Information Asymmetry in Acquisitions Lit Review

@article{clarke2001information,

 title={On information asymmetry metrics},
 author={Clarke, J. and Shastri, K.},
 year={2001},
 abstract={The purpose of this paper is to provide a systematic empirical comparison of the different proxy variables used to measure information asymmetry. We construct different information asymmetry measures based on a firm’s growth opportunities, the market microstructure of the firm’s stock, and analysts’ forecasts of a firm’s earnings per share and examine their correlations under different sampling situations. We also study the ability of the microstructurebased measures, which can be calculated at any point in time, to detect trends in corporate finance proxies, which are measured quarterly. We find that the market microstructure measures tend to be highly correlated with one another. Moreover, they are related to firm characteristics that ex ante should be associated with information asymmetry. The market microstructure measures tend to be related to analyst forecast errors only for large, widely followed firms. Our results also indicate that monthly changes in the microstructure measures of information asymmetry are significantly correlated with annual changes in the corporate finance proxy variables.},
 filename={Clarke Shastri (2001) - On Information Asymmetry Metrics.pdf}

}

@article{ascioglu2008information,

 title={Information asymmetry and investment-cash flow sensitivity},
 author={Ascioglu, A. and Hegde, S.P. and McDermott, J.B.},
 journal={Journal of Banking \& Finance},
 volume={32},
 number={6},
 pages={1036--1048},
 year={2008},
 publisher={Elsevier},
 abstract={Models of capital market imperfections predict that information asymmetry increases the sensitivity of a firm’s investment expenditures to fluctuations in internal funds by making external capital more costly. Previous empirical tests of the link between investment and financing decisions have relied on indirect measures of the degree to which a firm becomes financially constrained due to market frictions. In contrast, we use more direct measures of informational frictions derived from the market microstructure literature. Consistent with the theoretical prediction, our analysis shows that the scaled investment expenditures of firms with greater informed trade have greater investment- cash flows sensitivity. We also find the relationship between investment-cash flow sensitivity as a function of informed trade is nonmonotonic. Our results are robust to multiple alternative measures of informed trade and liquidity.},
 filename={Ascioglu Hegde McDermott (2008) - Information Asymmetry And Investment Cash Flow Sensitivity.pdf}

}

@article{bhattacharya2008earnings,

 title={Earnings quality and information asymmetry: evidence from trading costs},
 author={Bhattacharya, N. and Desai, H. and Venkataraman, K.},
 year={2008},
 abstract={The adverse consequences of poor earnings quality have been the subject of significant debate among academics, practitioners and regulators. However, the empirical evidence on pricing implications of earnings quality is sparse and controversial. We examine one potential consequence of poor earnings quality - its impact on information asymmetry. We document that poor earnings quality increases the adverse selection risk as manifested in trading costs and lowers liquidity in financial markets. Both innate and discretionary components of earnings quality contribute significantly to information asymmetry. Further, poor earnings quality exacerbates information asymmetry around earnings announcements, especially for firms where earnings represent the principal source of information for market participants, suggesting that poor quality earnings offers a greater information advantage to informed traders. An important implication is that earnings quality can affect cost of capital via its impact on trading cost. Additionally, from a policy perspective, we show that earnings quality can lead to significant variation in information asymmetry even for firms within a uniform reporting regime.},
 filename={Bhattacharya Desai Venkataraman (2008) - Earnings Quality And Information Asymmetry Evidence From Trading Costs.pdf}

}

@article{aboody2000information,

 title={Information asymmetry, R\&D, and insider gains},
 author={Aboody, D. and Lev, B.},
 journal={The journal of Finance},
 volume={55},
 number={6},
 pages={2747--2766},
 year={2000},
 publisher={Wiley Online Library},
 abstract={Although researchers have documented gains from insider trading, the sources of private information leading to information asymmetry and insider gains have not been comprehensively investigated. We focus on research and development (R&D)-an increasingly important yet poorly disclosed productive input-as a potential source of insider gains. Our findings, for the period from 1985 to 1997 indicate that insider gains in R&D-intensive firms are substantially larger than insider gains in firms without R&D. Insiders also take advantage of information on planned changes in R&D budgets. R&D is thus a major contributor to information asymmetry and insider gains, raising issues concerning management compensation, incentives, and disclosure policies.},
 filename={Aboody Lev (2000) - Information Asymmetry R And D And Insider Gains.pdf}

}

@article{atiase1994trading,

 title={Trading volume reactions to annual accounting earnings announcements: The incremental role of predisclosure information asymmetry},
 author={Atiase, R.K. and Bamber, L.S.},
 journal={Journal of accounting and economics},
 volume={17},
 number={3},
 pages={309--329},
 year={1994},
 publisher={Elsevier},
 abstract={This study provides empirical evidence regarding the effect of annual accounting earnings announcements on investors' trading behavior. We find that the magnitude of trading volume reaction is an increasing function of both the magnitude of the associated price reaction and the level of predisclosure information asymmetry. These results are consistent with Kim and Verrecchia's (1991a) theoretical trading volume proposition.},
 filename={Atiase Bamber (1994) - Trading Volume Reactions To Annual Accounting Earnings Announcements.pdf}

}

@article{pevzner2007management,

 title={Management earnings forecasts, information asymmetry, and liquidity: an empirical investigation},
 author={Pevzner, M.},
 year={2007},
 abstract={This study investigates (1) whether forecasting firms have lower liquidity prior to the issuance of a management-earnings forecast than non-forecasting firms and (2) whether forecasting earnings has a persistent affect on a firm's liquidity. I find that, first, forecasting firms have greater liquidity in the period prior to a forecast. Second, while issuing forecast increases liquidity in over short windows, this effect is not significant over longer windows. Third, initiating or ceasing the issuance of earnings forecasts has no significant long-term effect on the firm's liquidity. Combined, these results suggest that management earnings forecasting decision does not appear to be driven by liquidity-improvement goals, and that management earnings forecasts do not appear to strongly affect firms' liquidity. },
 filename={Pevzner (2007) - Management Earnings Forecasts Information Asymmetry And Liquidity.pdf}

}

@article{chen2003bid,

 title={Bid-ask spreads, information asymmetry, and abnormal investor sentiment: evidence from closed-end funds},
 author={Chen, J.H. and Jiang, C.X. and Kim, J.C. and McInish, T.H.},
 journal={Review of Quantitative Finance and Accounting},
 volume={21},
 number={4},
 pages={303--321},
 year={2003},
 publisher={Springer},
 abstract={Using a sample of closed-end equity funds listed on the NYSE from 1994 to 1999, we investigate differences in spreads and adverse selection costs between the closed-end funds and a matched sample of common stocks.We find that spreads and adverse selection costs for the closed-end funds are significantly lower than those of control stocks. The results are consistent for the subperiods both before and after the minimum tick size change on NYSE on June 24, 1997. The differences of spreads and adverse selection costs cannot be attributed to the differences in the characteristics of the closed-end funds and the matched sample of common stocks. Lastly, we find that abnormal investor sentiment and adverse selection costs of closed-end funds are positively correlated over time.},
 filename={Chen Jiang Kim McInish (2003) - Bid Ask Spreads Information Asymmetry And Abnormal Investor Sentiment.pdf}

}

@article{lobo1997relation,

 title={Relation between predisclosure information asymmetry and trading volume reaction around quarterly earnings announcements},
 author={Lobo, G.J. and Tung, S.},
 journal={Journal of Business Finance \& Accounting},
 volume={24},
 number={6},
 pages={851--867},
 year={1997},
 publisher={Wiley Online Library},
 abstract={This study investigates the effects of differences in predisclosure information asymmetry on trading volume reaction during quarterly earnings announcements. The analyses show that trading volume reaction to quarterly earnings announcements is positively related to the level of predisclosure information asymmetry and to the magnitude of the price reaction to the announcements. These results are consistent with Kim and Verrecchia's (1991a) theoretical trading volume proposition, and with Atiase and Bamber's (1994) tests of the proposition based on annual earnings announcements. This study also provides evidence on the relation of predisclosure information asymmetry and trading volume before and after quarterly earnings announcements.},
 filename={Lobo Tung (1997) - Relation Between Predisclosure Information Asymmetry And Trading Volume Reaction Around Quarterly Earnings Announcements.pdf}

}

@article{brennan1996market,

 title={Market microstructure and asset pricing: On the compensation for illiquidity in stock returns},
 author={Brennan, M.J. and Subrahmanyam, A.},
 journal={Journal of Financial Economics},
 volume={41},
 number={3},
 pages={441--464},
 year={1996},
 publisher={Elsevier},
 abstract={Models of price formation in securities markets suggest that privately informed investors create significant illiquidily costs for uninformed investors, implying that the required rates of return should be higher for securities that are relatively illiquid. We investigate the empirical relation between monthly stock returns and measures of illiquity obtained from intraday data. We find a significant relation between required rates of return and these measures after adjusting for the Fama and French risk factors, and also after accounting for the effects of the stock price level.},
 filename={Brennan Subrahmanyam (1996) - Market Microstructure And Asset Pricing.pdf}

}

@article{brennan1998alternative,

 title={Alternative factor specifications, security characteristics, and the cross-section of expected stock returns},
 author={Brennan, M.J. and Chordia, T. and Subrahmanyam, A.},
 journal={Journal of Financial Economics},
 volume={49},
 number={3},
 pages={345--373},
 year={1998},
 publisher={Elsevier},
 abstract={We examine the relation between stock returns, measures of risk, and several non-risk security characteristics, including the book-to-market ratio, Þrm size, the stock price, the dividend yield, and lagged returns. Our primary objective is to determine whether non-risk characteristics have marginal explanatory power relative to the arbitrage pricing theory benchmark, with factors determined using, in turn, the Connor and Korajczyk (CK; 1988) and the Fama and French (FF; 1993b) approaches. FamaÐMac- Beth-type regressions using risk adjusted returns provide evidence of return momentum, size, and book-to-market e¤ects, together with a signiÞcant and negative relation between returns and trading volume, even after accounting for the CK factors. When the analysis is repeated using the FF factors, we Þnd that the size and book-to-market e¤ects are attenuated, while the momentum and trading volume e¤ects persist. In addition, Nasdaq stocks show signiÞcant underperformance after adjusting for risk using either method.},
 filename={Brennan Chordia Subrahmanyam (1998) - Alternative Factor Specifications Security Characteristics And The Cross Section Of Expected Stock Returns.pdf}

}

@article{chordia2001trading,

 title={Trading activity and expected stock returns},
 author={Chordia, T. and Subrahmanyam, A. and Anshuman, V.R.},
 journal={Journal of Financial Economics},
 volume={59},
 number={3},
 pages={32},
 year={2001},
 abstract={Given the evidence that the level of liquidity a!ects asset returns, a reasonable hypothesis is that the second moment of liquidity should be positively related to asset returns, provided agents care about the risk associated with #uctuations in liquidity. Motivated by this observation, we analyze the relation between expected equity returns and the level as well as the volatility of trading activity, a proxy for liquidity. We document a result contrary to our initial hypothesis, namely, a negative and surprisingly strong cross-sectional relationship between stock returns and the variability of dollar trading volume and share turnover, after controlling for size, book-to-market ratio, momentum, and the level of dollar volume or share turnover. This e!ect survives a number of robustness checks, and is statistically and economically signi"cant. Our analysis demonstrates the importance of trading activity-related variables in the crosssection of expected stock returns.},
 filename={Chordia Subrahmanyam Anshuman (2001) - Trading Activity And Expected Stock Returns.pdf}

}

@article{easley1996liquidity,

 title={Liquidity, information, and infrequently traded stocks},
 author={Easley, D. and Kiefer, N.M. and O'hara, M. and Paperman, J.B.},
 journal={Journal of Finance},
 pages={1405--1436},
 year={1996},
 publisher={JSTOR},
 abstract={This article investigates whether differences in information-based trading can explain observed differences in spreads for active and infrequently traded stocks. Using a new empirical technique, we estimate the risk of information-based trading for a sample of New York Stock Exchange (NYSE) listed stocks. We use the information in trade data to determine how frequently new information occurs, the composition of trading when it does, and the depth of the market for different volume-decile stocks. Our most important empirical result is that the probability of information-based trading is lower for high volume stocks. Using regressions, we provide evidence of the economic importance of information-based trading on spreads.},
 filename={Easley Kiefer Ohara Paperman (1996) - Liquidity Information And Infrequently Traded Stocks.pdf}

}

@article{easley2002information,

 title={Is information risk a determinant of asset returns?},
 author={Easley, D. and Hvidkjaer, S. and O’hara, M.},
 journal={The Journal of Finance},
 volume={57},
 number={5},
 pages={2185--2221},
 year={2002},
 publisher={Wiley Online Library},
 abstract={We investigate the role of information-based trading in affecting asset returns. We show in a rational expectation example how private information affects equilibrium asset returns. Using a market microstructure model, we derive a measure of the probability of information-based trading, and we estimate this measure using data for individual NYSE-listed stocks for 1983 to 1998. We then incorporate our estimates into a Fama and French (1992) asset-pricing framework. Our main result is that information does affect asset prices. A difference of 10 percentage points in the probability of information-based trading between two stocks leads to a difference in their expected returns of 2.5 percent per year.},
 filename={Easley Hvidkjaer Ohara (2002) - Is Information Risk A Determinant Of Asset Returns.pdf}

}

@article{ittner2001assessing,

 title={Assessing empirical research in managerial accounting: a value-based management perspective},
 author={Ittner, C.D. and Larcker, D.F.},
 journal={Journal of accounting and economics},
 volume={32},
 number={1},
 pages={349--410},
 year={2001},
 publisher={Elsevier},
 abstract={This paper applies a value-based management framework to critically review empirical research in managerial accounting. This framework enables us to place the exceptionally diverse set of managerial accounting studies from the past several decades into an integrated structure. Our synthesis highlights the many consistent results in prior research, identifies remaining gaps and inconsistencies, discusses common methodological and econometric problems, and suggests fruitful avenues for future managerial accounting research.},
 filename={Ittner Larcker (2001) - Assessing Empirical Research In Managerial Accounting.pdf}

}