scholarly journals Does Zero-leverage Policy Increase Inefficient Investment? - From The Perspective Of Lack Of Bank Creditors

2015 ◽  
Vol 31 (6) ◽  
pp. 2237 ◽  
Author(s):  
Zhen Huang ◽  
Wanli Li ◽  
Weiwei Gao
Keyword(s):  
Information Asymmetry ◽  
Agency Problems ◽  
Investment Efficiency ◽  
Empirical Results ◽  
External Monitoring

Using a sample of up to 12023 firm-year observations across 2358 individual firms from 2007 to 2013, this paper examines whether zero-leverage policy increases firms’ inefficient investment from the perspective of lack of bank creditors. Due to the lack of bank creditor monitoring, zero-leverage policy leads to more serious information asymmetry and agency problems, which are the two types of frictions that affect investment efficiency. The empirical results show that zero-leverage policy indeed increases inefficient investment. Furthermore, we test whether external monitoring helps to mitigate the effects of zero-leverage policy on inefficient investment. Our findings suggest that the sensitivity between zero-leverage policy and inefficient investment will be lower in firms with strong external monitoring. Overall, the zero-leverage policy seems to be a key determinant of inefficient investment.

scholarly journals Can Environmental Corporate Social Responsibility Reduce Firms’ Idiosyncratic Risk? Evidence From China

2020 ◽  
Vol 8 ◽  
Author(s):  
Xiaoran Kong ◽  
Yuying Pan ◽  
Huaping Sun ◽  
Farhad Taghizadeh-Hesary
Keyword(s):  
Corporate Social Responsibility ◽  
Social Responsibility ◽  
Information Asymmetry ◽  
Internal Control ◽  
Idiosyncratic Risk ◽  
Listed Firms ◽  
External Monitoring ◽  
Corporate Social ◽  
The Impact ◽  
A Share

Environmental corporate social responsibility (ECSR) can be a strategy to increase the transparency of investment information effectively to alleviate information asymmetry. The purpose of this article is to examine the impact of ECSR on firms’ idiosyncratic risk. Using the data of A-share listed firms in China and data of Rankins CSR Ratings by developing econometrics models, this study documents that ECSR can significantly reduce the firms’ idiosyncratic risk. This result perpetuates after a series of robustness checks. Besides, the results of conditional analyses reveal that the effect of ECSR is more pronounced for state-owned firms and firms with weaker external monitoring mechanisms and low internal control. Moreover, further evidence suggests that firms with high ECSR show a greater tendency to disclose more information, which reduces the information asymmetry and offers linkages from ESCR to firms’ idiosyncratic risk.

Why investors use technical analysis? Information discovery versus herding behavior

2015 ◽  
Vol 5 (1) ◽  
pp. 53-68 ◽  
Author(s):  
Tiandu Wang ◽  
Qian Sun
Keyword(s):  
Stock Market ◽  
Information Asymmetry ◽  
Excess Return ◽  
Chinese Stock Market ◽  
Information Discovery ◽  
Herding Behavior ◽  
Significant Excess ◽  
Technical Trading Rules ◽  
Content Type ◽  
Empirical Results

Purpose – The purpose of this paper is to establish two competitive models to explain why investors use technical analysis (TA). Design/methodology/approach – Information Discovery Model suggests that technical traders are able to infer non-public information; Herding Behavior Model argues that TA is a kind of irrational herding behavior that can make profit when other noise traders exist. Findings – The empirical results from Chinese stock market show that some technical trading rules generate significant excess returns. Research limitations/implications – The empirical results from Chinese stock market show that some technical trading rules generate significant excess returns. Stocks with stronger information asymmetry and lower liquidity experiences higher excess return, which support the Information Discovery Model that TA is a method of information discovery for rational investors when the market is not fully efficient. Originality/value – Stocks with stronger information asymmetry and lower liquidity experiences higher excess return, which support the Information Discovery Model that TA is a method of information discovery for rational investors when the market is not fully efficient.

scholarly journals A comparison of earnings management between domestic and cross-border mergers.

2010 ◽  
Vol 7 (4) ◽  
pp. 19-33
Author(s):  
Amy Yueh-Fang Ho
Keyword(s):  
Asymmetric Information ◽  
Mergers And Acquisitions ◽  
Earnings Management ◽  
Information Asymmetry ◽  
Discretionary Accruals ◽  
Informational Asymmetry ◽  
Empirical Results ◽  
Cross Border ◽  
Acquiring Firms ◽  
International Mergers

This study examines how U.S. acquiring firms managed their earnings by means of discretionary accruals prior to the announcement of stock-for-stock domestic and cross-border mergers during the period 1980 to 2002. The objective of this study is to determine whether earnings management is exacerbated in cross-border mergers according to the informational asymmetry hypothesis. The results show that that acquiring firms tend to manage earnings upward prior to stock swap domestic takeovers. In addition, the results reveal some evidence of earnings management prior to stock swap cross-border takeovers. However, the empirical results exhibit no significant distinction in earnings management between the domestic and cross-border mergers. Despite the possible existence of asymmetric information associated with cross-border takeover activities, the international mergers and acquisitions do not facilitate managers to engage in more aggressive earnings management. The findings suggest that the higher degree of information asymmetry in cross-border mergers does not contribute to a higher degree of earnings management.

The Effect of Auditor Characteristics on the Value of Diversification

2017 ◽  
Vol 37 (1) ◽  
pp. 115-137 ◽  
Author(s):  
Shu-Miao Lai ◽  
Chih-Liang Liu
Keyword(s):  
Information Asymmetry ◽  
Financial Reporting ◽  
Agency Problems ◽  
Market Value ◽  
Disclosure Quality ◽  
Diversification Discount ◽  
Industry Specialization ◽  
Diversified Firms ◽  
Auditor Characteristics

SUMMARY This paper examines how auditor characteristics (size, tenure, and industry specialization) affect the valuation of diversification. As expected, we find that diversified firms have lower market value than single-segment firms, and the diversification discount is smaller when firms employ Big N auditors and auditors with longer tenure. We also find that the diversification discount is larger when companies hire auditors with industry specialization and speculate that an industry focus may limit auditors' ability to detect misreporting in diversified firms. Also, diversified firms have higher financial reporting and disclosure quality when they employ Big N auditors and auditors with longer tenure, but lower financial reporting and disclosure quality when they employ industry specialist auditors. Overall, our findings suggest that auditor characteristics matter to investors in diversified firms because they contribute to the quality of financial reporting and disclosure, which can mitigate agency problems and the information asymmetry associated with diversification.

How Does Information Processing Efficiency Relate to Investment Efficiency? Evidence from XBRL Adoption

2020 ◽  
pp. 0000-0000
Author(s):  
Xin Cheng ◽  
Feiqi Huang ◽  
Dan Palmon ◽  
Cheng Yin
Keyword(s):  
Information Processing ◽  
Financial Reporting ◽  
Investment Efficiency ◽  
Uncertain Information ◽  
Processing Efficiency ◽  
Public Companies ◽  
Exogenous Shock ◽  
External Monitoring ◽  
Processing Cost ◽  
Over Time

This study investigates whether information processing efficiency has an impact on public companies' investment efficiency. Using the adoption of XBRL as an exogenous shock that decreases information processing cost, we find that companies improve their investment efficiency after the adoption of XBRL. The effect is more pronounced for: 1) firms that have inferior external monitoring; 2) firms that operate in more uncertain information environments; and 3) firms that have less readable financial reporting. In addition, we find a learning curve in investors' understanding of XBRL over time. After splitting firms into over-investment and under-investment groups, we conclude that the XBRL mandate is more likely to curb managers' opportunistic over-investments. Our study extends the XBRL literature by providing empirical evidence on the effects of XBRL adoption from the perspective of managers.

Do Labor Unions Always Lead to Underinvestment?

2016 ◽  
Vol 29 (1) ◽  
pp. 45-66 ◽  
Author(s):  
Hyungjin Cho ◽  
Bryan Byung-Hee Lee ◽  
Woo-Jong Lee ◽  
Byungcherl Charlie Sohn
Keyword(s):  
Labor Unions ◽  
Labor Union ◽  
Agency Problems ◽  
Investment Efficiency ◽  
Minority Shareholders ◽  
Firm Level ◽  
Negative Relation ◽  
Level Data ◽  
Firm Level Data ◽  
Jel Classifications

ABSTRACT We examine the relation between labor union strength and investment efficiency using the comprehensive firm-level data of Korean-listed companies. We find that the perceived underinvestment related to unionization documented in previous studies is attributable to a negative relation between union strength and investment in overinvesting firms. In fact, union strength is positively related to the level of investment in underinvesting firms. We further find that the relation between union strength and investment efficiency is more pronounced for chaebol firms where inefficient investments are more likely due to greater agency problems between the controlling and minority shareholders. Finally, we document that the investment has more positive value implications in firms with a stronger union. Our results suggest that unions play an important role as a nonfinancial stakeholder in curbing inefficient investments. JEL Classifications: G30; G31; J53; J54; M41; M54.

Shifting Our Lenses to Behavioral Finance Paradigm

2021 ◽  
pp. 174-202
Author(s):  
Sibel Dinç Aydemir
Keyword(s):  
Information Asymmetry ◽  
Organizational Performance ◽  
Behavioral Finance ◽  
Stakeholder Engagement ◽  
Agency Problems ◽  
Past Research ◽  
Management Control ◽  
Normative Structure ◽  
Financial Outcomes ◽  
Reputation Concern

Recent crisis periods have shown how corporate communication could contribute to organizational performance regarding financial outcomes, reputation concern, etc. The efforts to reduce information asymmetry, deal with agency problems, improve stakeholder engagement have brought it to the fore. Past research on reporting mechanisms has overly focused on its normative structure and manifested ethical or problematic issues. Some research has argued credibility of both reporters and assurance providers of this information. Although some limited research on management control over reporting mechanisms and on some weaknesses of assurance providers' verification statements, this research doesn't explain enough why this manipulative control occurs. Shifting our lenses to behavioral finance paradigm, it's understood that judgmental decision making seems to be exposed to diverse systematical biases and fallacies. Amidst them, inopportune optimism, alias overconfidence, stands for one of the most serious biases.

Segment Profitability and the Proprietary and Agency Costs of Disclosure

2007 ◽  
Vol 82 (4) ◽  
pp. 869-906 ◽  
Author(s):  
Philip G. Berger ◽  
Rebecca N. Hann
Keyword(s):  
Agency Costs ◽  
Agency Problems ◽  
Agency Cost ◽  
Segment Reporting ◽  
Proprietary Costs ◽  
External Monitoring ◽  
Disclosure Decisions ◽  
Segment Disclosure ◽  
Proprietary Cost ◽  
Abnormal Profits

We exploit the change in U.S. segment reporting rules (from SFAS No. 14 to SFAS No. 131) to examine two motives for managers to conceal segment profits: proprietary costs and agency costs. Managers face proprietary costs of segment disclosure if the revelation of a segment that earns high abnormal profits attracts more competition and, hence, reduces the abnormal profits. Managers face agency costs of segment disclosure if the revelation of a segment that earns low abnormal profits reveals unresolved agency problems and, hence, leads to heightened external monitoring. By comparing a hand-collected sample of restated SFAS No. 131 segments with historical SFAS No. 14 segments, we examine at the segment level whether managers' disclosure decisions are influenced by their proprietary and agency cost motives to conceal segment profits. Specifically, we test two hypotheses: (1) when the proprietary cost motive dominates, managers tend to withhold the segments with relatively high abnormal profits (hereafter, the proprietary cost motive hypothesis), and (2) when the agency cost motive dominates, managers tend to withhold the segments with relatively low abnormal profits (hereafter, the agency cost motive hypothesis). Our results are consistent with the agency cost motive hypothesis, whereas we find mixed evidence with regard to the proprietary cost motive hypothesis.

Information Asymmetry and Levels of Agency Relationships

1998 ◽  
Vol 35 (3) ◽  
pp. 277-295 ◽  
Author(s):  
Debi Prasad Mishra ◽  
Jan B. Heide ◽  
Stanton G. Cort
Keyword(s):  
Moral Hazard ◽  
Information Asymmetry ◽  
Adverse Selection ◽  
Ownership Structure ◽  
Agency Problems ◽  
Customer Relationship ◽  
Price Premiums ◽  
Agency Relationships ◽  
Institutional Differences ◽  
Service Managers

Many marketing exchanges are characterized by an information asymmetry between suppliers and customers. Specifically, customers are faced with both adverse selection and moral hazard problems that involve, respectively, uncertainty about supplier characteristics and the risk of quality cheating. Drawing on prior research, the authors propose that agency problems in a customer relationship can be resolved by means of customer bonds and price premiums, which serve as signals and supplier incentives, respectively. The authors also propose that adverse selection and moral hazard problems exist in relationships between suppliers and their employees. Similar to the customer relationship, these problems can be addressed with signals and incentives of various kinds. The authors present hypotheses regarding the agency problems in both of these relationships and test them empirically in the context of automotive service purchases. Data obtained from 287 service managers support the hypotheses. The data also suggest that institutional differences across service outlets (e.g., ownership structure and size) influence how the two types of agency problems are managed.

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