Does information asymmetry and risk disclosure are corporate governance variables? if not, in which categories of Finance these comes?
Risk management. Corporate governance - SOA, financial reporting, stakeholders.
Risk disclosure comes in Risk Management and Financial Reporting ,@Chung Tin Fah
What about information asymmetry ? where its position lies? its used in corporate governance ?
Information asymmetry is taught in Corporate finance under Leverage and Capital Structure
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Information asymmetry between the insiders (managers of the firm) and outsiders (shareholders) is the basis of having a corporate governance framework for all companies. Disclosures reduces information asymmetry and are actionable targets for a well governed company. However, measures of corporate governance will include Board characteristics and ownership variables. I think you need to distinguish between outcomes and input variables.
Shreya Biswas Thank you for your reply, I am using Stock return volatility as Proxy of information asymmetry ? A question is asked by me how stock return volatility can measure information asymmetry?
Higher information asymmetry can be associated with greater stock return volatility, however, saying that stock return volatility measures information asymmetry does not really sound convincing. They are correlated but according to me one can't be used to measure the other.
In my opinion Information asymmetry (IA) and Enterprise Risk Management (ERM) issues are part of Corporate Governance (CG). CG starts with ethics and declaration of expected ethical conduct of the company. And the next issue is the setting of internal controls. IA can only be reduced by transparent reporting which is also a requirement of SEC for publicly traded companies. SEC requires companies to apply internal controls and choose to apply COBIT or COSO or ITIL internal control standards. Part of each of these standard setters` standards relate to ERM. In other words companies must apply risk management measures according to their risk appetite and make sure they declare the various risk that the companies are exposed to and the methods/measures they are taking in dealing with these risks. So both of them are part of the CG and the management should take the measures to reduce both. Both of them part of financial reporting requirements and therefore are subjects under accounting.
As part of transparent financial reporting requirement, information asymmetry ,(I A) and adequate disclosure compliance are two ethical attributes for good Corporate Governance. In fact the whole essence of CG is striving at drastic reduction of I.A. via adequate disclosure for the overall benefit of stakeholders.
Mubashir Khan information asymmetry is fast becoming a big problem due the rise of voluntary reporting in the form of Sustainability Report (SR) and the Integrated Report . Both the contents of the SR and although are bound by their respective frameworks, are not regulated and penalised if not reported by the Securities Commission (SC) or the Stock Exchange (Exchange). Furthermore, assurance for the SR and are practically non-existent. Therefore the PLCs are free to report at their whims and fancies albeit a framework issued by the SC or Exchange in order to pump up their corporate reputation, also benefitting from the absence of regulatory assurance that is compulsory for Annual Reports (AR). Corporate reputation (if excellent) sells so why not start from the Sis and s.
Corporate reputation (if excellent and rosy) sells.... so why not start from the SRs and s. Mubashir Khan
I like the point of view of Shreya. Stock return can not measure asymmetry of information. At the same time the task of corporate governance to minimize the negative influence of of asymmetry of info on shareholder value.
risk or any disclosures is used as a mechanism to reduce information asymmetry. disclosures and CG has been widely discussed in risk and other disclosures studies. it is also discussed CG literature.
Information asymmetry can come under many topics in finance - Agency, bank loans and insurance. Information - lack, misinformation or uneven availability of information is the basis of many finance theories. Disclosure is an important topic for market efficiency. A market can only be efficient if availability of information is available to all and the onus is on disclosure. Non-disclosure can lead to insider trading and market abuses.
