Corporate Inertia and Information Asymmetry: Evidence from Iran

Iranian Journal of Accounting, Auditing and Finance

مقاله 1، دوره 8، شماره 3 - شماره پیاپی 28، آبان 2024، صفحه 1-25   

نوع مقاله: Original Article

شناسه دیجیتال (DOI): 10.22067/ijaaf.2024.430771130

نویسندگان

Esmaeil Abdi¹؛ Mehdi Safari Gerayli^{* 2}؛ Yasser Rezaei Pitenoei³

¹Department of Accounting, Nour Branch, Islamic Azad University, Nour, Iran

²Department of Accounting, Bandargaz Branch, Islamic Azad University, Bandargaz,Iran

³Department of Accounting, University of Guilan, Rasht, Iran

چکیده

Corporate inertia, stemming from a reluctance to adapt and innovate over time, poses significant challenges in the modern business landscape, particularly in capital markets. This study examines the impact of corporate inertia on information assymetry within the Iranian capital market. Employing a comprehensive research approach involving meta-synthesis, Delphi analysis, and questionnaire design, we assess corporate inertia. Questionnaires were distributed to managers of sampled companies, with 138 responses included in the statistical analysis. Information asymmetry is measured using three proxies: bid-ask spread, turnover, and the liquidity of the company's stock. The findings indicate a positive and significant relationship between corporate inertia and information assymetry. Our results suggest that corporate inertia fosters a managerial mindset characterized by insularity and resistance to change. This mindset prioritizes individual insights over stakeholder interests, resulting in a monopolistic control of information disclosure that exacerbates information assymetry in the market.

کلیدواژه‌ها

Corporate Inertia؛ Information Asymmetry؛ Iranian Capital Market؛ Managerial Resistance

مراجع

1. Agarwal, N., and Chakraverty, A. (2023). Growth opportunities, information asymmetry, and dividend payout: Evidence from mandatory IFRS adoption. European Accounting Review, 32(1), pp. 113-139. https://doi.org/10.1080/09638180.2021.1938622
2. Akerlof, G. A. (2002). Behavioral macroeconomics and macroeconomic behavior. American Economic Review, 92(3), pp. 411-433. DOI: 10.1257/00028280260136192
3. Allcorn, S., and Godkin, L. (2011). Workplace psychodynamics and the management of organizational inertia. Competitiveness Review: An International Business Journal, 21(1), pp. 89-104. https://doi.org/10.1108/10595421111106247
4. Amabile, T. M., Conti, R., Coon, H., Lazenby, J., and Herron, M. (1996). Assessing the work environment for creativity. Academy of management journal, 39(5), pp. 1154-1184. https://doi.org/10.5465/256995
5. Amihud, Y. (2002). Illiquidity and stock return cross sectional and time-series effect, Journal of Financial market, 5(2), pp. 31-56. https://doi.org/10.1016/S1386-4181 (01)00024-6
6. Amran, A., Lee, S. P., and Devi, S. S. (2014). The influence of governance structure and strategic corporate social responsibility toward sustainability reporting quality. Business Strategy and the environment, 23(4), pp. 217-235..https://doi.org/10.1002/bse.1767
7. Bruton, G. D., Ahlstrom, D., and Wan, J. C. (2003). Turnaround in East Asian firms: Evidence from ethnic overseas Chinese communities. Strategic Management Journal, 24(6), pp. 519–540. https://doi.org/10.1002/smj.312
8. Casamatta, C., Guembel, A. (2010). Managerial Legacies, Entrenchment, and Strategic Inertia, The Journal of Finance, 65(6), pp. 2403-2436, https://doi.org/10.1111/j.1540-6261.2010.01619.x
9. Chen, W., Jin, R., and Xie, Y. (2022). Strategic flexibility or persistence? Examining the survival path of export enterprises under COVID-19. Chinese Management Studies, 17(2), pp. 320-342. https://doi.org/10.1108/CMS-07-2021-0313
10. Crépin, A. S., and Nævdal, E. (2020). Inertia Risk: Improving Economic Models of Catastrophes, the Scandinavian Journal of Economics, 122(4), pp. 1259-1285. https://doi.org/10.1111/sjoe.12381
11. Dayanandan, A., Donker, H., and Karahan, G. (2017). Do voluntary disclosures of bad news improve liquidity? The North American Journal of Economics and Finance, 40(1), pp. 16-29. https://doi.org/10.1016/j.najef.2017.01.002
12. Ebrahimi, S. (2016). An introduction to organizational inertia and effective factors on it in organizations of public sector of Iran. Quarterly Journal of Public Organzations Management, 4(1), pp. 91-108. 20.1001.1.2322522.1394.4.0.6.7
13. Elbadry, A., Gounopoulos, D., and Skinner, F. (2015). Governance quality and information asymmetry. Financial Markets, 24(2/3), pp. 127-157. https://doi.org/10.1111/fmii.12026
14. Fakhari H, and Rezaei P. Y. (2017). Explaining a Model for Measuring Corporate Information Environment. Quarterly Financial Accounting Journal, 9(33), pp. 121-147. .https://sid.ir/paper/168161/en
15. Fasan, M., and Mio, C. (2017). Fostering stakeholder engagement: The role of materiality disclosure in integrated reporting. Business Strategy and the Environment, 26(3), pp. 288-305. https://doi.org/10.1002/bse.1917
16. Francis, J., and Smith, A. (1995). Agency costs and innovation-some empirical evidence. Journal of Accounting and Economics 19(2/3), pp. 383-409. https://doi.org/10.1016/0165-4101(94)00389-M
17. Gerwanski, J., Kordsachia, O., and Velte, P. (2019). Determinants of materiality disclosure quality in integrated reporting: Empirical evidence from an international setting, Business Strategy and the Environment, 28(5), pp. 750-770. https://doi.org/10.1002/bse.2278
18. Ghaffari, R., and Rostamniya, Y. (2017). Organizational Social Inertia and laziness; Dysfunctions of the bureaucratic Organizational culture. Journal of Public Administration, 9(2), pp. 307-332. https://doi.org/10.22059/jipa.2017.234155.2019
19. Godkin, A., and S. Allcorn. (2008). overcoming organizational inertia: A tripartite model for achieving strategic organizational change. The Journal of Applied Business and Economics, 8(1), pp. 82-95. https://www.researchgate.net/publication/267362860
20. Hajiha, Z., Jafari, S., and Ranjbar navi, R. (2018). Effect of price gap and inappropriate selection as information asymmetric measures on the level of cash holdings. Journal of Investment Knowledge, 7(27), pp. 207-224. http://www.jik-ifea.ir/article_12962.html?lang=en
21. Hannan, M. T., and Freeman, J. (1989). Organizational ecology. Cambridge: Harvard University Press.
22. Hu, W., and Fu, X. (2022). Does individual investors’ online search activities reduce information asymmetry? Evidence from stock exchanges’ comment letters in China. Asia-Pacific Journal of Accounting & Economics, 29(3), pp. 582-602.
https://doi.org/10.1080/16081625.2020.1754248
23. Huang, Z., and Gao, W. (2022). Has the past really passed? Strategic inertia and capital structure persistence. Managerial and Decision Economics, 43(4), pp. 883-893. https://doi.org/10.1002/mde.3424
24. Illeditsch, P. K., Ganguli, J. V., and Condie, S. (2021). Information inertia. The Journal of Finance, 76(1), pp. 443-479.. https://doi.org/10.1111/jofi.12979
25. Imany, H., and Dastgir, M. (2018). Investigating the Integration between Asymmetric Decrease in Liquidity Trading before Earnings Announcements, The Announcement Return Premium and Profitability News Announcements Using a Simultaneous Equations System. Journal of Asset Management and Financing, 6(4), pp. 43-56. https://doi.org/10.22108/amf.2017.21351
26. Iqbal, M. and Santhakumar, S. (2018). Information asymmetry and insider trade profitability in India, Journal of Indian Business Research, 10(1), pp. 53-69. https://doi.org/10.1108/JIBR-05-2017-0059
27. Ispano, A. (2018). Information acquisition and the value of bad news, Games and Economic
Behavior, 110(2), pp. 165-173. https://doi.org/10.1016/j.geb.2018.03.013
28. Jayasimha, K.R. (2022). Client opportunism in agency-client relationship: the role of information asymmetry, agency response and calculative commitment, Journal of Business & Industrial Marketing, 37(2), pp. 326-340. https://doi.org/10.1108/JBIM-07-2020-0354
29. Khatali, A. (2020). Identifying effects of information asymmetry on firm performance. International Journal of Economics, Finance and Management Sciences, 8(2), pp. 75-91. https://doi.org/10.11648/J.IJEFM.20200802.12
30. Kumar, P., Langberg, N., Oded, J., and Sivaramakrishnan, K. (2017). Voluntary disclosure and strategic stock repurchases, Journal of Accounting and Economics, 63(2/3), pp. 207-230. https://doi.org/10.1016/j.jacceco.2017.02.001
31. Lambert, R. A., Leuz, C., and Verrecchia, R. E. (2021). Information asymmetry, information precision, and the cost of capital. Review of Finance, 16(1), pp. 1-29. https://doi.org/10.1093/rof/rfr014
32. Lewis, S. (2015). The rise: Creativity, the gift of failure, and the search for mastery. New York: Simon and Schuster.
33. Li, K. (2020). Does Information Asymmetry Impede Market Efficiency? Evidence from Analyst Coverage, Journal of Banking & Finance, 118(1), pp. 74-98. https://doi.org/10.1016/j.jbankfin.2020.105856
34. Lin, Z. Y., Chang, C. C., and Wang, Y. H. (2018). The impacts of asymmetric information and short sales on the illiquidity risk premium in the stock option market. Journal of Banking & Finance, 94(17), pp. 152-165. https://doi.org/10.1016/j.jbankfin.2018.07.005
35. Lotito, G., Migheli, M., and Ortona, G. (2020). Transparency, asymmetric information and cooperation, European Journal of Law and Economics, 50(1), pp. 267–294. https://doi.org/10.1007/s10657-020-09669-z
36. Lovallo, D., Brown, A, L., Teece, D, J., and Bardolet, D. (2020). Resource re‐allocation capabilities in internal capital markets: The value of overcoming inertia, Strategic Management Journal, 41(8), pp. 1365-1380. https://doi.org/10.1002/smj.3157
37. Majid, A., Yasir, M. T. A. M., and Tabassum, N. (2011). Organizational inertia and change portfolio: An analysis of the organizational environment in developing countries, African Journal of Business Management, 5(2), pp. 383-388. http://doi.org/10.5897/AJBM10.368
38. Malakar, Y., Greog, Ch., and Van de Fliert, E. (2018). Structure, agency and capabilities: Conceptualizing inertia in solid fuel-based cooking practices, Energy Research & Social Science, 40(3), pp. 45-53. https://doi.org/10.1016/j.erss.2017.12.002
39. Marjanian, Y., Shahveisi, F., Eivani, F., and Khanzadi, A. (2020). Study Effect of Earnings Management Forecast News on Earnings Predictability and Disclosure Noises. Empirical Studies in Financial Accounting, 17(66), pp. 87-122.
https://doi.org/10.22054/qjma.2020.46188.2047
40. Ma'toufi, A., and Tabarsa, M. (2019). The Effect of CEO Power on Future Stock Price Crash
Risk: Opportunistic Approach to Power. Journal of Securities Exchange, 11(44), pp. 5-22. https://doi.org/10.22034/jse.2019.11139
41. Matthyssens, P., K. Vandenbempt, and L. Berghman. (2006). Value innovation in business markets: Breaking the industry recipe. Industrial Marketing Management 35(6), pp. 751-761. https://doi.org/10.1016/j.indmarman.2005.05.013
42. McKinley, W., Latham, S., and Braun, M. (2014). Organizational decline and innovation: Turnarounds and downward spirals. Academy of Management Review, 39(1), pp. 88–110. https://doi.org/10.5465/amr.2011.0356
43. Mellahi, K., and Wilkinson, A. (2010). Managing and coping with organizational failure: Introduction to the Special Issue. Group & Organization Management, 35(5), pp. 531–541. https://doi.org/10.1177/1059601110383404
44. Mikalef, P., Wetering, R, V, D., and Krogstie, J. (2021). Mikalef, P., van de Wetering, R., Krogstie, J. (2021). Building dynamic capabilities by leveraging big data analytics: The role of organizational inertia. Information & Management, 58(6), A. 103412., https://doi.org/10.1016/j.im.2020.103412
45. Mohd, E. (2005). Accounting for Software development costs and information asymmetry, The Accounting Review, 80(4), pp. 1211-1231. DOI:10.2308/accr.2005.80.4.1211
46. Myers, S. C., and Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of financial economics, 13(2), pp. 187-221.. https://doi.org/10.1016/0304-405X(84)90023-0
47. Nijssen, E. J., Hillebrand, B., Vermeulen, P. A., and Kemp, R. G. (2006). Exploring product and service innovation similarities and differences. International Journal of Research in Marketing 23(3), pp. 241-251. https://doi.org/10.1016/j.ijresmar.2006.02.001
48. Olaniyi, C. (2019). Asymmetric information phenomenon in the link between CEO pay and firm performance: An innovative approach, Journal of Economic Studies, 46(2), pp. 306-323. https://doi.org/10.1108/JES-11-2017-0319
49. Palomino-Tamayo, W. and Timaná, J. S. (2022). Creating firm value, overcoming organizational inertia through the marketing value chain, Academia Revista Latinoamericana de Administración, 35(1), pp. 20-36. https://doi.org/10.1108/ARLA-06-2021-0119
50. Polites, G. L. and Karahanna, E. (2012). Shackled to the Status Quo: The Inhibiting Effects of Incumbent System Habit, Switching Costs, and Inertia on New System Acceptance. MIS Quarterly, 36(1), pp. 21-42. https://doi.org/10.2307/41410404
51. Pourheidari, O., and Forughi, A. (2019). Effect of management influence on disclosure quality of accounting information. Empirical Studies in Financial Accounting, 16(61), pp. 27-53. https://doi.org/10.22054/qjma.2019.38013.1928
52. Pourzamani, Z., Avali, M, R., and Abdolahiyan, J. (2014). The effect of corporate governance bylaw of Tehran Stock Exchange on earnings management. Management Accounting, 7(1), pp. 1-10. https://sid.ir/paper/198699/en
53. Rajan, R. G. (2012). Presidential address: The Corporation in finance. The Journal of Finance, 67, pp. 1173–1217. https://doi.org/10.1111/j.1540-6261.2012.01745.x
54. Rehman, I.U., Naqvi, S.K., Shahzad, F. and Jamil, A. (2022). Corporate social responsibility performance and information asymmetry: the moderating role of ownership concentration, Social Responsibility Journal, 18(2), pp. 424-440. https://doi.org/10.1108/SRJ-06-2020-0244
55. Rezaei Pitenoei, Y., Safari Gerayli, M., and Norouzi, M. (2017). Social Trust, External Monitoring and Stock Price Crash Risk: Testing Complementary and Substitution Theory. Accounting and Auditing Review, 24(3), pp. 349-370.
https://doi.org/10.22059/acctgrev.2017.235880.1007639
56. Sadeghi Alavije, F., Shaemi Barzoki, A., and Teimouri, H. (2020). Determining the Impact of Organizational Trust on Organizational Learning with the Mediating Role of Organizational Inertia The Case of Department of Natural Resources and Watershed Management of Isfahan Province. Strategic Research on Social Problems in Iran, 9(2), pp. 1-30.
https://doi.org/10.22108/srspi.2020.122741.1547
57. Savor, P. (2012). Stock returns after major price shocks: The impact of information, Journal of Financial Economics 106(2), pp. 635–659. https://doi.org/10.1016/j.jfineco.2012.06.011
58. Schwarz, G, M., Yang, K, P., Chou, Ch., and Chiu, Y, J. (2020). A classification of structural inertia: Variations in structural response, Asia Pacific Journal of Management, 37(2), pp. 33-63. https://doi.org/10.1007/s10490-018-9588-6
59. Schwarz, G. M. (2012). The logic of deliberate structural inertia. Journal of Management, 38(2), pp. 547–572. https://doi.org/10.1177/0149206309361206
60. Setayesh, M, H., and Ghayouri, M. A. (2018). Designing a Model of Agency Costs of Principal-agent Relation Using Systemic Thinking, Quarterly Financial Accounting Journal, 10(38), pp. 46-89. https://sid.ir/paper/168171/en
61. Seyed Nezhad Fahim, S., Meshki, M., Chirani, E., and Mahfoozi, G. (2018). Investigating the Effect of Withholding Strategy of Bad News on Shareholders’ Satisfaction. Accounting and Auditing Review, 25(4), pp. 519-536. https://doi.org/10.22059/acctgrev.2019.260229.1007918
62. Shaik, R., Nambudiri, R. and Yadav, M.K. (2022). Mindfully performed organizational routines: reconciling the stability and change duality view, International Journal of Organizational Analysis, 30(4), pp. 1019-1038. https://doi.org/10.1108/IJOA-12-2020-2535
63. Shepherd, D. A., Patzelt, H., and Wolfe, M. (2011). Moving forward from project failure: Negative emotions, affective commitment, and learning from the experience. Academy of Management Journal, 54(6), pp. 1229–1259. https://doi.org/10.5465/amj.2010.0102
64. Sillic, M. (2019). Individual inertia in explaining non-compliant security behavior in the Shadow IT context, Computers & Security, 80(5), pp. 108-119. https://doi.org/10.1016/j.cose.2018.09.012
65. Suddaby, R., and Foster, W. M. (2017). History and organizational change, Journal of Management, 43(1), pp. 19-38. https://doi.org/10.1177/0149206316675031
66. Taheri Abed, R., Alinezhad Sarokolaei, M., and Faghani Makerani, K. (2019). Impact of Reputation and Chief Executive Officer’s Job Security on Financial Reporting Transparency. Journal of Accounting Knowledge, 9(4), pp. 185-215.
https://doi.org/10.22103/jak.2018.11902.2661
67. Ucbasaran, D., Shepherd, D. A., Lockett, A., and Lyon, S. J. (2013). Life after business failure: The process and consequences of business failure for entrepreneurs. Journal of Management, 39(1), pp. 163–202. https://doi.org/10.1177/0149206312457823
68. Vayanos, D., and Wang, J. (2012). Liquidity and Asset Returns Under Asymmetric Information and Imperfect Competition, The Review of Financial Studies, 25(5), pp. 1339-1365. https://doi.org/10.1093/rfs/hhr128
69. Wu, K., Sorensen, S. and Sun, L. (2019). Board independence and information asymmetry: family firm's vs non-family firms, Asian Review of Accounting, 27(3), pp. 329-349. https://doi.org/10.1108/ARA-05-2018-0110
70. Wu, X., and Wang, Z. (2005). Equity financing in a Myers-Majluf framework with private benefits of control. Journal of Corporate Finance, 11, pp. 915–945. https://doi.org/10.1016/j.jcorpfin.2004.04.001
71. Xia, Y., Xie, J., Zhang, G., and Zhu, W. (2022). Service outsourcing contract design under asymmetric information. Industrial Management & Data Systems, 122(1), pp. 194-214.https://doi.org/10.1108/IMDS-06-2021-0409
72. Xu, M., and Cheng, Y. (2020). Equity Incentives, Inefficient Investment and Stock Price Crash Risk—Taking GEM as an Example, Open Journal of Social Sciences, 8(3), pp. 353-373. DOI:10.4236/jss.2020.88030
73. Ye, K., Guan, J, X., and Zhang, B. (2021). Strategic Deviation and Stock Return Synchronicity, Journal of Accounting, Auditing & Finance, 36(1), pp. 172-194. https://doi.org/10.1177/0148558X18802551