VIRUS DE LA HEPATITIS B

A major challenge for any economy is to optimally allocate savings to new or existing investment opportunity. There are two main problems that prevent the efficient allocation of savings to potential business investment opportunity. They are “information problem” and “agency problem”.

The information problem arises from the informational differences between firms and investors. Firms typically have more information about their expected earnings from current and future investment opportunity. This information asymmetry makes it difficult for investors to assess the real profitability of the firm’s investment opportunity. The firms can even have an incentive to overstate their profitability that worsens the situation leading to market failure (Akerlof 1970). The result of information problem (so-called “lemons problem”) gives firms an incentive to disclose additional information that could facilitate investors’ decision (Akerlof 1970; Healy & Palepu 2001; Beyer et al. 2010).

The agency problem arises because investors do not engage in a direct control of a firm and the use of the funds once it flows to the firm and the self-interested entrepreneur has an incentive to expropriate investors’ funds. If the investors invest in a form of equity of a firm, then the entrepreneur can make use of the funds by acquiring perquisites, paying excessive compensation, or making an investment decision that can be harmful to the interests of outside investors (Jensen & Meckling 1979). If the investors invest in a form of debt, then the entrepreneur can make use of the funds by investing in a highly risky project, issuing additional more senior claims or paying out received cash as a dividend (Smith &

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Warner 1979). This moral hazard problem prevents direct transfers of information between market participants.

Consequently, the information environment will be shaped by both information and agency problem. They give a rise to a role of financial reporting and an incentive for corporate disclosure (Beyer et al. 2010). Accounting theory states that financial reporting is required by investors for evaluating the return on potential investment and for monitoring the use of funds once committed. In addition, financial reporting can reduce information asymmetry by disclosing timely and relevant information (Frankel & Li 2004). Without a good quality and transparency of financial report, it is not possible for market participants like investors and creditors to fully and completely understand a company’s financial condition as well as risks involved and a real fundamental of the company. Moreover, transparency of financial statement is crucial for corporate governance as it allows boards of directors to measure the effectiveness of management and detect any serious financial condition in order to take early corrective actions.

Therefore, both transparent accounting information and corporate disclosure with high quality and credibility would provide useful insight information for decision making by shareholders, stakeholders and potential investors in relation to capital allocation, corporate transactions and financial performance monitoring (Leuz & Wysocki 2008; Beyer et al. 2010). However, generally, firms do not always disclosure all information and voluntarily disclosure partial information. Firms voluntarily disclosure their private information under conditions identified by the unraveling result1 (Grossman & Hart 1980; Grossman 1981; Milgrom 1981; Milgrom & Roberts 1986). If the unraveling result holds, a firm will provide all information voluntarily; however, in practice, the unraveling result has not been successful in explaining observed disclosure and this leads to less than full disclosure (Beyer et al. 2010).

1 _{The conditions under the unraveling result are: (1) disclosure are costless; (2) investors know that firms}

have, in fact, private information; (3) all investors interpret the firms’ disclosure in the same way and firms know investors will interpret that disclosure; (4) managers want to maximize their firms’ share prices; (5) firms can credibly disclosure their private information; and (6) firms cannot commit ex-ante to a specific disclosure policy.

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Despite the incentives of voluntary disclosure, Leuz and Wysocki (2008) explain the reasons why disclosure regulation is needed. First, sometimes it is difficult for managers to credibly convey information due to misalignment of insiders’ and investors’ incentives. Thus, disclosure requirement and accounting standards play a crucial role in allowing firms to commit to a certain level of disclosure and, at the same time, improve the credibility of reporting information. Second, because disclosures are considered as public goods, this causes a lack of incentive to voluntarily disclosure certain information, which can improve social welfare. Disclosure regulation thus comes into play when firms do not voluntarily disclose all private information.

Therefore, we focus on the mandatory adoption of International Financial Reporting Standards (IFRS) to measure the transparency of the macro information environment. IFRS is developed by the International Accounting Standards Board (IASB), which operates under the oversight of the IFRS Foundation. The goal of the IASB and the IFRS Foundation is to develop a single set of global financial reporting standards that bring transparency, accountability, and efficiency to financial markets around the world. Those standards serve the public interest by fostering trust, growth, and long-term financial stability in the global economy.

Studies show that IFRS adoption may improve analysts’ information environment by enhancing transparency and by increasing the comparability of the financial reports (e.g. Barth et al. (2008b); Bae et al. (2008)). Cross-border comparison of financial data becomes easy when the single set of accounting standard is applied globally; thereby, decreasing information acquisition costs, increasing competition and efficiency in the markets (Ball 2006).

Existing research studies on mandatory IFRS adoption initially examine the pre- impact of mandatory IFRS adoption (Comprix et al. 2003; Armstrong et al. 2006; Christensen et al. 2007a). These studies find a positive market reaction to events that increase the likelihood of IFRS adoption, though the effect might be small in some countries (e.g. UK). Several other studies, on the other hand, observed the outcome of the capital market after the introduction of mandatory IFRS adoption. Some studies show that stock market liquidity and equity valuations increase after the introduction of mandatory IFRS in a country (Platikanova 2007; Daske et al. 2008). Moreover, IFRS reconciliations contain

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new information that investors consider relevant for firm valuation (Christensen et al. 2007b). Most accounting quality indicators have improved after mandatory adoption of IFRS (Jeanjean & Stolowy 2008; Chen et al. 2010). The mandatory IFRS adoption also increases both private and public information to analysts resulting in the improvement of analysts’ information environment (Ashbaugh & Pincus 2001; Byard et al. 2011; Horton et al. 2013). Consistently, empirical analysis on voluntary IFRS adoption is found to result in better transparency of financial reporting, higher accounting quality and lower information asymmetry, uncertainties and estimation risks (Leuz & Verrecchia 2000; Daske & Gebhardt 2006; Hung & Subramanyam 2007; Barth et al. 2008b), lower bid-ask spreads (Leuz & Verrecchia 2000), increased analyst following (Cuijpers & Buijink 2005), lower cost of capital (Daske et al. 2013) and higher foreign institutional investment (Covrig et al. 2007).

The key challenge for the study of voluntary IFRS adoption is the fact that firms choose whether and when to adopt IFRS reporting. It is difficult to differentiate between mandatory and voluntary IFRS when the adoption of IFRS is voluntary for certain sectors in the economy. A country may allow some firms to conform to IFRS; however, local GAAP2 is still allowed for others such that it is impossible to observe the effects of IFRS adoption per se. Thus, we prefer using mandatory IFRS adoption as a proxy for asymmetric information environment. When a country mandatorily adopts IFRS, the macro information environment is more transparent compared to a country with no IFRS adoption.

In addition to mandatory IFRS adoption, we employ an alternative measure of the transparency of information environment, which is the Business Extent of Disclosure Index (BDI). BDI is obtained from the World Bank’s Doing Business. This index measures the extent to which investors are protected through disclosure of ownership and financial information (World Bank’s Doing Business 2016). Particularly, BDI is a measure of the extent of disclosure of a firm’s conflict of interest. The index measures how well are minority shareholders protected from disclosure of transactions that involve conflicts of interests. Misbehavior or misuse of funds by entrepreneurs can eventually be harmful to the interests of shareholders and fund providers (Jensen & Meckling 1979). Greater business disclosure

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would make firms more discipline and reduce the moral hazard problem. Thus, higher BDI is associated with higher level of transparency of information environment.

Information asymmetry is the main explanation for credit rationing, suboptimal allocation of capital and inefficient investment decisions leading to an adverse economic outcome (Stiglitz & Weiss 1981; Myers & Majluf 1984; Diamond & Verrecchia 1991). Theoretical and empirical studies show that credit information sharing can mitigate information problems between banks and borrowers, leading to safe and credit availability. However, the usefulness of credit information sharing in reducing information gaps between banks and borrowers can be less effective in a country with more transparent information environment compared to one with lower transparent information environment.

To the best of my knowledge, no empirical study attempts to study the impact of information asymmetry on the relationship between credit information sharing and bank lending. There is one study seeking to estimate the impact of information sharing on access to finance for firms. Specifically, Brown et al. (2009) suggest that firm-level accounting transparency is a substitute for credit information sharing in enhancing firms’ access to credit; the correlation between credit information sharing and credit access is stronger for opaque firms than for transparent ones. However, their study is related to firm-level survey data on access-to-finance but not the supply side of bank lending, which is an approach consistent with theoretical analyses of information sharing in the credit market (Pagano & Jappelli 1993; Padilla & Pagano 1997, 2000; Bennardo et al. 2014).

Since the study on the impact of information asymmetry on the relationship between credit information sharing and bank lending is scared, we examine such impact by employing the mandatory adoption of IFRS and BDI as proxies for the macro information environment. Based on the support from the empirical evidence that the adoption of IFRS enhances transparency and information environment, we expect that the beneficial effect of credit information sharing on bank lending is reduced in countries with mandatory IFRS adoption. For an alternative proxy of information environment to IFRS adoption, we also expect that higher BDI would attenuate the impact of credit information sharing on bank lending. Formally, we hypothesize that:

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Hypothesis 2: The impact of credit information sharing on bank lending is expected to be less pronounced when the information environment is more transparent (as proxied by IFRS adoption and BDI).