Analyses of Information Asymmetry:Focused Firms versus Diversified Firms

• Main Authors: Wen-Yen Chen, 陳文彥
• Other Authors: Robin K. Chou
• Format: Others
• Language: en_US
• Published: 2008
• Online Access: http://ndltd.ncl.edu.tw/handle/35875346278091677626

碩士 === 國立中央大學 === 財務金融研究所 === 96 === This study contains 777 firms who announce earnings warnings, and analyzes information asymmetry problem among firms with different corporate structures by examining market response to earnings warning, investment opportunities and operating performance. The results indicate firms with higher level of focus will have more severe information asymmetry problem. Market will response to firms’ earnings warnings in the (-1, 2) event window. Significant positive CAR surrounds positive warnings, and significant negative reaction surrounds negative warnings. We find market will react more drastically to earnings warning announced by focused firms no matter the warning is positive or negative, and this phenomenon can be due to higher information asymmetry for focused firms. Severity of information asymmetry will also have significant impact on firms’ investment opportunities and operating performance. As shown in this study, diversified firms will gain better investment opportunities and better operating performance after earnings warnings. Based on previous literatures, the improvement of investment opportunities and operating performance may come from the lower information asymmetry, so we infer the focused firms will still have more severe information asymmetry problem after earnings warning. Overall, empirical results in this study suggest that focused firms suffer more information asymmetry problem than diversified firms before and after earnings warning.