Information Asymmetry, Ownership Structure and Cost of Equity Capital: The Formation for Open Innovation

Abstract

Our study aims to investigate how information asymmetry and ownership structure affect cost of equity capital. For that purpose, we collected 246 issuers over 4 years for a total of 984 observations. By using panel data processing, we found that the information asymmetry we proxied through Price non-Synchronization and trading volume had an effect on the cost of equity capital. Our results also confirmed both Agency Theory and Pecking Order Theory. Both theories are in line with the conditions of the stock market in Indonesia. In addition, we found that institutional and foreign ownership structures also had an effect on the cost of equity capital. Furthermore, our results also confirmed Interest Alignment Theory and Entrenchment Theory. Our research is expected to contribute to the debate on the existence of information asymmetry and ownership structures in relation to the cost of equity capital. We also hope that it will be a valuable input for investors in considering their investment. Moreover, from the results of this study, investors can also consider foreign ownership or institutional ownership in determining their investment. In addition, stock market regulators in Indonesia can develop approaches to minimize information asymmetry and encourage foreign investors to invest in Indonesia.

The Role of Ownership Structure and Board Characteristics in Stock Market Liquidity

“…De Cesari et al (2012) and Biswas (2020) use the same measure of institutional ownership. Following Muslim and Setiawan (2021), the study uses the proxy for managerial ownership as the part of total shares owned by the managers of the firm. As per the study of Uddin et al (2019), total board members are taken as a proxy for board size and board independence.…”

“…Managerial ownership is an important element of corporate governance because, following agency theory, managers of firms work for their interest which ultimately affects financial decisions and the stock market. Managerial ownership represents part of the total shares held by managers of the firm (Muslim and Setiawan 2021). As the corporate governance system is imperfect by default, managers make such decisions that are in favor of their interests and ignore the interests of shareholders (Saona et al 2020).…”

Corporate cash holdings and disclosure violations: an empirical investigation of Jordanian listed companies

“…The main hypothesis in this study is that the quality of financial reporting can have an impact on the level of CH. Firstly, poor quality financial reporting creates information asymmetry between firms and investors, leading to information risk, a risk that is nondiversifiable and is hence priced by investors, resulting in a higher cost of capital (Easley and O'Hara, 2004;O'Hara, 2003;Muslim and Setiawan, 2021). Grossman and Stiglitz (1980), in their model of accounting information and cost of capital, expect that informative accounting information results in more informed investors, and consequently, less information asymmetry and lower capital costs.…”

أثر تنظيم الإفصاحات الاختيارية غير المالية على الأداء المالي للبنوک المصرية في ضوء عدم تماثل المعلومات دراسة تطبيقية

“…( ‫ويشير‬ ‫هذا،‬ Bazillier & Vauday ,2009;Lyon & Maxwell, 2011;Dhaliwal et al, 2011;Qiu et al, 2016;Mukhtaruddin et al, 2014;Iskandar & Fran ,2016;Ntim ,2013;li et al, 2017;Russo et al, ‫االقتصادي‬ ‫واألداء‬ ‫للمنشآت‬ ‫االجتماعية‬ ‫المسؤولية‬ ‫إفصاحات‬ ‫بين‬ ‫العالقة‬ ‫المحاسبي‬ ‫األدب‬ ‫في‬ ‫السابقة‬ ‫الدراسات‬ (Muslim & Setiawan, 2021;Raimo, et. al.…”