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Identifying Effects of Information Asymmetry on Firm Performance
International Journal of Economics, Finance and Management Sciences
Volume 8, Issue 2, April 2020, Pages: 75-83
Received: Jul. 12, 2018; Accepted: Sep. 26, 2018; Published: May 28, 2020
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Author
Anne Khatali, Finance and Accounting Department, ESPAG, Nairobi, Kenya
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Abstract
There is a lot of information asymmetry in the market today. Sellers in most cases have superior information over buyers and as a result beat market logistics to make as much profits as possible at the expense of buyers. Information asymmetry among market participants translate into high transaction costs and lower liquidity in the markets. Having superior information over other market participants lead to unfair competition in the market, especially in the stock markets due to insider trading. In a firm set up, I. A occurs when a manager in charge of planning and implementation of important decisions for achievement of firm’s objectives has superior information over owners, who are shareholders of the company. Managers are at discretion to make decisions without necessarily involving inputs from shareholders of the firm because they are charged with full responsibility of running affairs of the firm. This paper analyzes and tests effects of information asymmetry on firm performance at a micro-level. We analyse this paper using panel data, precisely financial statements from companies listed on the New York Stock market for a period of ten years. Using the same data we regress the model to estimate the effect level on firm performance. Fixed effects test is estimated and inference is based on significant level or p-value thus likely that less than 0.05 is rejected at a 95% confidence level, less than 0.01 is rejected at 99% confidence level and less than 0.1 is rejected at 90% confidence level. The results however show that information asymmetry is significant at 10% indicating it has effect on firm performance. However on regressing return on assets on other variables, results indicate that information asymmetry is significant at both 5% and 10% significant level.
Keywords
Information Asymmetry (IA), Principle-Agency Costs (PA), Socially Responsible Investment (SRI), Earnings Management, Turnover, Spread (Bid-ask Spread), Generally Accepted Accounting Principles (GAAP)
To cite this article
Anne Khatali, Identifying Effects of Information Asymmetry on Firm Performance, International Journal of Economics, Finance and Management Sciences. Vol. 8, No. 2, 2020, pp. 75-83. doi: 10.11648/j.ijefm.20200802.12
Copyright
Copyright © 2020 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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