Information asymmetry and equity issue decision of low-leverage firms

2018 ◽  
Vol 44 (11) ◽  
pp. 1330-1346
Author(s):  
Bipin Sony ◽  
Saumitra Bhaduri
Keyword(s):  
Information Asymmetry ◽  
Equity Issue ◽  
Content Type ◽  
Equity Issues ◽  
Developed Economies ◽  
Tangible Assets ◽  
Credit History ◽  
The Impact ◽  
Role Of Information

Purpose The purpose of this paper is to investigate the role of information asymmetry in the equity issue decision of two categories of Indian firms with distinct levels of information asymmetry – levered firms and unlevered firms. Design/methodology/approach This paper proposes a novel empirical approach to compare these two categories of firms. Levered firms exposed to the debt markets are under the scrutiny of lenders, reducing their information asymmetry problems. On the other hand, unlevered firms, which are smaller firms with fewer tangible assets and no credit history suffers more information problems. The authors use a propensity score matching method to identify firms that share similar firm-specific characteristics in these groups and compare equity issues to analyze the impact of information asymmetry. Findings The results show that information asymmetry plays a key role in the equity issue decision of Indian firms. Additionally, the authors find that the trends and characteristics of low-leverage (LL) firms in India are comparable to the LL from developed economies, which is consistent with the findings that they face more information problems. Originality/value Unlike the conventional approach of using proxy variables to capture information asymmetry, this study uses a novel framework where the authors compare the equity issue decision of similar firms in two categories with different degrees of information asymmetry.

scholarly journals Leverage and firm investment: the role of information asymmetry and growth

2019 ◽  
Vol 27 (1) ◽  
pp. 56-73 ◽  
Author(s):  
Albert Danso ◽  
Theophilus Lartey ◽  
Samuel Fosu ◽  
Samuel Owusu-Agyei ◽  
Moshfique Uddin
Keyword(s):  
Information Asymmetry ◽  
High Growth ◽  
Firm Investment ◽  
Financial Leverage ◽  
Content Type ◽  
Growth Firms ◽  
The Impact ◽  
The Relationship ◽  
Role Of Information

PurposeThis paper aims to demonstrate how financial leverage impacts firm investment and the extent to which this relationship is conditional on the level of information asymmetry as well as growth.Design/methodology/approachThe paper relies on data from 2,403 Indian firms during the period 1995-2014, generating a total of 19,544 firm-year observations. Analysis is conducted by using various panel econometric techniques.FindingsDrawing insights from agency theories, the paper uncovers that financial leverage is negatively and significantly related to firm investment. It is also observed that the impact of financial leverage on firm investment is significant for high information asymmetric firms. Finally, the paper shows that the relationship between leverage and firm investment is significant for low-growth firms. However, no significant relationship is found between leverage and investment for high-growth firms.Originality/valueThis paper provides fresh evidence on the leverage–investment nexus and, to the authors’ knowledge, it the first paper to examine the extent to which this leverage–investment relationship is driven by the level of information asymmetry.

Choice between rights issue and private placements of equity and the role of information asymmetry

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Bipin Sony ◽  
Saumitra Bhaduri
Keyword(s):  
Information Asymmetry ◽  
Private Equity ◽  
Emerging Market ◽  
Content Type ◽  
Private Placement ◽  
Private Placements ◽  
Rights Issue ◽  
The Impact ◽  
Role Of Information

PurposeThe objective of this paper is to investigate the role of information asymmetry in the equity selling mechanisms chosen by the firms from an important emerging market, India. Specifically, the authors look into the choice between the two most popular mechanisms of equity issues – rights issue and private placement of equity.Design/methodology/approachThis study introduces three analyst specific variables as proxies of information asymmetry as the conventional proxies are fraught with several disadvantages. First, the paper tests the choice between rights issue and private placement using a binary logistic model. In the second approach the authors use rights issue and segregate the private placements into preferential allotments and qualified institutional placements and test the impact of information asymmetry using a multinomial logistic regression.FindingsThe outcome of this empirical exercise shows that only those firms facing lesser information problems choose rights issue of equity. Private placements are chosen by firms facing higher information problems to circumvent information costs. The results remain invariant even after segregating the qualified institutional placements from private equity placement as the firms with information disadvantage choose to place equity privately.Originality/valueIn contrast to the conventional studies that focus on the debt-equity framework, the authors argue that the impact of information asymmetry is applicable even at disaggregated levels of equity selling mechanism.

How are corporate disclosures related to the cost of capital? The fundamental role of information asymmetry

2016 ◽  
Vol 54 (7) ◽  
pp. 1669-1701 ◽  
Author(s):  
Beatriz Cuadrado-Ballesteros ◽  
Isabel-Maria Garcia-Sanchez ◽  
Jennifer Martinez Ferrero
Keyword(s):  
Information Asymmetry ◽  
Cost Of Capital ◽  
Agency Conflicts ◽  
Content Type ◽  
Mediator Role ◽  
International Setting ◽  
The Cost ◽  
Role Of Information ◽  
Corporate Disclosures

Purpose – The purpose of this paper is to analyze empirically the fundamental role that information asymmetry plays in the functioning of an efficient capital market as mediator in the relation between corporate disclosures and cost of capital. Design/methodology/approach – By using a sample of 1,260 international non-financial listed companies in the period 2007-2014. Findings – The findings suggest that high-quality financial and social disclosures quality reduce the cost of capital, by decreasing information asymmetry. In other words, the authors find evidence of the mediator role of information asymmetry in the relation between corporate disclosures and the cost of capital. These results are also controlled for differences on accounting standards and other institutional factors. Originality/value – The central assumption is that the demand for corporate disclosures that reduces the information advantages of some investors (who are more informed) arises from agency conflicts and these information differences in turn, determine the cost of capital. This paper is the first attempt to study, jointly, the effects of decreasing information asymmetries by corporate disclosures on the cost of capital in an international setting. In addition, the authors focussed on both financial and social disclosures, creating empirical proxies whose validity for the analysis has been evidenced.

The impact of corporate governance performance on the association between information asymmetry and opportunities' optimal levels: evidence from developed markets

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ehsan Poursoleyman ◽  
Samira Joudi ◽  
Gholamreza Mansourfar ◽  
Saeid Homayoun
Keyword(s):  
Corporate Governance ◽  
Information Asymmetry ◽  
Developed Countries ◽  
Ordinary Least Squares ◽  
Investment Efficiency ◽  
Method Of Moment ◽  
Content Type ◽  
Bid Ask Spread ◽  
The Impact

PurposePrevious literature posits that corporate governance and information asymmetry are the main factors in making efficient investments. Meanwhile, a growing body of studies is of the opinion that corporate governance can also mitigate the problem of information asymmetry and consequently exerts significant impacts on the association between information asymmetry and investment efficiency. This study aims to analyze the impact of corporate governance and information asymmetry on investment efficiency. It also tests the moderating role of corporate governance in the relationship between information asymmetry and investment efficiency.Design/methodology/approachThe sample consists of 4,082 firms domiciled in 20 developed countries over the years from 2003 to 2019, including 33,812 firm-year observations. The bid–ask spread is used as a proxy for information asymmetry. To measure corporate governance performance, a proxy provided by ASSET4 is employed, and to determine the optimal levels of investments, we relied on the growth opportunity. To estimate the models, ordinary least squares and generalized method of moment are used.FindingsThe results reveal that information asymmetry is inversely related to investment efficiency, and, corporate governance mitigates this negative association.Originality/valueThis paper sheds light on the role of corporate governance in firms as a lever for mitigating information asymmetry and tries out information asymmetry and agency theories in relation to the impact of information asymmetry on investment efficiency. It also confirms the theory stating that corporate governance can be considered as a determinant of investment efficiency.

Information Asymmetry and Debt–Equity Choice: Evidence from an Emerging Market, India

2018 ◽  
Vol 10 (3) ◽  
pp. 228-252 ◽  
Author(s):  
Bipin Sony ◽  
Saumitra Bhaduri
Keyword(s):  
Information Asymmetry ◽  
Emerging Market ◽  
Analyst Forecast ◽  
Indian Market ◽  
Order Model ◽  
Pecking Order ◽  
Analyst Coverage ◽  
Equity Issues ◽  
Role Of Information

We examine the role of information asymmetry in the debt–equity choice decisions of firms from an important emerging market, India. Information problems are more severe in the emerging markets and we find strong evidence in favour of information asymmetry playing a key role in the capital structure decisions of Indian firms. Consistent with the pecking order model, we find that equity issues are lesser in number and firms facing fewer information problems issue equity. We use novel variables such as analyst coverage, analyst forecast surprise and dispersion to capture information asymmetry in the Indian market. JEL: G32

Tax policies risk global economic cooperation

2015 ◽  
Keyword(s):  
Multinational Companies ◽  
Policy Response ◽  
Focused Attention ◽  
Economic Management ◽  
2008 Financial Crisis ◽  
Content Type ◽  
Developed Economies ◽  
The 2008 Financial Crisis ◽  
The Impact

Subject The impact of the diverted profits tax. Significance Sagging fiscal receipts in many developed economies following the 2008 financial crisis have focused attention on the amount of tax paid by large multinational companies. The small amount paid in jurisdictions where they generate considerable revenue has aroused public anger, although the policy response risks backfiring and preventing a coherent response. Impacts The role of the G20 on tax policy demonstrates the shifting roles of institutions. Having ceased meeting as the G8 with Russia, the G7 will increasingly emerge as a kind of security forum. The G20 will emerge as a leading economic body, as, unlike the OECD, it includes major emerging markets. This could help global economic management, as it allows policies created by major countries to achieve greater legitimacy.

The role of information technology in the environmental performance of the firm

2015 ◽  
Vol 28 (2) ◽  
pp. 273-291 ◽  
Author(s):  
Cristina Gimenez ◽  
Vicenta Sierra ◽  
Juan Rodon ◽  
Jorge Andres Rodriguez
Keyword(s):  
Environmental Performance ◽  
Manufacturing Industry ◽  
Manufacturing Strategy ◽  
Environmental Practices ◽  
Content Type ◽  
It Resources ◽  
The Impact ◽  
The Relationship ◽  
Role Of Information

Purpose The purpose of this paper is to explore the role of information technologies (IT) in the impact of environmental practices on environmental performance. Design/methodology/approach The authors use data from the fifth (2009) round of the International Manufacturing Strategy Survey (IMSS) which includes responses from manufacturing plants within the manufacturing industry in Brazil, China, Germany, Hungary and USA. The authors use multiple regression analysis to test the relationship between environmental practices and environmental performance and the moderating effect of IT. Findings The paper finds evidence that IT strengthens the relationship between environmental practices and environmental performance. The IT construct is operationalized through IT-enabled control and IT-enabled coordination. The results confirm the established relationship between environmental practices and environmental performance and show that IT-enabled coordination moderates the relationship between environmental practices and environmental performance. Originality/value This research contributes to the literature of green operations in the following ways: First, this paper offers an alternative explanation about the role of IT; the authors provide evidence that existing IT resources that support the coordination between product design and manufacturing strengthen the effect of environmental practices. Second, this paper provides evidence that environmental practices can take advantages of the IT resources embedded in daily plants’ routines to enhance plants’ environmental performance. Overall, this research provides suggestions to managers about the role that IT plays in the implementation of environmental practices.

Audit quality, political connections and information asymmetry: evidence from banks in gulf co-operation council countries

2020 ◽  
Vol 16 (5) ◽  
pp. 673-698
Author(s):  
Abiot Tessema
Keyword(s):  
Information Asymmetry ◽  
Political Institutions ◽  
Fixed Effects ◽  
Trading Volume ◽  
Audit Quality ◽  
Social Contexts ◽  
Political Connections ◽  
Content Type ◽  
The Impact

PurposeThe purpose of this paper is to investigate the impact of audit quality on information asymmetry for a sample of leading listed local banks in the Gulf Cooperation Council (GCC). In addition, the paper examines whether a firm's political connections moderate the association between audit quality and information asymmetry.Design/methodology/approachThe author employs country fixed effects to examine the impact of audit quality on information asymmetry. The paper uses a sample of 49 leading listed local banks across the GCC and 236 bank-year observations, over the period of 2012–2016.FindingsUsing trading volume, trade value and stock return volatility as proxies for information asymmetry and audit quality through auditors' opinion and audit size, the paper documents that audit quality plays an important role in improving the quality of financial information reporting by providing greater independent assurance of the credibility of financial reports. The paper also documents that a firm's political connections have no effect on the association between audit quality and information asymmetry, indicating that the beneficial effects of audit quality are no greater for politically connected firms than for similar but politically unconnected firms.Practical implicationsThe findings of the study help policymakers, standard-setters and regulators to understand the potential adverse effect of political connections on the role of audit quality on information asymmetry. The study also provides important insights for audit regulators to better identify and understand the benefits of audit quality and to take policy matters that influence audit quality seriously.Originality/valueThe study increases our understanding of the impact of audit quality on the level of information asymmetry in different economic, legal and political institutions, regulatory and litigation incentives and social contexts compared to that of research conducted using data collected from developed and other emerging countries. This will help to widen our knowledge on the role of audit quality on information asymmetry across the globe.

Spatial agglomeration and specialization in emerging markets

2019 ◽  
Vol 29 (3) ◽  
pp. 236-252 ◽  
Author(s):  
Mathieu Resbeut ◽  
Philippe Gugler ◽  
Danuvasin Charoen
Keyword(s):  
Emerging Markets ◽  
Performance Measures ◽  
Design Methodology ◽  
Emerging Market ◽  
Content Type ◽  
Developed Economies ◽  
Industry Performance ◽  
The Impact ◽  
Cluster Mapping

Purpose The paper aims to investigate the role of specialization and agglomeration forces on industry performance in an emerging market, namely, Thailand. In particular, the impact of clusters and the influence of complexity will be tackled. Design/methodology/approach The methodology used is based on the work of Delgado et al. (2014). Industries and clusters are assigned to a certain category according to their respective level of specialization and complexity. Performance measures are then computed for each category. Findings It was found that the agglomeration of similar industries and co-located and related industries increase the performance of firms in terms of gross output per employee and remuneration per employee. Moreover, the increase of performance induced by the complexity level of an industry was closely related to the level of specialization. Originality/value Building on a cluster mapping, this study brings new insight on the effect of specialization and agglomeration on performance in emerging markets. In fact, the paper show how performance can be enhanced in less sophisticated and developed economies.

The Effect of Information Technology on Fluidity of Contemporary Architectural Space

2019 ◽  
Vol 7 (1) ◽  
pp. 62-72
Author(s):  
Shatha Abbas Hassan ◽  
Noor Ali Aljorani
Keyword(s):  
Information Technology ◽  
Communication Systems ◽  
Research Problem ◽  
Architectural Space ◽  
Human Thought ◽  
Technological Developments ◽  
Ease Of Access ◽  
The Impact ◽  
Role Of Information

The increasing importance of the information revolution and terms such as ‘speed’, ‘disorientation’, and ‘changing the concept of distance’, has provided us with tools that had not been previously available. Technological developments are moving toward Fluidity, which was previously unknown and cannot be understood through modern tools. With acceleration of the rhythm in the age we live in and the clarity of the role of information technology in our lives, as also the ease of access to information, has helped us to overcome many difficulties. Technology in all its forms has had a clear impact on all areas of daily life, and it has a clear impact on human thought in general, and the architectural space in particular, where the architecture moves from narrow spaces and is limited to new spaces known as the ‘breadth’, and forms of unlimited and stability to spaces characterized with fluidity. The research problem (the lack of clarity of knowledge about the impact of vast information flow associated with the technology of the age in the occurrence of liquidity in contemporary architectural space) is presented here. The research aims at defining fluidity and clarifying the effect of information technology on the changing characteristics of architectural space from solidity to fluidity. The research follows the analytical approach in tracking the concept of fluidity in physics and sociology to define this concept and then to explain the effect of Information Technology (IT) to achieve the fluidity of contemporary architectural space, leading to an analysis of the Skidmore, Owings and Merrill (SOM) architectural model. The research concludes that information technology achieves fluidity through various tools (communication systems, computers, automation, and artificial intelligence). It has changed the characteristics of contemporary architectural space and made it behave like an organism, through using smart material.

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