Investor relations,information asymmetry and market value

Evidence to date on the market value of investor relations (IR) strategies is limited. We test the market relevance of IR activity directly employing a proprietary database measuring IR quality across all firms listed on NYSE, Amex and NASDAQ. Although, in theory, ‘repackaging’ and communicating existing information should have no market impact, we find that firms with higher quality IR strategies are rewarded with significantly higher valuation multiples. In addition, increase in IR quality is associated with increases in analyst following and liquidity. Overall, our findings are generally stronger for small firms which are more likely to be ‘neglected’. Our evidence is consistent with effective IR successfully raising firm visibility leading to enhanced recognition and reduced information asymmetry in line with Merton (1987 Merton, R., 1987. A simple model of capital market equilibrium with incomplete information. Journal of Finance, 42 (3), 483–510. doi: 10.1111/j.1540-6261.1987.tb04565.x[Crossref], [Web of Science ®] , [Google Scholar]) and thus ‘fairer’ firm valuation as argued by IR professionals.     

Information uncertainty,information asymmetry and corporate bond yield spreads

This study examines the effects of information uncertainty and information asymmetry on corporate bond yield spreads using American data from 2001 to 2006. Empirical results of this study show that investors charge a significant risk premium for both information uncertainty and information asymmetry when controlling for variables well known in the literature. The results are robust even when controlling for credit ratings. Finally, information uncertainty and asymmetry help structural-form credit models explain the yield spreads of bonds with short maturities.     

Information asymmetry and self-selection bias in bank loan announcement studies

Event-study driven research has produced a consensus that loans are unique relative to other financial contracts. But these studies assume that small samples of loan announcements adequately represent the loan population. We find that loan announcements are rare and driven by factors such as information asymmetry and perceived materiality. We show that the sample used by Billett, Flannery, and Garfinkel (1995) fails to represent the loan universe and that significant abnormal announcement returns are confined to their smallest firms. Our sample, which better represents the loan population, produces an abnormal return insignificantly different from zero. The findings suggest that self-selection bias affects extant loan announcement research and do not support the views that loans are a special form of finance or that private and public debt differ in significant ways. Were all loans to be announced, the average abnormal return would likely be insignificant.     

金砖四国的故事:是美好幻想还是理性预测--来自高盛全球经济研究部主管吉姆·奥尼尔的解读

未来有那么一天,人们对G7在一起的关注程度大大降低,取而代之的是对BRICs的关注.BRICs是什么,是金砖四国,哪四国?巴西、俄罗斯、印度、中国.为什么关注?一句话,那时金砖四国对整个世界经济的格局影响已经举足轻重.     

Voluntary disclosure and information asymmetry in Denmark

This paper examines if the level of voluntary disclosure affects information asymmetry for industrial companies listed on the Copenhagen Stock Exchange. Economic theory suggests that disclosing more information should lower the information asymmetry component of a firm's cost of capital [Leuz, C., & Verrecchia, R. E. (2000)]. The results indicate that voluntary disclosure is negatively associated with proxies for information asymmetry. The results are robust even after controlling for various firm characteristics introduced in related literature. Despite differences in institutional settings the findings in our paper are similar to the ones based on US data.     

Corporate social responsibility performance and information asymmetry

Using Corporate Social Responsibility (CSR) performance scores from KLD STAT, we investigate whether CSR performance affects information asymmetry. We find that both positive and negative CSR performance reduce information asymmetry. Moreover, we find that the influence of negative CSR performance is much stronger than that of positive CSR performance in reducing information asymmetry. We also investigate the effect of informed investors on the CSR performance-asymmetry relation. We find that the negative association between CSR performance and bid-ask spread decreases for firms with a high level of institutional investors compared to those with a low level of institutional investors. This finding suggests that informed investors may exploit their CSR information advantage. Overall, our results suggest that CSR performance plays a positive role for investors by reducing information asymmetry and that regulatory action may be appropriate to mitigate the adverse selection problem faced by less-informed investors.     

The role of accounting conservatism in management forecast bias

We investigate whether management earnings forecasts fully incorporate information in historical accounting conservatism. We find that management earnings forecasts are more optimistic for firms with greater accounting conservatism in the previous year. We further examine whether this conservatism-related optimistic bias in management earnings forecasts varies with managers’ difficulty predicting earnings accurately, managers’ opportunistic incentives, and the firms’ litigation risk. We find that the negative association between management forecast errors and conservatism increases, to various extent, with the firms’ operating cycles, earnings volatility, and the width of forecast range but does not change with proxies for opportunistic incentives or litigation risk. These results suggest that forecast difficulty is the primary reason for managers’ failure to incorporate conservatism fully in their earnings forecasts.     

Financial distress,information asymmetry,and syndicate structure: Evidence from Japanese borrowers

This paper examines how borrower firm characteristics affect syndicate size structure in the Japanese loan market for the 1999–2003 period when the banking system is undergoing a major consolidation. We find that syndicates are smaller when borrowers have higher credit risk and when borrowers present larger information asymmetries to the lending group. Interestingly, however, these results are primarily driven by keiretsu (business group) firms. This suggests that the benefits of enhanced monitoring and superior renegotiation prospects are especially useful for banks participating in syndicated loans to Keiretsu firms in Japan rather than informationally opaque, independent firms.     

Dual-class versus single-class firms: information asymmetry

I examine information asymmetry in dual-class firms in general and when they need (do not need) additional external capital. In general the results show that dual-class firms have higher information asymmetry than single-class firms. When dual-class firms need additional external financing, the gap in information asymmetry between dual-class firms and single class firms is narrower. I find that as the need of additional external capital increases, the difference in information asymmetry between dual-class and single-class firms decreases (consistent with increased disclosures). It decreases, up to a point that there is no difference in information asymmetry with single-class firms that also needs additional external capital. When using adverse selection component of bid-ask spread, the paper finds that as the need of external financing gets high, dual-class firms show lower information asymmetry 1 year before they need additional external capital.     

The effect of earnings surprises on information asymmetry

We examine the effect of earnings surprises on changes in information asymmetry. We hypothesize and find that asymmetry is lower (higher) in the quarter following positive (negative) earnings surprises compared to firms that meet the consensus analyst earnings forecast. The relations between earnings surprises and information asymmetry are stronger when the surprises are more likely to capture investors’ attention. Examining the source of these changes, we show that decreased information search activities is the most important factor for asymmetry declining after positive surprises; for negative surprises, decreased uninformed trading plays a dominant role increasing asymmetry.     

Auditing standards,increased accounting disclosure,and information asymmetry: Evidence from an emerging market

The interest in accounting disclosure and audit quality by academics, practitioners, and regulators heightened following the various financial reporting scandals, and subsequent legislative and professional response to these scandals. An important question is whether the implementation of stricter auditing standards such as those mandated by the US Sarbanes-Oxley Act would improve the information environment of firms whose shares are publicly traded. In this paper, I investigate the link between information asymmetry, measured by bid-ask spread, and increased accounting disclosures following the adoption of new auditing standards in China—an environment in which disclosure hitherto was relatively low. I report the following primary results of the statistical analyses. First, information asymmetry cost is substantial in the Chinese order-driven emerging markets. Second, the firms in the sample experienced significant reductions in their bid-ask spreads subsequent to the adoption of the new auditing standards. Third, the reductions in the bid-ask spreads were abrupt and permanent. However, no significant result is found for firms in the control group with foreign ownership, whose financial statements were prepared in accordance with international accounting standards and were audited with international auditing standards. The results have implications for policy makers and regulators in general, and those in emerging markets in particular.     

Common information asymmetry factors in syndicated loan structures

This paper provides a comprehensive study of the syndicate structure and its relationship to information asymmetry and loan spread by using principal component analysis on a large set of 40 structure-related variables. A total of six structure components are identified and related to syndicate quality, syndicate members’ heterogeneity or share concentration, lead arranger’s characteristics, lead lender’s or syndicate’s location, lender–borrower relationships, and lead institution type. In multivariate settings, all six components are significant determinants of loan spread, either directly or indirectly through their impact on other components. Lead share retention, previous lender–borrower relationships and syndicate quality are shown to be bilaterally related to loan spread. Structure components differ regionally, which can provide an explanation for the European pricing discount observed in the literature. An Asian discount is observed and cannot be explained by structure differences.     

Institutional ownership and credit spreads: An information asymmetry perspective

Recent literature has documented a link between institutional equity ownership (IO) and cost of debt capital, and interpreted it as a corporate governance effect. However, institutional equity investors may also affect cost of debt through their influence on information asymmetry condition of firms. To distinguish between the two effects, we break down institutional investors into different groups: transient institutional investors (TRA who are sensitive to information asymmetry but unlikely to participate in corporate governance, and the dedicated ones (DED) who act oppositely. Based on a most up-to-date and comprehensive bond data spanning the past 20 years, we find that credit spreads narrow (widen) with an increase in equity ownership by TRA (DED). The effects are most prominent among short-term bonds, bonds with lower ratings, higher leverage and higher volatilities. The results persist after controlling for potential endogeneity and other information asymmetry measures, and are unlikely due to an asset substitution effect. Overall, our findings provide strong support for the effect of information asymmetry on credit spread, and highlight the importance of distinguishing various types of institutional investors.     

How disclosure quality affects the level of information asymmetry

We examine two potential mechanisms through which disclosure quality is expected to reduce information asymmetry: (1) altering the trading incentives of informed and uninformed investors so that there is relatively less trading by privately informed investors, and (2) reducing the likelihood that investors discover and trade on private information. Our results indicate that the negative relation between disclosure quality and information asymmetry is primarily caused by the latter mechanism. While information asymmetry is negatively associated with the quality of the annual report and investor relations activities, it is positively associated with quarterly report disclosure quality. Additionally, we hypothesize and find that that the negative association between disclosure quality and information asymmetry is stronger in settings characterized by higher levels of firm-investor asymmetry.     

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.     

Suppliers’ and customers’ information asymmetry and corporate bond yield spreads

This study investigates the information asymmetry effects of suppliers and customers on a firm’s bond yield spreads by employing American bond market data from 2001 to 2008. This study finds that both suppliers’ and customers’ information asymmetry effects significantly explain a firm’s bond yield spreads. Besides, the information asymmetry effects of more important suppliers and customers are more significant than those of less important ones. The results are robust even after controlling for other well-known firm specific and economic variables.     

信息不对称对贷款五级分类管理的影响及其矫正

为了适应我国银行业加强信贷管理、提高信贷资产质量和对外开放的迫切需要,中国人民银行决定从2002年起对我国各类银行全面实行贷款风险分类管理(即贷款五级分类管理)。但是,由于信息不对称,加之地区间、行际间和认识上的差异,商业银行在实施贷款五级分类管理中难以全面、准确、动态地反映信贷资产质量及盈亏状况,因此,弱化信息不对称是实施贷款五级分类管理,防范和化解信贷风险的重要措施之一。一、信息不对称对贷款五级分类管理的影响及其成因根据信息学原理,信息不对称往往会给市场带来逆向选择和道德风险并由此危及信贷资产的安全。为了…