The Effectiveness of International Financial Reporting Standards in Minimizing Information Asymmetry
Abstract
Information asymmetry is an important problem of financial markets, which creates unequal conditions for different investors. The aim of the research is to analyse the impact of the implementation of International Financial Reporting Standards (IFRS) on the change in the relationship between a number of financial indicators and the company’s market value. The latter was taken as an indicator of information asymmetry arising from investors’ speculative expectations. The research employs methods of correlation, regression, and comparative analysis. The study established an increase in the correlation between Price-to-Earnings (P/E) ratio and market capitalization (Market cap) for a sample of Saudi Arabian companies after the IFRS implementation. However, the previously obtained conclusions were not confirmed after checking the results with the data of each individual company. Moreover, it was found that for most companies the correlation between P/E ratio and Market cap significantly weakened after the IFRS implementation. It can be assumed that before the mandatory IFRS implementation, the increase in Market cap could occur mainly on the basis of investors’ expectations. However, expectations could not be met because of a significant level of information asymmetry. Therefore, the decrease in correlations between P/E ratio and Market cap may indicate a more critical assessment of companies by investors due to increased transparency of financial information. Further research may focus on the analysis of other factors influencing the level of information asymmetry, such as improving the quality of integrated reporting and corporate governance.
References
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[17] Khan, Mubashir Ali, Yau, Josephine Tan-Hwang, Sarang, Aitzaz Ahsan Alias, Gull, Ammar Ali, and Javed, Muzhar. (2024). Information asymmetry and investment efficiency: The role of blockholders. Journal of Applied Accounting Research. DOI: https://doi.org/10.1108/JAAR-05-2023-0123
[18] Kim, Jong-Hoon, Fujiyama, Keishi, and Koga, Yuya. (2024). The effect of voluntary international financial reporting standards adoption on information asymmetry in the stock market: Evidence from Japan. Research in International Business and Finance, 69: 102250. DOI: https://doi.org/10.1016/j.ribaf.2024.102250
[19] Kong, Tao, Sun, Renji, Sun, Guanglin, and Song, Youtao. (2022). Effects of digital finance on green innovation considering information asymmetry: An empirical study based on Chinese listed firms. Emerging Markets Finance and Trade, 58(15): 4399–4411. DOI: https://doi.org/10.1080/1540496X.2022.2083953
[20] Kwilinski, Aleksy, Dalevska, Nataliya, Dementyev, Vyacheslav V. (2022). Metatheoretical issues of the evolution of the international political economy. Journal of Risk and Financial Management, 15(3): 124. DOI:https://doi.org/10.3390/jrfm15030124
[21] Li, Jian, Li, Yongming, and Lai, Kin Keung. (2024). Blockchain adoption and application in closed‐loop production under information asymmetry. International Transactions in Operational Research 31(6): 3650–3668. DOI: https://doi.org/10.1111/itor.13283
[22] Mahdich, A. S., and Lymonova, E. M. (2019). Information asymmetry: Areas of occurrence and effects. Nobel Herald, 1(12): 50–56. DOI: https://doi.org/10.32342/2616-3853-2019-2-12-6
[23] Mangu, Gabriela, Soare, Georgiana Janina, and Ciobota, Emanuel Catalin. (2023). The ifrs' impact on financial reporting as well as the asymmetry of financial and accounting information. Acta Universitatis Danubius. Economica, 19(1): 111–129. Available at: https://dj.univ-danubius.ro/index.php/AUDOE/article/view/2183
[24] Mohammed, Rebaz Mohammed Hussein. (2022). The effect of the accounting rvatism on reducing information asymmetry and the cost of capital within the framework of international standards. Journal of Global Social Sciences 3(11): 1–12. DOI: https://doi.org/10.58934/jgss.v3i11.65
[25] Myers, Erica. (2020). Asymmetric information in residential rental markets: Implications for the energy efficiency gap. Journal of Public Economics, 190: 104251. DOI:https://doi.org/10.1016/j.jpubeco.2020.104251
[26] Nejad, Maryam Yousefi, Ahmad, Azlina, Rahim, Ruzita Abdul, and Salleh, Fairuz Md. (2020). Does IFRS drive information asymmetry reduction? Evidence from ASEAN-6 countries. Asian Journal of Accounting and Governance, 14: 99–114. DOI: http://dx.doi.org/10.17576/AJAG-2020-14-08
[27] Orlov, Ihor V. (2023). Quality of integrated reporting and its characteristics. Economy, Management and Administration, 1(103): 105–110. DOI: https://doi.org/10.26642/jen-2023-1(103)-105-110
[28] Prokopenko, Olha, Zholamanova, Makpal, Mazurenko, Valerii, Kozlianchenko, Olena, and Muravskyi, Oleksii. (2022). Improving customer relations in the banking sector of Ukraine through the development of priority digital banking products and services: Evidence from Poland. Banks and Bank Systems 17(3): 12–26. DOI:http://dx.doi.org/10.21511/bbs.17(3).2022.02
[29] Shakespeare, Catherine. (2020). Reporting matters: the real effects of financial reporting on investing and financing decisions. Accounting and Business Research 50(5): 425–442. DOI:https://doi.org/10.1080/00014788.2020.1770928
[30] Shen, Pu. (2000). The P/E ratio and stock market performance. Economic review-Federal reserve bank of Kansas City, 85(4): 23–36.
[31] Tawiah, Vincent, and Oyewo, Babajide. (2024). The effect of IFRS adoption on bank internationalisation. International Journal of Finance & Economics. DOI: https://doi.org/10.1002/ijfe.2932
[32] Ullah, Ayat, Arshad, Muhammad, Kächele, Harald, Khan, Ayesha, Mahmood, Nasir, and Müller, Klaus. (2020). Information asymmetry, input markets, adoption of innovations and agricultural land use in Khyber Pakhtunkhwa, Pakistan. Land Use Policy, 90: 104261. DOI: https://doi.org/10.1016/j.landusepol.2019.104261
[33] Zhurakhovska, Liudmyla. (2023). Investment strategy of the banking sector in the context of financial market instability. Financial and Credit Activity Problems of Theory and Practice, 5(52): 25–39. DOI:https://doi.org/10.55643/fcaptp.5.52.2023.4152
[2] Agarwal, Nishant and Chakraverty, Arkaja. (2023). Growth opportunities, information asymmetry, and dividend payout: Evidence from mandatory IFRS adoption. European Accounting Review 32(1): 113–139. DOI: https://doi.org/10.1080/09638180.2021.1938622
[3] Ahmed, Dler Mousa, Azhar, Zubir, and Mohammad, Aram Jawhar. (2024). The role of corporate governance in reducing information asymmetry: Mediating role of international standards for accounting (IAS, IFRS). Kurdish Studies 12(1): 1734–1745. DOI: https://doi.org/10.58262/ks.v12i1.119
[4] Alshehadeh, Abdul Razzak, Alia, Mohammad A., Jaradat, Yousef, Injadat, Ehab, and Al-khawaja, Haneen. (2023). Big data analytics techniques and their impacts on reducing information asymmetry: Evidence from Jordan. International Journal of Data and Network Science 7(3): 1259–1266. DOI:http://dx.doi.org/10.5267/j.ijdns.2023.4.012
[5] Benkraiem, Ramzi, Bensaad, Itidel, Lakhal, Faten. (2022). How do International Financial Reporting Standards affect information asymmetry? The importance of the earnings quality channel. Journal of International Accounting, Auditing and Taxation, 46: 100445. DOI:https://doi.org/10.1016/j.intaccaudtax.2021.100445
[6] Bessler, Wolgang, Gonenc, Halit, and Tinoco, Mario Hernandez. (2023). Information asymmetry, agency costs, and payout policies: An international analysis of IFRS adoption and the global financial crisis. Economic Systems, 47(4): 101129. https://doi.org/10.1016/j.ecosys.2023.101129
[7] Chala, Tetyana, Hrabynska, Iryna, Ptashchеnko, Olena, Perchuk, Oksana, Posadnieva, Oksana, and Bioko, Olga. (2023). The impact of international financial reporting standards on information asymmetry. Review of Economics and Finance, 21. DOI: https://refpress.org/wp-content/uploads/2024/03/Chala_REF.pdf
[8] CompaniesMarketcap. (2024). Largest Saudi Arabian companies by market cap. Available at: https://companiesmarketcap.com/saudi-arabia/largest-companies-in-saudi-arabia-by-market-cap/
[9] Corbet, Shaen, Hou, Yang, Hu, Yang, and Oxley, Les. (2020). The influence of the COVID-19 pandemic on asset-price discovery: Testing the case of Chinese informational asymmetry. International Review of Financial Analysis, 72: 101560. DOI: https://doi.org/10.1016/j.irfa.2020.101560
[10] Ebaid, Ibrahim El- Sayed. (2022). Does the implementation of IFRS improve transparency regarding the company's financial conditions?: evidence from an emerging market. PSU Research Review. DOI:https://doi.org/10.1108/PRR-11-2021-0063
[11] Ertugrul, Melik, and Demir, Volkan. (2021). The impact of IFRS adoption on information asymmetry: Evidence from takeovers. Aksoy, Tamer, and Hacioglu, Umit (eds.) Auditing Ecosystem and Strategic Accounting in the Digital Era: Global Approaches and New Opportunities (pp. 105–124). Springer International Publishing. DOI:https://doi.org/10.1007/978-3-030-72628-7_5
[12] Fulghieri, Paolo, Garcia, Diego, and Hackbarth, Dirk. (2020). Asymmetric information and the pecking (dis) order. Review of Finance 24(5): 961–996. DOI: https://doi.org/10.1093/rof/rfaa005
[13] Golshan, Nargess M., Khurana, Inder K., and Silva, Felipe B. (2023). Financial transparency, labor productivity, and real wages: Evidence from mandatory IFRS adoption. Journal of International Accounting Research, 22(3): 31–61. DOI: https://doi.org/10.2308/JIAR-2022-044
[14] Hryn, Viktoriia P. (2021). Integrated reporting as a tool of strategic accounting communications. Economy, management and administration, 2(96): 47–53. DOI: https://doi.org/10.26642/ema-2021-2(96)-47-53
[15] Huynh, Toan Luu Duc, Wu, Junjie, Duong, An Trong. (2020). Information asymmetry and firm value: Is Vietnam different? The Journal of Economic Asymmetries, 21: e00147. DOI:https://doi.org/10.1016/j.jeca.2019.e00147
[16] Jamaani, Fouad, and Alidarous, Manal. (2022). The short-and long-lived effects of IFRS mandate on IPO firms in emerging market economies. Journal of Financial Reporting and Accounting, 20(5): 953–978. DOI:https://doi.org/10.1108/JFRA-11-2020-0324
[17] Khan, Mubashir Ali, Yau, Josephine Tan-Hwang, Sarang, Aitzaz Ahsan Alias, Gull, Ammar Ali, and Javed, Muzhar. (2024). Information asymmetry and investment efficiency: The role of blockholders. Journal of Applied Accounting Research. DOI: https://doi.org/10.1108/JAAR-05-2023-0123
[18] Kim, Jong-Hoon, Fujiyama, Keishi, and Koga, Yuya. (2024). The effect of voluntary international financial reporting standards adoption on information asymmetry in the stock market: Evidence from Japan. Research in International Business and Finance, 69: 102250. DOI: https://doi.org/10.1016/j.ribaf.2024.102250
[19] Kong, Tao, Sun, Renji, Sun, Guanglin, and Song, Youtao. (2022). Effects of digital finance on green innovation considering information asymmetry: An empirical study based on Chinese listed firms. Emerging Markets Finance and Trade, 58(15): 4399–4411. DOI: https://doi.org/10.1080/1540496X.2022.2083953
[20] Kwilinski, Aleksy, Dalevska, Nataliya, Dementyev, Vyacheslav V. (2022). Metatheoretical issues of the evolution of the international political economy. Journal of Risk and Financial Management, 15(3): 124. DOI:https://doi.org/10.3390/jrfm15030124
[21] Li, Jian, Li, Yongming, and Lai, Kin Keung. (2024). Blockchain adoption and application in closed‐loop production under information asymmetry. International Transactions in Operational Research 31(6): 3650–3668. DOI: https://doi.org/10.1111/itor.13283
[22] Mahdich, A. S., and Lymonova, E. M. (2019). Information asymmetry: Areas of occurrence and effects. Nobel Herald, 1(12): 50–56. DOI: https://doi.org/10.32342/2616-3853-2019-2-12-6
[23] Mangu, Gabriela, Soare, Georgiana Janina, and Ciobota, Emanuel Catalin. (2023). The ifrs' impact on financial reporting as well as the asymmetry of financial and accounting information. Acta Universitatis Danubius. Economica, 19(1): 111–129. Available at: https://dj.univ-danubius.ro/index.php/AUDOE/article/view/2183
[24] Mohammed, Rebaz Mohammed Hussein. (2022). The effect of the accounting rvatism on reducing information asymmetry and the cost of capital within the framework of international standards. Journal of Global Social Sciences 3(11): 1–12. DOI: https://doi.org/10.58934/jgss.v3i11.65
[25] Myers, Erica. (2020). Asymmetric information in residential rental markets: Implications for the energy efficiency gap. Journal of Public Economics, 190: 104251. DOI:https://doi.org/10.1016/j.jpubeco.2020.104251
[26] Nejad, Maryam Yousefi, Ahmad, Azlina, Rahim, Ruzita Abdul, and Salleh, Fairuz Md. (2020). Does IFRS drive information asymmetry reduction? Evidence from ASEAN-6 countries. Asian Journal of Accounting and Governance, 14: 99–114. DOI: http://dx.doi.org/10.17576/AJAG-2020-14-08
[27] Orlov, Ihor V. (2023). Quality of integrated reporting and its characteristics. Economy, Management and Administration, 1(103): 105–110. DOI: https://doi.org/10.26642/jen-2023-1(103)-105-110
[28] Prokopenko, Olha, Zholamanova, Makpal, Mazurenko, Valerii, Kozlianchenko, Olena, and Muravskyi, Oleksii. (2022). Improving customer relations in the banking sector of Ukraine through the development of priority digital banking products and services: Evidence from Poland. Banks and Bank Systems 17(3): 12–26. DOI:http://dx.doi.org/10.21511/bbs.17(3).2022.02
[29] Shakespeare, Catherine. (2020). Reporting matters: the real effects of financial reporting on investing and financing decisions. Accounting and Business Research 50(5): 425–442. DOI:https://doi.org/10.1080/00014788.2020.1770928
[30] Shen, Pu. (2000). The P/E ratio and stock market performance. Economic review-Federal reserve bank of Kansas City, 85(4): 23–36.
[31] Tawiah, Vincent, and Oyewo, Babajide. (2024). The effect of IFRS adoption on bank internationalisation. International Journal of Finance & Economics. DOI: https://doi.org/10.1002/ijfe.2932
[32] Ullah, Ayat, Arshad, Muhammad, Kächele, Harald, Khan, Ayesha, Mahmood, Nasir, and Müller, Klaus. (2020). Information asymmetry, input markets, adoption of innovations and agricultural land use in Khyber Pakhtunkhwa, Pakistan. Land Use Policy, 90: 104261. DOI: https://doi.org/10.1016/j.landusepol.2019.104261
[33] Zhurakhovska, Liudmyla. (2023). Investment strategy of the banking sector in the context of financial market instability. Financial and Credit Activity Problems of Theory and Practice, 5(52): 25–39. DOI:https://doi.org/10.55643/fcaptp.5.52.2023.4152
Published
2024-12-30
How to Cite
CHALA, Tetyana et al.
The Effectiveness of International Financial Reporting Standards in Minimizing Information Asymmetry.
Theoretical and Practical Research in Economic Fields, [S.l.], v. 15, n. 4, p. 885 - 893, dec. 2024.
ISSN 2068-7710.
Available at: <https://journals.aserspublishing.eu/tpref/article/view/8681>. Date accessed: 06 jan. 2025.
doi: https://doi.org/10.14505/tpref.v15.4(32).08.
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