucity of product labels. This distrust has highly affected the company's profits. The purpose of the study is to ease these sceptics nature which is crucial for the organic food chain and also the government, emphasizing the necessity to enhance trust and openness in compliance. In order to ensure the credibility of the certified labels, companies have to adopt a set of rules and standards which result in a long-term effect on eco-favoured customers, and trust in the organic label creates a positive impact on customer choice of buying behaviour. Besides, companies also focus on conveying the right messages, so that customers can differentiate organic products from conventional ones. Design: This literature highlights various issues pertaining to the organic product label and customers’ choice of buying behaviour, and data is obtained from multiple reviews of literature, journals, and case studies. Findings: Labelling strategy may reduce information asymmetry between customers and the company because labelling strategy may influence product differentiation. Originality/Value: Studies encompass the certification scheme which is necessary for labelling organic products. Studies identify reading the labels customers easily identify product attributes that serve as a medium between company and end-users. Moreover, green labels, eco-labels, energy labels, and organic labels serve as certificates of organic products. Paper Type: Case study

Can accolades make stakeholders tolerant: Award-winning and corporate litigation risk

Based on a sample of Chinese listed companies from 2007 to 2022, this paper examines whether corporate accolades are associated with a lower incidence of litigation. By holding earnings and other determinants of litigation, we find that obtaining and disclosing awards can reduce information asymmetry and improve corporate reputation, thereby reducing the litigation risk of firms. Our results still hold after a series of robustness tests. Further analysis finds that the mitigation effect of awards is more pronounced in operation disputes and debt disputes.

Online reviews: A literature review and roadmap for future research

This paper reviews and synthesizes existing research on online reviews, addresses the knowledge gaps, and proposes directions for future research. Taking an interdisciplinary approach, we delve into the stages of the online review process (creation, engagement, impact, and insight) and discuss how they are affected by behavioral biases, review formats, reviewer identity, managerial interventions, and platform design. We discuss the benefits of online reviews—from boosting sales to impacting firms’ reputations and reducing information asymmetries—and the flaws that can compromise their reliability and helpfulness, including promotional reviews, behavioral biases, and context effects. Finally, we identify research gaps in the literature and propose a roadmap for future research. As technology advances and consumer needs evolve, the complexity of online reviews must be further explored to unleash novel insights, guide decisions, and better shape the future landscape of digital platforms.

Bank runs and media freedom: What you don’t know won’t hurt you?

This paper examines the influence of media freedom restrictions on retail depositor behavior during banking crises. Non-professional, retail depositors are particularly affected due to insufficient access to vital information about the banking industry's vulnerability and broad macroeconomic conditions amidst the crisis. Using data from 85 countries from 2004 to 2019, we found that during crises, higher media restrictions lead to an increase in the rate of household deposit withdrawals. If media restrictions hinder depositors from accurately assessing the banking sector’s exposure, there is a higher likelihood of panic-based response in uncertain times brought on by the banking crisis, potentially triggering bank runs. Furthermore, our results reveal that lower banking sector risk can mitigate the negative effect of media restrictions on retail deposit growth during a banking crisis, especially in middle-income OECD and non-OECD countries, countries with stronger institutional environments, and countries with higher financial literacy. As a policy suggestion, promoting financial literacy could help reduce information asymmetry and prevent panic withdrawals, even in environments with significant media restrictions.

Does information content of a corporate social responsibility report matter for stock mispricing? Evidence from China

We examine the impact of the information content of a firm's corporate social responsibility (CSR) report on stock mispricing using a sample of Chinese firms from 2007 to 2021. By leveraging the recent advances in textual analysis, we apply the Word2Vec technique to detect the information content of a focal firm's CSR report. Our findings suggest that the degree of a focal firm's stock mispricing decreases with increased information content of its CSR report. The results remain robust after considering a variety of sensitivity tests. Mechanism analyses reveal that the information content of a CSR report mitigates stock mispricing by reducing information asymmetry and alleviating investor irrational behavior. Heterogeneity analysis shows that the effect is more salient when firms face higher degree of uncertainty, both at the macroeconomic and industrial levels. Additionally, we document that a higher degree of information content of a CSR report contributes to a higher firm value.

Social responsibility and corporate borrowing

We study the impact of social capital, measured by corporate social responsibility (CSR) performance, on corporate borrowing. Using a sample of 120,204 bank loan applications of China's listed firms, we find that an increase in CSR performance increases the loan amounts of approved loans, although it does not alter the likelihood of loan approval. Using aggregate loans at the firm level, we show that CSR performance positively impacts firms' long-term borrowing from banks but does not affect their short-term borrowing. The economic magnitude of the positive effect is large at both the loan and firm levels. We attribute this positive relationship to reduced information asymmetry and improved risk mitigation. Surprisingly, we find that banks do not discipline their borrowers' CSR investments through the lending relationship. Specifically, when borrowers exhibit high CSR performance and borrow from banks with high CSR performance, further increases in CSR no longer correlate with larger loan amounts. Our findings suggest that China's state-led green credit policies should be more market-oriented.

Assessing regulatory governance for the water and sanitation Agencies in Brazil

This paper focuses on evaluating and benchmarking the governance of regulatory agencies in Brazil's water and sanitation sector. Using a unique database obtained through the application of a questionnaire, we developed an index of regulatory governance and ranked all the agencies in Brazil that participated in the study. The index is an aggregate number of the evaluation of four key governance characteristics: Autonomy, Transparency, Accountability, and Tools & Capacity, including not only formal aspects of regulation but also indicators related to actual implementation. Based on 18 different indices, we analyze the positions of agencies with regard to different aspects of their regulatory governance, considering not only performance in each variable but also scores in the different components of each category. This evaluation identifies particular agency shortcomings regarding governance and indicates needed improvements. Although Brazil has strived to consolidate the governance design of its regulatory agencies, implementing the independent regulator model still faces several challenges. Various aspects of governance can be improved to pursue greater efficiency and quality in providing services, particularly in Accountability and Political Autonomy, where the country shows the largest number of regulatory agencies with the lowest scores. Conversely, almost half of the participating agencies show optimal scores in the Regulatory Autonomy aspect of governance. The results, for the most part, corroborate the institutional theory, in which the role of institutions is paramount for greater efficiency in providing public services, as it reduces information asymmetries and transaction costs and maximizes economic incentives.

THE MODERATING ROLE OF FIRM TRANSPARENCY IN INCREASING THE IMPACT OF IFRS ADOPTION ON THE FINANCIAL STATEMENTS COMPARABILITY: A CASE STUDY ON NORTH AFRICAN COUNTRIES

Objective: This study investigates how firm transparency affects the relationship between adopting International Financial Reporting Standards (IFRS) and the comparability of financial statements in North African countries. Theoretical Framework: The research is grounded in agency theory, suggesting increased transparency reduces information asymmetry between firms and stakeholders. Method: The study employs a quantitative research design, using data from publicly traded companies in North Africa. A multiple PLS-SEM analysis is conducted to examine the interaction between firm transparency and IFRS adoption, and their combined effect on financial statement comparability. Data sources include financial reports and transparency indices over five years. Results and Discussion: The findings indicate that while IFRS adoption alone improves financial statement comparability, the effect is significantly stronger for firms with higher levels of transparency. Transparent firms benefit more from IFRS adoption, as stakeholders find it easier to compare financial statements across different firms. The study highlights that transparency acts as a crucial moderating variable, amplifying the positive impacts of IFRS on comparability. Research Implications: The results underscore the importance of enhancing firm transparency in conjunction with adopting IFRS to maximize financial reporting benefits. Policymakers and regulators in North African countries should focus on promoting transparency to support more effective financial reporting and decision-making. Originality/Value: This research contributes to the limited literature on IFRS adoption in developing regions, particularly in North Africa. It provides new insights into how transparency influences the effectiveness of international accounting standards, offering valuable implications for both researchers and practitioners.

Followers beat content: social media and the managers in initial coin offerings (ICOs)

AbstractOur research investigates the role of social media communication in amplifying high-quality information and its impact on the success of ICOs in achieving their soft cap. We analyzed data from 3,644 ICOs and the demographics of 1,987 CEOs, CFOs, and CTOs to compare their quality attributes against their number of social media followers. Our findings reveal that the most significant factors for reaching the soft cap are the number of followers and team size, while the competencies (education and skills) of the management team have a very marginal effect, even when enhanced through social media. This indicates that widespread social media signals can positively influence investor behavior without necessarily reducing information asymmetries regarding the quality of the team. We propose that this effect arises from the combination of minimal investment amounts and stimulated herding behavior among investors.

The Role of Fair Value Accounting in Debt Structure Decisions: Evidence from Priority Structure and Financial Flexibility

Synopsis The research problem This study investigates whether the debt structure of a firm — that is, how a firm organizes its debt contracts — depends on the extent to which fair value measurement is applied to the balance sheet. Motivation Most public firms have a nontrivial percentage of balance sheet items measured at fair value under the mixed attribute accounting, and there is a lack of understanding of its effect on the reporting entity’s debt structure. This study focuses on two aspects of the debt structure that have both practical and theoretical relevance, namely the priority structure and the financial flexibility. A priority structure involves the simultaneous use of different priorities of debt and is common among risky borrowers. Survey results show that financial flexibility is of first-order importance regarding the debt policy of firms. Here, financial flexibility refers to a firm’s ability to pursue new investment opportunities via debt issuance. The test hypotheses The first hypothesis states that a borrower with a higher percentage of balance sheet items measured at fair value is less likely to have a priority structure. The second hypothesis states that a borrower with a higher portion of balance sheet items measured at fair value likely has a debt structure that is more financially flexible. The third hypothesis states that the fair value of liabilities and the fair value of assets are equally relevant to debt structure decisions. Target population This study focuses on nonfinancial firms in North America that are subject to the mixed attribute accounting, which measures a certain percentage of assets and liabilities at fair value. Adopted methodology The main tests use multivariate analysis that includes both logistic regressions and OLS regressions. Additional tests include cross-sectional analyses and the Granger causality test. Analysis Using a sample constructed from Compustat North America and Capital IQ (6,220 firms and 36,487 firm-year observations), the main tests regress dependent variables, namely the priority structure measures and financial flexibility, on the exposure to fair value measurement. Findings Results show that fair value measurement reduces information asymmetry and has favorable effects on the debt structure. A high exposure to fair value measurement reduces the need for a priority structure. A high exposure to fair value measurement also enhances financial flexibility. Additional analyses reveal that the favorable effect mainly comes from assets measured at fair value. The effect becomes weaker with respect to liabilities measured at fair value.

Between dissonance and confusion: When the Nutri-Score as a nutritional signal is misinterpreted

The introduction of a mandatory front-of-package nutrition label across the European Union is generating fierce controversy. Specifically, the Nutri-Score has been under debate, which has been reflected in the media. Drawing on signaling theory, this article aims to investigate how some consumers make sense of the Nutri-Score as a signal of nutritional quality in this noisy environment. First, a study analyzes how the media communicates about the Nutri-Score. Second, 15 semi-structured interviews examine how women with children interpret and use the Nutri-Score. Our findings show that media coverage of the Nutri-Score becomes ambiguous over time and that these women experience confusion due to cognitive dissonance and lack of knowledge. This article contributes to the literature on nutrition labeling and highlights the risks of confusion in interpreting this signal of nutritional quality. It suggests implications for policymakers and economic actors to promote the use of the Nutri-Score while reducing information asymmetry.

Economic Policy Uncertainty and Firms’ Non-GAAP Reporting

Using the US economic policy uncertainty (EPU) index developed by Baker, S. R., Bloom, N., & Davis, S. J. [2016. Measuring economic policy uncertainty. The Quarterly Journal of Economics, 131(4), 1593–1636. https://doi.org/10.1093/qje/qjw024], we examine the impact of policy uncertainty on firms’ non-GAAP reporting practices. We show that EPU increases both the likelihood and quality of non-GAAP earnings disclosures. These effects are more pronounced for firms with higher index ownership and for those with less informative GAAP earnings. Furthermore, we show that non-GAAP disclosures provide tangible economic benefit during periods of increasing EPU, including compensating for the reduced informativeness of GAAP earnings and reducing information asymmetry. Overall, our evidence suggests that non-GAAP reporting is a means by which managers communicate value-relevant information about their firms’ performance to investors during periods of high EPU.

Artificial intelligence innovation and stock price crash risk

AbstractThis study examines the association between artificial intelligence innovation (AII) and stock price crash risk (SPCR). AII serves as a governance mechanism that can bolster strength in internal controls, leading to increased financial transparency and thereby reducing the likelihood of future SPCR. The results hold after accounting for possible endogeneity issues Further, we find that monitoring through corporate governance mechanisms, level of following by equity analysts, and the reduced information asymmetry constitute important channels that mediate the association between AII and SPCR. Additionally, the relationship between AII and SPCR varies across corporate life cycle stages and workplace culture.

Does digitalization improve supply chain efficiency?

Enhancing supply chain efficiency (SCE) is crucial for establishing a modern supply chain system. This study determines that (I) supply chain digitalization (SCD) has a significant positive impact on enhancing SCE; (II) SCD reduces information asymmetry between enterprises, driving all entities within the chain toward digital transformation, which improves overall SCE; and (III) state-owned enterprises, those with strong internal controls, and companies with relatively dispersed supply chain concentration, SCD significantly improves SCE.

How Does Digital Finance Affect Sports Enterprise Innovation? Evidence from Chinese Sports Listed Enterprises

In the context of the digital economy, digital finance has emerged as a new driving force for the sustainable and high-quality development of the sports industry. The sports industry promotes economic growth, social well-being, and environmental sustainability. However, the sustainable development of the sports industry faces challenges such as insufficient innovation and a lack of diverse financing channels. This study has investigated the impact of digital finance on sports enterprise innovation in China, focusing on the mediating role of financing constraints. Employing a panel dataset of 95 listed Chinese sports enterprises from 2011 to 2020, we conducted random-effects GLS regression and mediation analyses to examine the interrelationships among digital finance, financing constraints, and sports enterprise innovation. The empirical results have confirmed the positive role of digital finance in promoting sports enterprise innovation and alleviating financing constraints. Financing constraints negatively influence sports enterprise innovation and partially mediate the relationship between digital finance and innovation. The heterogeneity analyses have revealed that the impact of digital finance on innovation was more pronounced in the eastern region of China, and among both the major and small and mid-sized sports enterprises, with the latter potentially benefiting more. Our findings have highlighted the transformative potential of digital finance in driving inclusive innovation within the sports industry by providing accessible financing solutions and reducing information asymmetries. This study has contributed to the literature on digital finance, financing constraints, and enterprise innovation in the sports industry context, offering valuable insights for sports enterprises, policymakers, and financial institutions in leveraging digital finance to foster innovation-driven growth.