Information Asymmetries and Intra-Company Monitoring: an Empirical Analysis of Nonlinear Relationships Between Company Characteristics and the Size of the Internal Audit Function

The internal audit function (IAF) has become one of the main pillars of good corporate governance. Empirical findings show that the size of the IAF varies considerably across companies. This study analyzes the relationships between selected company characteristics as determinants of intra-company information asymmetries and the size of the IAF as an indicator of intra-company monitoring. We test these relationships by analyzing comprehensive survey data obtained from chief audit executives from 283 Austrian, German, and Swiss companies. Using a nonparametric regression approach, we identify significant nonlinear relationships between company characteristics and IAF size. The empirical analysis identifies threshold levels for several metric company characteristics, such as the number of employees and the number of subsidiaries, whose relationships with the size of the IAF change its intensity.

Does corporate governance compliance condition information asymmetries? Moderating role of voluntary disclosures

PurposeThis study examines the moderating effects of low and high levels of voluntary disclosures (VDs) between corporate governance and information asymmetry (IA).Design/methodology/approachThe study used PROCESS macro to construct bootstrap confidence intervals at the 95% level to estimate the model, and “simple slope analysis” to visualize the model.FindingsThe better corporate governance provides a monitoring mechanism that disseminates private information and reduces IA The effect of corporate governance on IA is contingent on the levels of VDs within a firm, and this relationship is strengthened when the level of VDs within a firm is high, and results remain consistent when levels of sub-indices are high. Additional analysis reveals that effective boards and audit committees reduce IA. Increased inside, an associated company, family and foreign ownership exacerbate IA, whereas institutional owners act as effective monitors to overcome informational disadvantages.Practical implicationsThe findings provide implications for policymakers to promote corporate governance and more relevant reporting practices as effective mechanisms for protecting shareholders' rights and attenuating IA in capital markets.Originality/valueThe study is valuable to understand the strength of the relationship between corporate governance and information asymmetries based on the moderating role of different VD levels.

Corporate Governance And A Paradigm Strategy By Multinational Enterprises In Emerging Markets

This qualitative investigation meticulously identified challenges to corporate governance in operations of Multinational Enterprises (MNEs) in diverse situational positions in emerging markets. These challenges are weak macro institutions, strict government interest and influence, over formalized institutional structure, and overbearing political influence and the obvious; information asymmetries. A flexible mixed allegiance paradigm strategy was identified. It provides alignment of diversities and equilibrium based on micro operational efficacies of the multinational enterprise which are experienced and skilled workforce, related to locality of interest, management of loyalty, trust and negotiation hinged on acceptable agreements to member countries. Trust is emphasized as important for international business.

Can textual analysis solve the underpricing puzzle? A US REIT study

PurposeAlthough many theories aim to explain initial public offering (IPO) underpricing, initial-day returns of US Real Estate Investment Trust (REIT) IPOs remain a “puzzle”. The literature on REIT IPOs has focused on indirect quantitative proxies for information asymmetries between REITs and investors to determine IPO underpricing. This study, however, proposes textual analysis to exploit the qualitative information, revealed through one of the most important documents during the IPO process – Form S-11 – as a direct measure of information asymmetries.Design/methodology/approachThis study determines the level of uncertain language in the prospectus, as well as its similarity to recently filed registration statements, to assess whether textual features can solve the underpricing puzzle. It assumes that uncertain language makes it more difficult for potential investors to price the issue and thus increases underpricing. Furthermore, it is hypothesized that a higher similarity to previous filings indicates that the prospectus provides little useful information and thus does not resolve existing information asymmetries, leading to increased underpricing.FindingsContrary to expectations, this research does not find a statistically significant association between uncertain language in Form S-11 and initial-day returns. This result is interpreted as suggesting that uncertain language in the prospectus does not reflect the issuer's expectations about the company's future prospects, but rather is necessary because of forecasting difficulties and litigation risk. Analyzing disclosure similarity instead, this study finds a statistically and economically significant impact of qualitative information on initial-day returns. Thus, REIT managers may reduce underpricing by voluntarily providing more information to potential investors in Form S-11.Practical implicationsThe results demonstrate that textual analysis can in fact help to explain underpricing of US REIT IPOs, as qualitative information in Forms S-11 decreases information asymmetries between US REIT managers and investors, thus reducing underpricing. Consequently, REIT managers are incentivized to provide as much information as possible to reduce underpricing, while investors could use textual analysis to identify offerings that promise the highest returns.Originality/valueThis is the first study which applies textual analysis to corporate disclosures of US REITs in order to explain IPO underpricing.

Identification of Differences in Perception of Uncertainty Factors in the Consumer Behavior of Millennials in E-commerce

E-commerce offers huge potential in terms of online sales, but also poses certain risks for consumers and retailers, in particular cybercrimes, hacker attacks, spam, but also a lack of personal interactions and information asymmetries. These risks may lead to consumer uncertainty. This means that consumers feel insecure when buying products online compared with buying the same products in brick-and-mortar stores. This uncertainty when shopping online discourages many consumers from taking part in online transactions. Previous research points to the fact that consumer uncertainty stems from perceived information asymmetries due to hidden information and moral hazard problems. Perceived information asymmetry can be defined as the situation in which the buyer thinks that the seller has a greater amount or quality of information about products, their properties, and ultimately sales practices. Keywords: e-commerce, consumer behaviour, new generation of customers, uncertainty.

Financial Risk Capacity

Financial crises are particularly severe and lengthy when banks fail to recapitalize after bearing large losses. We present a model that explains the slow recovery of bank capital and economic activity. Banks provide intermediation in markets with information asymmetries. Large equity losses force banks to tighten intermediation, which exacerbates adverse selection. Adverse selection lowers bank profit margins, which slows both the internal growth of equity and equity injections. This mechanism generates financial crises characterized by persistent low growth. The lack of equity injections during crises is a coordination failure that is solved when the decision to recapitalize banks is centralized. (JEL D82, E32, E44, G01, G21, G32, L25)

The Startup Selection Process in Accelerators: Qualitative Evidence from Turkey

Startup selection is an essential mechanism of how accelerators create value. Through in-depth case studies of 10 accelerators in Turkey, our research explores the selection process in accelerators. Our findings indicate that accelerators overcome their context’s extreme uncertainty by involving various actors in the selection process and reducing the information asymmetries for investors and startups. Accelerators tend to select effortlessly coachable startups, willing to collaborate with accelerators, mentors, or other actors, and passionate enough to overcome the pressure of creating a business at a fast pace. Our research also exhibits that the selection process serves startups by directing and training them to transmit the right signals to receivers, primarily investors. Accelerators prefer to work with entrepreneurial teams that are coachable, passionate, and collaborative to vibrate the right signals. Similarly, the accelerators’ selection process helps investors by decreasing signaling noise and mitigate information asymmetry. By doing so, accelerators contribute to a well-functioning and more effective entrepreneurship ecosystem.

How Do Parents Evaluate and Select Schools? Evidence From a Survey Experiment

As parents are increasingly given flexibility to enroll their children in a school of their choice, understanding parents’ preferences for school qualities is essential. Using a randomized survey experiment, this study adds to the existing literature by assessing parents’ preferences in a controlled environment, where they can be isolated from information asymmetries and constraints. Results suggest that achievement matters to parents but status matters more when evaluating quality and growth matters more when choosing between schools. Additionally, student demographics affect both parents’ perception of school quality and their likelihood of selecting into a school. This article has important implications for the theory and practice of accountability as it offers new insights on parents’ latent preferences for school qualities.

Does quality matter in determining child care prices? Evidence from private child care provision in Turkey

Child care prices are expected to reflect the quality of provision. However, in contexts where there are high information asymmetries between the users of the services and providers, we may expect this link between quality and prices to be weaker. Turkey is selected for the study as it has a highly regulated child care sector where the costs of accreditation and initial setup are high. However, there is very little on-going supervision and no information provided to users on the quality or ranking of these services. This paper investigates the role of quality in determining private child care prices using a unique provider-level data set collected in five provinces of Turkey. Regression results show that prices are mainly driven by infrastructure quality while human resources and curriculum and materials quality scores that are more likely to have a strong bearing on child development do not have a significant impact on prices.