The pricing of information asymmetry based on environmental uncertainty and accounting conservatism

Abstract

PurposeThe purpose of this study is to investigate the information asymmetry pricing (relation between information asymmetry and expected return) based on environmental uncertainty and accounting conservatism.Design/methodology/approachThe current study applies panel regression method estimator to investigate the relationship between accounting conservatism, environmental uncertainty and information asymmetry pricing of 1,309 firm-year observations in Iran for the period 2008–2018.FindingsThe result indicated the negative relation between accounting conservation and information asymmetry pricing and documented a positive association between environmental uncertainty and information asymmetry pricing.Practical implicationsIn the present study, the weaknesses caused by the ambiguity of capital market efficiency in market performance-based statistical models are compensated and partially covered by quantifying the relationships and implementing models in each quintile. Results obtained from this study will aid policymakers to evaluate disclosure rules and firms to manage their information. The study is based on the corporate accounting and financial literature and examines behavioral changes in information and its effect on information asymmetry pricing that can be applied to investors, managers, standardization committees and legislators.Originality/valueThe risk of accounting information in the context of the capital market environment can be divided into two parts: a part that is ambiguous about the accuracy of this information and another part that is a distribution of information. Unlike other research, information asymmetry pricing has also been addressed with regard to the origin and distribution of information. This study also considers the effect of information asymmetry and market constraints by considering the ability of financial reports to transmit firm information.