Information Asymmetry Theory Research Articles

Macroeconomic evidence on the impact of mandatory IFRS adoption on FDI in the Gulf Cooperation Council (GCC) countries

PurposeThe present paper seeks to investigate the impact of International Financial Reporting Standards (IFRS) adoption on the foreign direct investment (FDI) in the Gulf Cooperation Council (GCC) region for the period 1980–2017. This study relies on the information asymmetry theory, according to which IFRS adoption, as a positive signal for investors, should attract more FDI. This research is crucial and presents an interesting framework for providing a major motivation for empirical insights since the macroeconomic evidence on the impact of IFRS adoption on FDI is still unclear in the GCC region and no empirical evidence has been provided in the existing related literature.Design/methodology/approachThe analysis was conducted based on panel data from GCC countries over the period 1980–2017 and using the autoregressive distributed lag (ARDL) modeling approach and the pooled mean group (PMG) estimation method.FindingsThe findings indicate that the decision of adopting IFRS in GCC countries has a positive impact of 3% on FDI inflows in the short run. However, the adoption of IFRS in the region leads to a decrease of 10.4 % in FDI inflows in the long run.Practical implicationsThese findings should be of a major interest to regulators and policymakers in GCC countries, practitioners and academic researchers, international investors, managers and any other interested groups about the accounting environment in GCC countries and other developing countries having an interest in the economic consequences of IFRS adoption, as a driver of FDI, in developing countries.Originality/valueThis investigation provides original empirical evidence on the effect of IFRS adoption on FDI inflows within the context of the GCC area. In fact, the current international literature is lacking empirical evidence on the effect of IFRS adoption on FDI inflows for the GCC countries as a whole. Furthermore, this study offers an original methodological contribution to the macroeconomic impact of IFRS adoption literature by using the PMG estimator since there has been no research works to date that has used this method of estimation.

Earnings Management and IPO Anomalies—Evidence from Indian Stock Market

This study examines the relationship between the extent of earnings management in a firm, the level of underpricing during an initial public offering (IPO), and their long-term performance. Earnings management has been acknowledged as a matter of concern during IPOs since long; however, its relationship with underpricing and long-term returns remained inconclusive in emerging markets like India. Using a sample of Indian IPO firms, this study finds that firms that manage accruals aggressively in the pre-IPO period have high initial returns and subsequently low stock returns in the post-IPO period. This study also observed that firms that have used abnormal accruals more conservatively while reporting earnings have better returns in the third year after IPO compared to the firms that reported more aggressively. The results are in consonance with the theory of information asymmetry and suggest that valuation of an IPO firm becomes ambiguous with high level of earnings management, which leads to higher underpricing.

Energy Sector Risk and Cost of Capital Assessment—Companies and Investors Perspective

This paper aims to identify the costs of capital in a group of companies from the energy sector by including an investor and market risk approach. The study also concerns the company’s Weighted Average Cost of Capital (WACC) cost intra-industry analysis related to sector characteristics such as total assets, revenues, market capitalization, and companies’ age. In order to assess the intergroup relationships, basic correlation relationships were compared and a nonparametric test of variance was performed. The period under study covered the years 2015–2019. The conducted research evaluates groups of companies that dedicated their activity to a particular energy intra-industry division under numerous regulations in Europe. The study contributes to assessing the level of risk among energy listed companies in European capital markets based on capital structure valuation. The study results underline the role of the cost of equity financing, which was twice as high as the cost of debt. The highest WACC was related to the Beta indicator that also expressed the political and regulatory risk over the investigated period. Across debt cost analysis, the role of effective tax rate decreased the level of WACC. The highest level of WACC was noticed among uranium and integrated oil and gas companies. The study contributes to information asymmetry theory related to the cost of capital assumptions.

Is Cultural Proximity Good for Corporate Innovation? Evidence from Board Cultural Proximity

Cultural proximity is a kind of similarity of values at a deep level. The cultural proximity within the board of directors mainly examines the proximity between the culture of foreign directors’ country and the Chinese culture. If the Chinese board of directors introduces directors who are proximate to the Chinese culture, the board cultural proximity will be presented in the hierarchical order and authoritarianism of culture, that is, the board culture is proximity. Based on the sample data of China’s A-share listed companies from 2007 to 2017, this paper adopts the power distance cultural similarity of the deep values to measure the similarity variables of the board culture, so as to explore the relationship between the cultural proximity of the board of directors and enterprise innovation. The results show that the closer the board culture, the lower the level of corporate innovation; similar board cultures can restrain the level of corporate innovation by reducing the level of trust and increasing information asymmetry. Specifically, according to the theory of group fault zone, directors of different nationality backgrounds pursue their own recognized authority, which is likely to form fault zones, causing internal conflicts within groups, reducing corporate trust, and making it difficult to generate and effectively promote innovative thinking and innovative activities, thereby inhibiting enterprises’ innovation level. According to the information asymmetry theory, the closer the board culture is, the less information sharing within the board will be, and the more information asymmetry will occur, which is not conducive to the stimulation of innovative ideas, the scientific nature of innovative decisions and the transmission of innovative information, and will affect the effective development of enterprise innovation activities and inhibit the improvement of enterprise innovation output. Further examination finds that the chairmanship of a foreign director helps to weaken the negative impact of similar board culture on corporate innovation. Compared with the listed companies located in the eastern region, the similar board culture in the central and western regions has a greater negative impact on corporate innovation. In the case of high trust level and low degree of information asymmetry, the inhibiting effect of similar board culture on corporate innovation is weakened. After considering endogeneity and robustness test, the above conclusions are still valid. The conclusion of this paper not only enriches the topic research of “culture and innovation”, but also expands the research scope in the field of cultural affinity. Meanwhile, it also provides empirical support for how to build an appropriate board culture in China, and provides decision-making reference for enterprises to make policies on the introduction of foreign directors and arrange reasonable positions.

Corporate board vigilance and insolvency risk: a mediated moderation model of debt maturity and fixed collaterals

Abstract Studies indicate that a consistent rise in insolvency risk should be addressed at the strategic level. Vigilant boards can use leverage maturity structure as a tool to control insolvency risk. However, according to the information asymmetry theory, leverage acquisition is subject to the presence of fixed assets which can be used as collateral. The current study focuses on the relationship between board vigilance and insolvency risk, mediated by debt maturity and moderated by fixed collaterals in Pakistan based non-financial firms. A data set of 284 firms is constructed between the years 2013 and 2017. Hierarchical multiple regression analysis is used to test the proposed hypothesis using ordinary least squares (OLS) and panel corrected standard errors (PCSE) regression estimators. The results indicate that debt maturity mediates the relationship between board vigilance and insolvency risk. New information is generated about the fixed collaterals, and these negatively moderate the relationship between leverage maturity and emerging market z-score indicating inefficiency in the usage of fixed assets as collaterals. These results are robust to both regression techniques confirming that the non-productive fixed collaterals overshadow the positives of tangible assets in asset structure.

Data analysis of relationship between equity concentration and innovation investment

Based on the relevant data of A-share listed high-tech enterprises in Shanghai and Shenzhen in 2014-2018, the relationship between ownership structure and innovation input is empirically studied according to the principal-agent theory and Information asymmetry theory, and combined with the intermediary effect model, further analysis of internal control in the relationship between the intermediary role. It is found that the degree of equity concentration has a negative correlation with innovation input, but has a positive correlation with internal control. The degree of equity concentration can weaken the negative influence on innovation input through the positive influence on internal control, it can be seen that internal control plays an intermediary role in the relationship between ownership concentration and innovation input. The research results can provide enlightenment for high-tech enterprises to optimize the ownership structure, improve the effectiveness of internal control, enhance innovation input and enhance the competitive advantage of science and technology.

Is Agriculture the Highest-Risk Sector? A Determination Using Congolese Data

The purpose of this article is to determine the extent of agricultural risk in terms of sectoral risk in the Congo. By applying information asymmetry theory to the banking industry, we postulate that the risk associated with the agricultural sector is not the highest of sectoral risks. The application of the IRISK method produces results that show that, in the Congo, the agricultural sector is indeed not the riskiest of the economic sectors; rather, it is the “wholesale and retail trade, restaurants and hotels” and then “transport, activities of transport auxiliaries and telecommunications” sectors that are the most risky. These results, which are in line with theoretical predictions, imply that it is still possible to consistently finance agriculture provided that Congolese banks change their “negative” perception of this sector.

An international study of carbon information asymmetry and independent carbon assurance

Protecting the environment is now a major aspect of corporate social responsibility. However, voluntary carbon disclosure includes private information on future sustainability that external stakeholders cannot easily verify. Drawing on information asymmetry theory, we predict that companies with higher carbon information asymmetry between insiders and outsiders have a greater incentive to voluntarily engage an external party for the independent assurance of their greenhouse gas statements. Using data from the CDP, we test this hypothesis and find that our proxies for carbon information asymmetry (e.g., greenhouse gas emissions, energy structure) are significantly associated with the adoption of carbon assurance. Further analyses suggest that the probability of carbon assurance is enhanced when carbon disclosure is inadequate to diminish information asymmetry. Finally, our sample companies adopted carbon assurance in addition to financial auditing. This highlights the key point that resolving carbon information asymmetry requires carbon assurance, which cannot be substituted for by financial auditing.

Bargaining power and information asymmetry in China’s water market: an empirical two-tier stochastic frontier analysis

China is committed to building a water-saving society, and one of the most important measures is to build a water market. However, after 10 years of development, China’s water market is still inactive. We analyze the bargaining mechanisms of water rights trading based on the theory of information asymmetry. We find that the information asymmetry between the two sides of the transaction will cause the actual transaction price to deviate from the fair price, and the one with more information has stronger bargaining power, which can plunder more surplus. In detail, the bargaining power of the buyer makes the price lower than the fair price by 32.68%, and the bargaining power of the seller makes the price higher than the fair price by 78.52%. The interaction of them finally makes the price higher than the fair price by 45.23%. The net surplus shows regional heterogeneity. The net surplus in the Central region is higher than that in the East and West, implying that sellers in the Central region have stronger bargaining power. Moreover, there are slight differences in the net surplus across the trade and market types. Empirical results demonstrate the importance of accommodating information asymmetry into the pricing of water rights.

Trade Credit and SMEs: “It is All Down to Culture”

We examine the use of trade credit in Western Europe by relying on a sample of 182,296 small firms for the period 2003-2013. Building on information asymmetry theory, we explore how a country’s culture can impact SMEs use of trade credit. We discover that coun-tries’ cultural norms play a key role in explaining trade credit differences in Europe. We find that in countries with high power distance, high individualism, high masculinity, and high un-certainty avoidance rely more on trade credit.

A Blessing or a Curse? Unicorn Ventures in the IPO Market

This paper investigates the valuation of high-growth entrepreneurial firms labeled as unicorns – private venture firms that are valued more than $1 billion – during Initial Public Offering (IPO). We explore unicorn valuation at IPO compared to non-unicorns by expanding the entrepreneurial finance literature and contextualizing unicorn phenomenon into underpricing literature with two dominant theories that compete in this context; information asymmetry and ex- ante uncertainty. Using a unique dataset of 226 IPOs in the US including unicorn firms and controlling for potential sampling bias with an instrumental variable approach, we find that unicorn firms are more underpriced than non-unicorn firms in the IPO market that aligns with ex-ante uncertainty theory but against information asymmetry theory. We also examine three moderating factors that support our finding. This paper contributes to literature on entrepreneurial finance, celebrity firms, and unicorn phenomenon.

The conditioning role of performance on the bank risk-taking channel of monetary policy: Evidence from a multiple-tool regime

The study investigates how monetary policy affects bank risk-taking under a multiple-tool regime of Vietnam during 2007–2018. Particularly, we also consider the conditioning role of bank performance, broken down by bank profitability and cost efficiency, in this nexus. Using both dynamic and static panel models, we show that the liquidity injection initiated by the central bank’s asset purchases induces banks to take more risks, captured by the traditional Z-score and two alternative measures of credit risk. However, monetary policy easing through decreased interest rates is beneficial to the credit portfolio and financial stability of banks, which therefore challenges the functioning of the bank risk-taking channel. This startling result is robust across three different interest rate measures, including lending rates, refinance rates and rediscount rates. Further analysis reveals that our observed effects are alleviated for banks with higher performance — i.e., more profitable and efficient banks. This in-depth finding offers more insights into the “search for yield” incentive, based on the theory of information asymmetry and the two competing hypotheses of “bad management” and “cost skimping”.

Do buzz and evidence really matter in product preannouncements? An empirical test of two competing theories

PurposeThis paper aims to investigate if product pre-announcement effects measured using stock market returns conform to the predictions of two competing consumer marketing theories. In particular, while buzz marketing theory indicates a direct positive effect, information asymmetry theory suggests an influence contingent upon evidence. The study also investigates whether a pecking order of performance effects exists across different signaling situations.Design/methodology/approachThe final sample consists of 219 product-preannouncements reported in the Wall Street Journal between 2005 and 2015. The standard event study methodology was used to test for performance effects.FindingsThe results show that preannouncements with evidence alone significantly outperform those with buzz alone, and announcements containing buzz and evidence. Also, buzz acts as a salient moderator of the relationship between evidence and performance. In addition, company size also affects the evidence-performance relationship, with smaller firms benefiting more from evidence than larger firms.Research limitations/implicationsThe event study method assumes efficient markets and deals with publicly traded companies.Practical implicationsManagers can allocate resources wisely by deciding whether to invest in evidence or buzz in their pre-announcements.Originality/valueIn contrast to extant research that primarily investigates contingency effects, this study identifies how an important moderator, i.e. buzz affects performance.

The Psychological Expectation of New Project Income Under the Influence of the Entrepreneur's Sentiment From the Perspective of Information Asymmetry.

The phenomenon of high first-day income and high break-up rate in China’s capital market has long attracted the attention of investors. Based on the disagreement model, in combination with the information asymmetry theory and behavioral finance, a mathematical model was put forward to analyze the reasons and mechanisms for the excess return of the initial public offering (IPO) on the first-day under the influence of investors’ sentiments. The analysis shows that the IPO first-day income is a function of the disagreement between investors, which generally presents an asymmetric U shape. Information asymmetry affects the degree of valuation deviation. The sentiment of investors reflects the psychological state of the investor at the time, which makes the income increase or decrease under the influence of investor sentiment and market sentiment. In turn, it leads to the emergence of excess returns or break-up rates on the first-day. The research results help deepen the understanding of the IPO pricing mechanism and explore the impact of investor psychology on its pricing, putting forward suggestions for the issue pricing mechanism of the Sci-Tech Innovation Board.

Uncertain risk: assessing open data signals

PurposeOpen data resources contain few signals for assessing their suitability for data analytics. The purpose of this paper is to characterize the uncertainty experienced by open data consumers with a framework based on economic theory.Design/methodology/approachDrawing on information asymmetry theory about market exchanges, this paper investigates the practical challenges faced by data consumers seeking to reuse open data. An inductive qualitative analysis of over 2,900 questions asked between 2013 and 2018 on an internet forum identified how a community of 15,000 open data consumers expressed uncertainty about data sources.FindingsOpen data consumers asked direct questions that expressed uncertainty about the availability, interoperability and interpretation of data resources. Questions focused on future value and some requests were devoted to seeking data that matched known sources. The study proposes a data signal framework that explains uncertainty about open data within the context of control and visibility.Originality/valueThe proposed framework bridges digital government practice to information signaling theory. The empirical evidence substantiates market aspects of open data portals. This paper provided a needed case study of how data consumers experience uncertainty. The study integrates established theories about risk to improve the reuse of open data.

Corporate carbon risk, voluntary disclosure and debt maturity

PurposeThis study aims to investigate the association between corporate carbon risk and debt maturity and the moderating role of voluntary disclosure, within the context of South Africa, an emerging player in the climate policy debate.Design/methodology/approachBased on the insights drawn from agency as well as information asymmetry theories, the authors develop models that link debt maturity with corporate carbon risk and voluntary disclosure and examine data obtained from companies listed on the Johannesburg Securities Exchange (JSE), for the period 2011-2015.FindingsThe findings document that, other things being equal, debt maturity is significantly higher, both statistically and economically, for companies with lower carbon intensity (risk). In addition, high-quality carbon disclosure accentuates the positive association between debt maturity and the inverse of carbon intensity. The results are robust to alternative measures of corporate carbon risk and issues of endogeneity. The findings are consistent with the view that lenders in South Africa use debt maturity as a non-price mechanism to address borrower risk and grant lower carbon risk companies that voluntarily provide higher quality carbon disclosures an even higher access to longer maturity debts; JSE-listed companies could use voluntary carbon disclosure to ease their access to debt with longer maturity.Practical implicationsThe findings of this study have important implications to borrowers, pressure groups, policymakers and other stakeholders.Originality/valueTo the best of the authors’ knowledge, this study is the first to document evidence suggesting that lenders in South Africa use debt maturity as a non-price mechanism to address borrower risk.

The Value of a Firm: Asymmetric Information in Economic Value Added Measurement

Subject. The value of a firm is an unbiased and reliable measure of operations and strategic performance of an enterprise. Objectives. The study analyzes a combination of approaches based on the book and market values as part of the information asymmetry theory, which points out the comprehensive integrated indicator, such as a firm's value as an unbiased and the most understandable metric for stakeholders, shareholders, would-be investors and managers. Methods. The study is based on methods of induction, deduction and general cognition, methods of logic, statistical and correlation analyses. Results. It is advisable to reduce the information asymmetry for principals and agents by updating the Economic Value Added (EVA) and derivative indicators, such as CFROI, CVA, RCF and EM, which are integrated into consolidated income, earnings before taxes and structure of capital owned by subsidiaries and associates and share of capital invested in the development of property portfolios of corporations. Subsidiaries and associates contribute to the consolidated net income, being financially accountable for the capital involved. Conclusions and Relevance. To forecast the value of a firm, economic-mathematical modeling is advisable, since it will ensure an unbiased evaluation of the firm’s position within a three to five year time horizon and help to reduce the information asymmetry, which requires special tools to substantiate the increment in EVA and corporate capitalization. The ultimate objective of research provides for an unbiased integrated value, such as corporate value of a business, which decreases the information asymmetry for principals and agents.

Impact of Executive Changes on Goodwill Impairment

Based on the proxy theory, information asymmetry theory and signal transmission theory, this paper empirically tests the impact of executive changes on goodwill impairment. It uses the data of A-share listed companies in Shanghai and Shenzhen stock exchanges from 2010-2018 as samples. The research results show that: 1) Compared with companies that have not undergone executive changes, companies that have undergone executive changes have a greater degree of goodwill impairment; 2) The positive correlation between executive changes and goodwill impairment is only manifested in the companies audited by “non-Big Four”, which implies that high audit quality can effectively play an external monitoring role and curb the opportunistic behavior of senior management.

Sponsor Representatives’ Project Experience，IPO Passing Rate and the Efficiency of Resource Allocation

Since 2004, China’s A-share stock market has begun to implement the sponsorship system, which is characterized by double sponsorship”. In addition to the sponsor institution, it also sets up the position of sponsor representatives, who perform the underwriting sponsorship on behalf of the sponsor institution, taking the responsibility and risks individually. In the reviewing process of the Issuance Appraisal Committee, sponsor representatives frequently attend the meeting of the Issuance Appraisal Committee and interact closely with the regulatory authorities, which play an important role in the company’s IPO passing rate. However, looking at the existing literature, few studies have examined the relationship between sponsor representatives’ project experience and the IPO passing rate. Does sponsor representatives’ project experience affect the IPO passing rate? What is the impact mechanism behind it? Taking companies applying for listing in 2007—2015 as samples, this paper examines the impact of sponsor representatives’ project experience on the IPO passing rate. Our research finds that sponsor representatives’ project experience helps to improve the IPO passing rate of applying companies, and this promotion is more obvious in companies sponsored by less-reputed securities companies, private companies and companies with complex business. Further analyses show that the impact of sponsor representatives’ project experience on the IPO passing rate is mainly caused by reducing the information asymmetry between issuers and the Issuance Appraisal Committee and improving the compliance of applying companies. Finally, from the perspective of economic consequences, the company sponsored by the project’s experienced representatives has higher stock returns and better operating performance, which indicates that sponsor representatives’ project experience has improved the IPO approval rate of listed companies and the efficiency of resource allocation in the capital market. The contributions of this paper are as follows: First, this paper analyzes the IPO reviewing of companies from the perspective of sponsor representatives’ project experience, broadens the understanding of representatives’ role in the IPO reviewing, which is complementary to the existing literature. Second, although there have been many studies examining the factors affecting the passing rate of applying companies, there has not been any in-depth analysis of the role of representatives. We pay attention to the impact of sponsor representatives’ project experience on the IPO reviewing, and further explore the mechanism behind its impact from an empirical perspective for the first time. Third, the research in this paper shows that sponsor representatives’ project experience can improve the company’s passing rate and have a positive impact on the company’s performance after listing. This finding helps to deepen the understanding of China’s current stock review system, and provide policy recommendations for the optimal allocation of China’s capital market resources. Fourth, this paper theoretically enriches the information asymmetry theory in the IPO process under the Chinese institutional background. The information asymmetry in the context of China’s sponsorship system is mainly reflected in the information difference between issuers and the Issuance Appraisal Committee. The research theoretically points out that sponsor representatives’ project experience can cope with the special information asymmetry in the Chinese institutional environment and provide a new perspective for the study of IPO issues.

Effect of shared decision-making nursing based on information asymmetry theory on perioperative rehabilitation of patients with thoracolumbar fracture

Objective To explore the effect of shared decision-making nursing based on information asymmetry theory on adjusting and adapting information asymmetry in patients with thoracolumbar vertebral fracture during perioperative period. Methods From January to December 2018, 328 patients with thoracolumbar fractures were selected as the study object, and divided into the control group with 161 cases (January to June 2018) and the observation group with 167 cases (July to December 2018) according to the time of admission. The routine nursing care was given for the control group during the perioperative period for thoracolumbar fracture, on the basis of that the observation group was given the shared decision-making nursing plan on the principle of pertinence, continuity, initiative and diversity, and the nursing care was supported by systematic information. The information receiving degree, treatment compliance and postoperative rehabilitation effect of the two groups were compared. Results The score of information receiving degree of patients with thoracolumbar fracture in the observation group was higher than that in the control group, the difference was statistically significant (P<0.05) ; the treatment compliance in the observation group was better than the control group, the difference was statistically significant (P<0.05) ; the postoperative rehabilitation in the observation group was better than the control group, the difference was statistically significant (P<0.05) . Conclusions The perioperative nursing plan based on the theory of information asymmetry can fully meet the needs of perioperative patients for professional knowledge and medical information, improve their information reception, improve the compliance of patients with surgery and rehabilitation, and promote the effect of postoperative rehabilitation. Key words: Perioperative period; Thoracolumbar fracture; Rehabilitation nursing; Information support; Shared decision-making nursing