Asymmetric Information and Firm Value During Pandemic Covid-19

Abstract

The purpose of this study is to investigate the relationship between fundamental factors, asymmetric information, and firm value during the 2020 pandemic by taking samples of 457 non-financial companies listed on the Indonesian Stock Exchange. Two-stage least square testing by controlling the firm’s and industrial characteristics proves that asymmetric information does not have a dominant role in explaining firm value changes during the COVID-19 pandemic. This study also confirms that (1) the disclosure of information through corporate financial reports and foreign investors’ presence still has a dominant role in mitigating information gaps among traders; (2) foreign investors' trading behavior indirectly provides information through their shares' trading flow, which causes a decrease in asymmetric information. This comprehensive empirical testing provides additional evidence regarding asymmetric information and firm value in developing markets during the pandemic.

Keywords

• asymmetric information
• firm value
• firm characteristics
• pandemic
• COVID-19
• emerging markets

References

1. Ahmed, B. (2020) 'Understanding the Impact of Investor Sentiment on the Price Formation Process: A Review of the Conduct of American Stock Markets' The Journal of Economic Asymmetries, 22, 1-29. doi:10.1016/j.jeca.2020.e00172
2. Al-Awadhi, A. M., Alsaifi, K., Al-Awadhi, A., and Alhammadi, S. (2020) 'Death and Contagious Infectious Disease: Impact of the COVID-19 Virus on Stock Market Returns' Journal of Behavioral and Experimental Finance, 27. doi:10.1016/j.jbef.2020.100326
3. Bagehot (1971) 'The Only Game in Town' Financial Analysis Journal, 27(2), 12-22. doi:10.2469/faj.v27.n2.12
4. Baker, M., and Wurgler, J. (2007) 'Investor Sentiment in the Stock Market' Journal of Economic Perspectives, 21(2), 129-151. doi:10.1257/jep.21.2.129
5. Booth, G. G., Kallunki, J.-P., and Shalström, P. (2011) 'Foreign VS Domestic Investors and the Post-Announcement Drift' International Journal of Managerial Finance, 7(3), 220-237. doi:10.1108/17439131111144441
6. Chen, L.-J., and Chen, S.-Y. (2011) 'The Influence of Profitability on Firm Value with Capital Structure as the Mediator and Firm Size and Industry as Moderators' Investment Management and Financial Innovations, 8(3), 121-129. doi:10.1201/b11108-9
7. Chen, M.-H., Jang, S. S., and Kim, W. G. (2007) 'The Impact of the SARS outbreak on Taiwanese Hotel Stock Performance: An Event-Study Approach' Hospitality Management, 26, 200-212. doi:10.1016/j.ijhm.2005.11.004
8. Chincarini, L. B., Kim, D., and Moneta, F. (2020) 'Beta and Firm Age' Journal of Empirical Finance, 58, 50-74. doi:10.1016/j.jempfin.2020.05.003

9. Chong, B.-U., and Kim, H. (2018) 'Capital Structure Volatility, Financial Vulnerability, and Stock Returns: Evidence from Korean Firms' Finance Research Letters, 30, 318-326. doi:10.1016/j.frl.2018.10.019
10. Copeland, T. E., and Galai, D. (1983) 'Information Effects on the Bid-Ask Spread' The Journal of Finance, 38(5), 1457-1469. doi:10.2307/2327580
11. Dhochak, M., and Sharma, A. K. (2015) 'Impact of Global Financial Crisis on Indian Venture Capital Firms: An Empirical Evaluation' Journal for International Business and Entrepreneurship Development, 8(4), 330-345. doi:10.1504/JIBED.2015.072931
12. Donadelli, M., Kizys, R., and Riedel, M. (2017) 'Dangerous Infection Disease: Bad News for Main Steet, Good News for Wall Street?' Journal of Financial Markets, 35, 84-103. doi:10.1016/j.finmar.2016.12.003
13. Fosu, S., Danso, A., Ahmad, W., and Coffie, W. (2016) 'Information Asymmetry, Leverage, and Firm Value: Do Crisis and Growth Matter?' International Review of Financial Analysis, 46, 140-150. doi:10.1016/j.irfa.2016.05.002
14. French, K. R., and Roll, R. (1986) 'Stock Return Variances: The Arrival of Information and the Reaction of Traders' Journal of Financial Economics, 17(1), 5-26. doi:10.1016/0304-405X(86)90004-8
15. Glosten, L. R. (1987) 'Components of the Bid-Ask Spread and the Statistical Properties of Transaction Prices' The Journal of Finance, 42(5), 1293-1307. doi:10.2307/2328528
16. Glosten, L. R., and Milgrom, P. R. (1985) 'Bid, Ask, and Transaction Prices in A Specialist Market with Heterogeneously Informed Traders' Journal of Financial Economics, 14(1), 71-100. doi:10.1016/0304-405X(85)90044-3
17. Harris, T. (2016) 'Earnings Announcement and Quoted Bid-Ask Spread of U.S. Bank Holding Companies' Finance Research Letters, 20, 223-228. doi:10.1016/j.frl.2016.10.003
18. Healy, P. M., and Palepu, K. G. (2001) 'Information Asymmetry, Corporate Disclosure, and the Capital Markets: A Review of the Empirical Disclosure Literature' Journal of Accounting and Ecnomics, 31, 405-440. doi:doi.org/10.1016/S0165-4101(01)00018-0
19. Huang, Q., Jiang, F., and Wu, S.-Y. J. (2018) 'Does Short-Maturity Debt Discipline Managers? Evidence from Crash-Rich Firms' Acquisition Decisions' Journal of Corporate Finance, 53, 133-154. doi:10.1016/j.jcorpfin.2018.10.001
20. Huynh, T. L. D., Wu, J., and Duong, A. T. (2020) 'Information Asymmetry and Firm Value: Is Vietnam Different?' The Journal of Economic Asymmetries, 21. doi:10.1016/j.jeca.2019.e00147
21. Ichev, R., and Marinč, M. (2018) 'Stock Prices and Geographic Proximity of Information: Evidence from the Ebola Outbreak' International Review of Financial Analysis, 56, 153-166. doi:10.1016/j.irfa.2017.12.004
22. Jindra, J., and Moeller, T. (2020) 'Time Since Targets’ Initial Public Offerings, Asymmetric Information, Uncertainty, and Acquisition Pricing' Journal of Banking & Finance, 118, 105896. doi:10.1016/j.jbankfin.2020.105896
23. Miller, E. M. (1987) 'Bounded Efficient Markets: A New Wrinkle to the EMH' The Journal of Portfolio Management, 13(4), 4-13. doi:10.3905/jpm.1987.409112
24. Miller, M. H. (1994) 'Is American Corporate Governance Fatally Flawed?' Journal of APplied Corporate Finance, 6(4), 32-39. doi:10.1111/j.1745-6622.1994.tb00246.x
25. Ng, A. C., and Rezaee, Z. (2020) 'Business Sustainability Factors and Stock Price Informativeness' Journal of Corporate Finance, 64. doi:10.1016/j.jcorpfin.2020.101688
26. Nugroho, B. D., Subroto, B., and Rahman, A. F. (2015) 'Voluntary Disclosure, Ownership Structure, Information Asymmetry and Cost of Capital' IOSR Journal of Economics and Finance (IOSR-JEF), 6(3), 48-57. doi:10.9790/5933-06314857
27. Setiawan, D., Bandi, B., Phua, L. K., and Trinugroho, I. (2016) 'Ownership Structure and Dividend Policy in Indonesia' Journal of Asia Business Studies, 12(3), 314-334. doi:10.1108/JABS-05-2015-0053
28. Siagian, F., Siregar, S. V., and Rahadian, Y. (2013) 'Corporate Governance, Reporting Quality, and Firm Value: Evidence from Indonesia' Journal of Accounting in Emerging Economies, 3(1), 4-20. doi:10.1108/20440831311287673
29. Thampanya, N., Wu, J., Nasir, M. A., and Liu, J. (2020) 'Fundamental and Bahavioural Determinants of Stock Returns Volatility in ASEAN-5 Countries' Journal of International Financial Markets, Institutions & Money, 65. doi:10.1016/j.intfin.2020.101193
30. Uyar, A., and Kiliç, M. (2012) 'Value Relevance of Voluntary Disclosure: Evidence form Turkish Firms' Journal of Intellectual Capital, 13(3), 363-376. doi:10.1108/14691931211248918
31. Wang, J.-X., and Zhao, M.-X. (2020) 'Economic Impacts of ISO 14001 Certification in China and the Moderating Role of Firm Size and Age' Journal of Cleaner Production, 274. doi:10.1016/j.jclepro.2020.123059
32. Wang, P. (2014) 'Foreign Institutional Investor Trading in Chinese: A-Share Markets' Managerial Finance, 40(10), 1007-1023. doi:10.1108/MF-11-2013-0326
33. Wen, Y. (2018) 'Voluntary information acquisition in an asymmetric-Information game:comparing learning theories in the laboratory' Journal of Economic Behavior & Organization, 150, 202-219. doi:10.1016/j.jebo.2018.03.023
34. Yasser, Q. R., and Mamun, A. A. (2015) 'Effects of Ownership Concentration on Firm Performance-Pakistani Evidence' Journal of Asia Business Studies, 9(2), 162-176. doi:10.1108/JABS-07-2014-0047