Accounting similarities, sophisticated investors, relevance and information asymmetry

Alireza Azarberahman (), Saeed Pakdelan () and Malihe Tohidinia ()

International Journal of Applied Economics, Finance and Accounting, 2023, vol. 17, issue 1, 186-201

Abstract: Information asymmetry is a phenomenon in the capital market that can be caused by various factors. The purpose of this paper is to contribute to the debate on whether information asymmetry can be affected by factors such as accounting comparability, sophisticated investors, and relevance, and therefore, its value-relevance for decision-making. The paper uses three methods criteria for information asymmetry (VOLTRADE, PNSY and bid-ask spread) as well as two methods for measuring accounting comparability (text mining and De-Franco). Therefore, it is feasible to test and compare different methods of accounting comparability with different methods of information asymmetry. The results of the study indicate that the comparability of accounting practises has a notable adverse impact on information asymmetry. Additionally, it was observed that sophisticated investors have the ability to moderate this relationship. We find that relevance has significant relation with information asymmetry. Furthermore, it has been determined that comparability exerts a substantial influence on information asymmetry within an imperfectly competitive market, as opposed to a market characterised by perfect competition. Therefore, these findings underscore the significance of considering market conditions and competition levels in the issue. Ultimately, our findings indicate that the cash flow component of comparability exerts a notable impact on information asymmetry, in contrast to the accrual component. This study provides new insights regarding the nexus between accounting comparability and financial asymmetry.

Keywords: Accounting similarities; Information asymmetry; Relevance; Sophisticated investors. (search for similar items in EconPapers)
Date: 2023
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