Information Asymmetry Theory Research Articles

A Theoretical Study of the Impact of ESG Performance on the Cost of Corporate Debt Financing

With the increasing global attention to environmental protection, social responsibility and corporate governance (ESG) issues, the ESG performance of enterprises has become an important indicator for creditors to assess their non-financial performance. This paper analyzes the development status quo of ESG ratings in China and the situation of corporate debt financing, combines information asymmetry theory, principal-agent theory, contract theory and other in-depth discussion of the impact of corporate ESG performance on its debt financing costs, so as to put forward targeted recommendations to further enhance the attention of China's listed enterprises to ESG ratings, as well as to reduce the cost of corporate debt financing measures put forward to lay a more solid theoretical foundation, to help enterprises better achieve high-quality and high quality of corporate governance. It lays a more solid theoretical foundation for further improving China's listed enterprises' attention to ESG ratings and proposing measures to reduce the cost of corporate debt financing, and helps enterprises better realize high quality and sustainable development.

Riding on information-based advantages: Business group affiliation and cross-border acquisition completion

This study examines the impact of business group affiliation on the likelihood of completing cross-border acquisitions. Drawing on information asymmetry theory, we hypothesize that business group–affiliated firms are more likely to complete cross-border acquisition deals than standalone firms. Recognizing the role of formal and informal institutions in shaping information asymmetry in cross-border acquisition transactions, we also investigate the contingent effects of regulatory quality distance (a formal institutional factor) and cultural distance (an informal institutional factor) on the above relationship. Our empirical analysis, based on a sample of 1293 cross-border acquisition deals announced by Indian firms between 2000 and 2017, offers interesting insights. Specifically, we find that business group affiliation positively influences the likelihood of cross-border acquisition completion and that regulatory quality distance between the home and host countries attenuates this effect. However, contrary to our expectations, cultural distance also attenuates the positive impact of business group affiliation on cross-border acquisition completion, challenging the expectation that business group affiliation advantages would mitigate information asymmetry across all contexts. Thus, our study underscores the context-dependent nature of business group affiliation advantages, which are shaped by formal and informal institutional factors in cross-border acquisitions.

Data-Driven Innovations and Sustainability of Food Security: Can Asymmetric Information Be Blamed for Food Insecurity in Africa?

Africa still struggles to end hunger, partly because not all Africans have access to nutritious food. Although studies have established the connection between digital technologies and food security, the reality in Africa is that, despite the laudable feat in the use of digital technologies, the accessibility and utilization of food still face challenges. Digital agriculture, or technology, is a data-driven innovation that predicts agricultural outcomes and guides food producers throughout the different phases of operations on the farm. The literature documents the efficacy of digital agriculture in food production and availability well, but it has hardly examined how it enhances food accessibility and utilization. And even though studies that have examined food accessibility and utilization have merely assessed income as a tool that guarantees food accessibility and utilization, not much attention has been paid to how digital resources can aid in the access to and utilization of food. Drawing on information asymmetry theory and the systematic qualitative method, this article investigates how digital agriculture, through the internet and mobile phones, enhances efforts towards the accessibility and utilization of food as prerequisites for the attainment of SDG 2 in Africa. The findings provide an understanding of the potential of digital technologies in promoting the accessibility and utilization of food. It advocates strategies through which stakeholders in the agricultural sector can utilize technology in ways that aid Africa’s strategic efforts to attain food security and zero hunger.

Analyzing the Impact of Credit Ratings on the Mode of Financing Employed by Indian Acquiring Companies

This study examines the relationship between four different credit rating variables, namely the presence of credit ratings, the longevity of credit ratings, the division of credit ratings in the speculative vs investment grade category and the levels of credit ratings on the mode of payment employed by the Indian acquiring companies. Further, the impact of all these rating variables is analyzed on the preference for the mode of funding by group-affiliated acquiring companies. The results imply that the mode of payment is influenced by only two rating variables, namely the longevity of credit ratings and the levels of credit ratings. The reason is that both these variables hedge the information gap on the part of the external funds’ providers, specifically the lenders, regarding the creditworthiness of the acquiring companies and enable them to lend money to these companies comfortably. This, in turn, increases the likelihood of such companies funding their acquisitions with cash. The results remain the same for the group-affiliated acquiring companies and are consistent with the information asymmetry theory. The study contributes to the existing literature by extending the findings on the association between the mode of payment in mergers and acquisitions (M&As) and credit ratings to an emerging market like India. The findings of the study can be generalized to other emerging economies where group affiliation and ownership concentration are prevalent.

Moderating effects of technological innovation and information environment on market response to information disclosure reforms

Constructing an institutional environment centered around information disclosure (ID) is the direction of development for capital market reforms. This paper innovatively explores the stock market response (MR) to companies' enhanced ID due to institutional changes. Using data from Chinese companies listed on the Sci-Tech Innovation Board (STIB) from 2019 to 2023, the study employs Information Asymmetry Theory and Stakeholder Theory to analyze the relationship between ID levels and MR. The empirical analysis reveals a "U-shaped" relationship between ID level and MR. Furthermore, by introducing variables related to the information environment (IE) and technological innovation (TI), the study finds that their signaling effects vary among different audiences. High transparency in the IE and strong TI capabilities significantly mitigate the negative MR effects caused by revealing deficiencies during the enhancement of ID. This paper provides theoretical support and empirical evidence for capital market reform, improved financial regulation, enhanced credit quality of listed companies, and investor protection.

Digital transformation and corporate tax avoidance: An analysis based on multiple perspectives and mechanisms.

Promoting the seamless integration of the digital economy with the real economy, mitigating the adverse impacts of widespread corporate tax avoidance, and optimizing tax governance are critical imperatives in the era of digital economy. This study examines all A-share listed companies from 2007 to 2022 as research samples. It utilizes multiple perspectives including signal theory, information asymmetry theory, and the T-O-E (Technology-Organisation-Environment) framework to investigate the primary impacts of digital transformation on corporate tax avoidance, along with the intermediate mechanisms and foundational conditions that influence its effectiveness. After conducting both theoretical and empirical analyses, this paper presents the following conclusions. (1) The implementation of digital transformation significantly reduces corporate tax avoidance, a conclusion supported by rigorous robustness tests. Moreover, digital transformation enhances corporate productivity through the suppression of tax avoidance. (2) Digital transformation diminishes corporate tax avoidance through enhanced innovation and efficiency in resource allocation (technology level), improved quality of internal controls (organization level), and decreased industry competition (environment level). (3) The impact of digital transformation in reducing tax avoidance is significantly greater for enterprises in their growth phase, experiencing lower financing constraints, particularly those situated in the central and western regions. (4) Lower business risk is essential for maximizing the effectiveness of digital transformation and reducing corporate tax avoidance. This is crucial for governments seeking to improve tax administration, guide market and regional development, and enhance the impact of corporate digital transformation on mitigating tax avoidance.

Decoding the influence of servitization on green transformation in manufacturing firms: The moderating effect of artificial intelligence

This research addresses three crucial dimensions in operations management: the servitization of manufacturing, the utilization of artificial intelligence (AI) platforms, and green transformation. Employing the by-production method, we construct a metric for green transformation applicable to listed firms. Our comprehensive analytical framework integrates the resource-based view and information asymmetry theories, enabling systematic investigation into the influence of manufacturing servitization on firms' green transformation. In addition, we examine the moderating effect of AI platforms on the execution of servitization strategies. The empirical foundation of our study is an annually updated dataset of 554 manufacturing firms listed on China's A-share market. Our findings reveal a strong positive correlation between the deployment of servitization strategies and the green transformation of firms. This association withstands multiple robustness tests, including core variable substitution, outlier removal, and adjustments in clustering standard errors. Our research uncovers notable nuances. The effect of servitization on green total factor productivity is more visible for eastern and central China firms. Also, state-owned enterprises demonstrate a more conspicuous influence from servitization strategies. However, we observe a slight diminishing of this effect in firms audited by the Big Four. An essential contribution of our study is the illumination of the role AI platforms play in enhancing the efficacy of servitization. These AI platforms facilitate the creation of tailored solutions that curtail resource wastage, thus amplifying the positive effect of servitization strategies on green transformation.

The Role of Corporate Governance in Shaping IFR Practices of Listed Companies in Sri Lanka

Objective – This study investigates the relationship between corporate governance characteristics and Internet Financial Reporting (IFR) in the context of listed companies in the Colombo Stock Exchange (CSE).Design/Methodology – The key metrics for assessing corporate governance characteristics include board size, independence, CEO duality, women in the board, audit committee independence, and ownership concentration. These data were derived from the published annual reports. Employing content analysis, the study measures IFR disclosure using secondary data from the published annual reports of 201 listed companies in Sri Lanka.Results – The mean value of listed companies' IFR disclosure is 50.66% in Sri Lanka. Regression results show that audit committee independence and ownership concentration significantly impact the IFR. However, no statistical evidence supports other variables' significant impact on IFR.Research limitations/implications – This study relies upon only 201 listed firms’ data for a financial year in Sri Lanka and the statistical model includes only five corporate governance-related variables. The study's findings contribute to the reform of corporate governance practices, corporate governance literature, and information asymmetry theory. Moreover, results have practical implications for the composition of the board and audit committee.Novelty/Originality – This study contributes to the existing literature and lays the groundwork for future research by providing new insights into the adoption of IFR practices in Sri Lanka and other similar nations. Examining the impact of corporate governance on IFR practices in listed firms within a developing country sheds light on the significance of corporate governance and IFR.

The impact of accounting conservatism on enterprise innovation investment

This study investigates the influence of accounting conservatism on corporate innovation investment through the lens of information asymmetry theory. While existing literature acknowledges the importance of accounting conservatism in corporate decision-making, there remains a gap in understanding how it specifically affects innovation investment, particularly in varied market environments and regulatory contexts. Specifically, current research often overlooks the heterogeneity of the impact of accounting conservatism on innovation investment under different market environments and regulatory frameworks. Additionally, there is a lack of specialized studies on the unique group of Chinese listed companies. This study fills this gap by empirically analyzing data from Chinese A-share listed companies, revealing a negative correlation between accounting conservatism and corporate innovation investment. Through empirical analysis of the financial reports and research and development (R&D) investment data of Chinese A-share listed companies from 2015 to 2022, this study finds a significant negative correlation between accounting conservatism and corporate innovation investment. Specifically, as accounting conservatism increases, corporate investment in R&D shows a decreasing trend, with a correlation coefficient of −0.364. This result is further validated by hierarchical regression analysis, where the regression coefficient is −0.465, indicating that accounting conservatism has a significant inhibitory effect on corporate innovation investment. This study is pioneering in its examination of the relationship between accounting conservatism and corporate innovation investment within the unique market environment of China, taking into account its distinctive characteristics and rapidly evolving technological industry background. To quantify accounting conservatism, the research employs the C-Score and G-Score models, while employing a range of indicators to measure corporate innovation investment, including proportions of R&D expenditure, number of new products or services, patent applications, total R&D personnel, capital investments, and progress in innovation projects. This comprehensive evaluation method enhances the accuracy and reliability of the study. The contribution of this study is significant as it offers a fresh perspective on how accounting conservatism influences corporate innovation investment. By providing empirical data support, it assists investors and corporate managers in making informed financial decisions and shaping innovation strategies. Through hierarchical regression analysis, the study substantiates the detrimental impact of accounting conservatism on corporate innovation investment, thereby establishing new theoretical and practical foundations for further research and application in related fields.

Market Competition and Innovation Premium Before and After the Financial Crisis: Evidence from Taiwan

This study explores the influence of innovation and market competition on stock returns in Taiwan before and after the 2008 financial crisis. This study offers marginal contributions to the important topic of innovation investment which is a vital driver of competitiveness and growth. The study employs Fama Macbeth regression and a sorting portfolio to examine a sample of 121,913 firm-month observations from 1991 to March 2021. A Two-Stage Least Squares estimation is also employed to address unobserved endogeneity issues. The empirical findings suggest that innovation premiums persist in Taiwan. However, the findings also report that higher market concentration reduces stock returns in Taiwan. The results support the information asymmetry theory and the resource-based view theory. This study can support policymakers and managers in developing innovative activities sustainably in emerging markets, while also helping individual investors to optimize their investment portfolios.

Impact of Financial Regulations on Bank Profitability in Uganda

Purpose: The aim of the study was to assess the impact of financial regulations on bank profitability in Uganda. Methodology: This study adopted a desk methodology. A desk study research design is commonly known as secondary data collection. This is basically collecting data from existing resources preferably because of its low cost advantage as compared to a field research. Our current study looked into already published studies and reports as the data was easily accessed through online journals and libraries. Findings: Financial regulations significantly influence bank profitability, primarily by affecting operational costs, risk management practices, and lending activities. Stricter capital requirements, such as those imposed by Basel III, generally enhance financial stability but may reduce profitability by limiting leverage and increasing the cost of compliance. Regulatory measures aimed at consumer protection and transparency, while beneficial for market integrity, can also impose additional administrative burdens and costs on banks. Conversely, deregulation periods often see increased profitability due to relaxed constraints on lending and investment activities. However, this can come at the expense of higher risk exposure and potential financial instability. Overall, the balance between regulatory stringency and bank profitability hinges on the specific regulations in place and the banks' ability to adapt and innovate within those frameworks. Implications to Theory, Practice and Policy: Agency theory, capital structure theory and information asymmetry theory may be used to anchor future studies on assessing the impact of financial regulations on bank profitability in Uganda. Practitioners should advocate for risk-based regulation that tailors regulatory requirements to banks' risk profiles and systemic importance. Policymakers should prioritize efforts to harmonize financial regulations across jurisdictions, especially in global banking hubs.

Sustainability Reporting and Market Uncertainty: The Moderating Effect of Carbon Disclosure

This research examines how ESG disclosure influences market uncertainty through carbon disclosure. It uses a 10-year dataset from 2012 to 2021 of non-financial U.K. companies in the FTSE All-Share index. This study employs four regression methods to scrutinize the interplay between ESG disclosure, carbon disclosure, and market uncertainty. The research findings uncover a notable reduction in market uncertainty associated with ESG disclosure, aligning with the Information Asymmetry Theory. Interestingly, this study also uncovers that carbon disclosure amplifies this negative relationship, a finding that resonates with the Signaling Theory. These results hold true across various measures of ESG and market uncertainty. This study enriches the sustainability reporting literature with implications for theory and practice. It extends Information Asymmetry and Signaling Theories to U.K. non-financial firms, emphasizing the need for more research on sustainability disclosure. It underscores the role of ESG and carbon disclosure in reducing cost of capital, enhancing firm value, and boosting investor confidence. It calls for transparent ESG reporting by managers, regulatory promotion of such disclosures, and stakeholder utilization of these to evaluate a firm’s impact and contribution to the SDGs, fostering collaboration on sustainability. This study offers key insights for stakeholders such as managers, investors, regulators, researchers, policy makers, and educators in the realm of sustainability reporting and market dynamics.

Decision-making mechanisms of greenwashing behaviors of building materials manufacturers: A media disclosure and consumer skepticism perspective

While the commercial potential for green products has been recognized by consumers, media disclosure about manufacturers' greenwashing behaviors (GWBs) has raised suspicion among customers, particularly among building materials manufacturers (BMs). This study creates a supply chain structure for green building materials manufacturers (GBMs), greenwashing building materials manufacturers (GWBMs) and consumers using information asymmetry theory and the Stackelberg game technique. This study examines how media disclosure and customer skepticism affected the GBMs of building material manufacturers throughout two distinct periods. Specifically, it analyses two distinct periods: the first period focuses solely on the influence of media disclosure, while the second period takes into account both media disclosure and consumer skepticism. The primary results are as follows. (i) GBMs and GWBMs saw earnings fall as the risk of media disclosure of GWBs grew in the first and second periods. (ii) In the second period, as consumer skepticism rises, green manufacturers' earnings rise, but GWBMs' profits fall. (iii) The threshold for the degree of greenwashing increased over the two periods as the degree of media disclosure intensified. (iv) As their greenness increases, GWBMs' profits inverted U-shaped at both times. GBMs' profits exhibit an inverted U-shaped trend as their greenness increases in the first period and a continuing negative trend in the second period. The mechanism revealed in this study provides new ideas for the government to target building materials manufacturers' GWBs.

Who gets the money? A qualitative analysis of fintech lending and credit scoring through the adoption of AI and alternative data

Credit scoring plays an important role in determining the accessibility of credit in the financial sector. This in turn has a significant impact on how economic opportunities are distributed. Our study examines the use of AI and alternative data in fintech lending through the lens of Information Asymmetry Theory. By employing a qualitative research design using the Gioia method, we extract, analyze, and synthesize insights from a diverse group of 26 experts in fintech lending, artificial intelligence, machine learning, data science, and academia. Our results reveal several important findings: the enhancement of predictive proficiency and risk management, the decrease in default rates, the extension of credit access by including previously ‘unbanked populations’, the introduction of real-time creditworthiness assessment and new business models for entrepreneurs, the enhancement of credit market efficiencies and positive effects on the stability of financial markets. In addition, our study highlights the necessity for rigorous and critical ethical considerations of important challenges such as the question of consent, algorithmic transparency, data quality, data misuse, representativeness, traceability, responsibility, bias and discrimination. The reasonable goal of a more fair, resilient, sustainable and accessible credit system will require a joint effort to balance leveraging technological innovations with respecting peoples' right to privacy.

Business Financing and Financial Performance of Small and Medium Enterprises in Turkana County, Kenya

The purpose of this study was to examine the effect of business financing on the financial performance of small and medium enterprises in Turkana County, Kenya. Specifically, the study: examined the effect of commercial loan financing on the financial performance of small and medium enterprises; established the effect of trade credit financing on the financial performance of small and medium enterprises in Turkana County. A descriptive survey research design was used. The study was anchored on the information asymmetry theory and the financial intermediation theory. The target population comprised 325 small and medium enterprises in Turkana County. Stratified random sampling was used to select 83 small and medium enterprises for the study. The study used questionnaires as survey instruments for data collection which were administered to group chairpersons/ managers. Analysis of data was done using descriptive and inferential statistics. The study findings revealed the existence of a statistically significant regression effect of independent variables on financial performance of Small and Medium Enterprises in Turkana County. The study employed the F-distribution (F = 32.980) in predicting the dependent variable which indicated that the model significantly predicted how the independent variables affected the dependent variable (Financial Performance of Small and Medium Enterprises in Turkana County) which indicated an overall statistically significant model with commercial loan financing 54.9%, (t~3.056) of financial performance; and trade credit financing 67.2% (t~4.381) of financial performance of small and medium enterprises in Turkana County, Kenya. The study further recommended on each of the variables for management and policy consideration in future decision-making processes. The findings were expected to be of great assistance to management of other businesses. The study was also expected to add to existing literature in the finance field. Keywords: Business Financing, Financial Performance, Commercial Loan Financing, Trade Credit Financing

Credit Risk Management and Financial Performance of Listed Commercial Banks in Kenya

Commercial banks are concerned with the provision of credit facilities in form of loans and advances to customers. These loans and advances are expected to be repaid by customers in line with the agreement reached with their bankers. Customers’ default in the repayment of loans and advances at the agreed period may lead to bad and doubtful debts and this can affect the financial health, profitability and going concern status of the bank. This study empirically explored the effect of credit risk management on the financial performance of nine listed commercial banks in Kenya for the period, 2018-2022. Credit risk management as the independent variable, was surrogated by two parameters- loans to deposit ratio and Non-performing Loans ratio. Return on Assets was used as a proxy for financial performance of the listed commercial banks in Kenya. The study utilized the information asymmetry theory and the theory of moral hazard and adverse selection. A correlational research design, using secondary data derived from listed commercial banks’ annual audited reports and information from Nairobi Securities Exchange was used in this study. The target population of the study was the nine listed commercial banks in Kenya. A pilot study was carried by performing the normality and multi-collinearity tests from the sample data collected for purposes of assessing the reliability and validity of the model. A census method was adopted in data collection since the target population was manageable. Collected data was analyzed using the Statistical Package for Social Sciences Version 28 where both descriptive and inferential statistical methods were used to describe and depict the results (Mean, Standard Deviation, Correlation, Regression and Analysis of variances). The findings of the study revealed a statistically significant regression effect and indicative of accomplished prediction of financial performance of the listed commercial banks through the F-calculated value which showed that the model was significant. Loan to deposit ratio explained .4% (r =.280) of financial performance of listed commercial banks in Kenya and non-performing loans ratio -36.5% (r=-.681) of financial performance of the listed commercial banks in Kenya. The study will be expected to add to the existing literature in the finance field and more importantly, the credit risk management in commercial banks and other related sectors. The study recommended that; management balance the ratio of financing between equity, debt and customer deposits to extend lending capacity, and generate high earnings volume; desist from holding capital without investing for improved financial achievement; management should maintain a moderate level of Loans and advances to deposit ratio since it is a measure of the banks’ ability to survive withdrawals, because higher rates lead to liquidity problems; give credit-risk management prominence in their strategic policies and finally, due to the continuous deterioration and accumulation of the nonperforming loans, management ought to strengthen loan recovery measures. Keywords: Credit Risk Management, Financial Performance, Listed Banks, Equity Multiplier Ratio, Capital Adequacy Ratio, Nonperforming Loans

The impact of CEO's green experience on digital transformation

According to resource orchestration theory, key human capital can allocate resources to the critical paths of projects to maximize resource utilization efficiency. This study examines how the green experience acts as an important organization capital and affects a company's digital and green transformation processes. Based on the organization capital theory, we study the performance of China's A-share listed companies from 2013 to 2021. A CEO's green experience inhibits a company's digital transformation while promoting its green transformation. Based on organizational theory, our conclusion is consistent with signal and information asymmetry theories. Executives with green experience have a better understanding of ways to improve the credibility of the public's green environmental practices. This agency cost often has a negative impact on the financial performance of enterprises, which is not conducive to their digital transformation. Companies should carefully recruit executives with green experiences, based on future digital or sustainable development strategies, to maximize the organization capital.

The Promoting Role of Digital Inclusive Finance in the Innovation Transformation of Micro and Small Enterprises

To comprehend the role of digital inclusive finance (DIF) in facilitating the innovation transformation of Micro and Small Enterprises (MSEs), this study endeavors to establish a theoretical framework incorporating the Long Tail Theory, Financial Development Theory, and Information Asymmetry Theory. Employing a fixed-effects model, the study delves into the impact of DIF on the innovation transformation of MSEs. The findings suggest that DIF significantly mitigates the financing constraints faced by MSEs, thereby fostering their innovation transformation. This study bears both theoretical and practical significance in enhancing the understanding of the mechanism through which DIF promotes the innovation development of MSEs, while also providing a foundational reference for pertinent policy formulation.

Impact of psychic distance stimuli on international tourist flows: A cross-country analysis

Research on psychic distance in tourism studies has mainly focused on perceived psychic distance, while little attention has been paid to psychic distance stimuli. Applying the Cultural-Administrative-Geographic-Economic (CAGE) distance framework, this study employs a gravity model framework to investigate the relationship between psychic distance stimuli and international tourist flows and the moderating role of Internet popularity in such a relationship based on information asymmetry theory. Further, this study investigates the effects of psychic distance stimuli along the cultural, administrative, geographic, and economic dimensions. The empirical analysis is based on a panel dataset of bilateral tourist flows between 56 countries from 2006 to 2019. The results indicate that psychic distance stimuli negatively impact international tourist flows, but the negative effect decreases with increasing Internet penetration rate in countries of origin. The four distance dimensions exert negative effects on bilateral tourist flows. This study also provides implications for alleviating the impact of psychic distance stimuli between countries derived by COVID-19 on international tourism in the post-pandemic era.

Who promotes firm innovation more: outside or inside political successor?

ABSTRACT Whereas researchers have demonstrated the relevance of politician turnover for firm innovation, the role of successor origin has remained elusive. This paper compares internally and externally appointed political successors and investigates which types of succession foster more firm innovation. Using a sample of manufacturing firms experiencing political succession events between 2005 and 2010 in China, we find that firms experiencing outside political succession conduct fewer R&D activities than those undergoing inside political succession. Furthermore, we find that factors aggregating information asymmetry (i.e. abnormal departure of the predecessor) augment the above negative relationship, while those weakening information asymmetry (i.e. successor-related information) alleviate it. Our findings support the information asymmetry theory’s prediction that outside succession introduces greater information asymmetry regarding the consistency of the political environment than inside succession, thus decreasing firm innovation. This study contributes to the politician turnover literature by highlighting the influence of successor origin on firm innovation.