Information Asymmetry and Earnings Stability in Financially Insolvent Companies

Somayeh Rashidi, S. Ali Vaeez, Mohammad Ramazan Ahmadi

Abstract


The purpose of this study was to investigate the relationship between information asymmetry and the earnings stability in the financially insolvent companies listed in Tehran Stock Exchange. Earnings stability means earnings repetition in the next periods. To measure the dependent variable, i.e. earnings stability, the estimation of the future and current earnings model is used. To test the research hypotheses the data related to 457 companies listed in Tehran Stock Exchange as the statistical sample and for the period of 2006-2015 have been analyzed using combinational data analysis method. In order to estimate the appropriate models of hypotheses testing in combinational data Chow and Hausman tests were used. The research results suggest that there is a negative and significant relationship between information asymmetry and earnings stability. There is no significant difference in the relationship between information asymmetry and earnings stability in financially insolvent companies and non-insolvent companies. Increasing the probability of bankruptcy of the company, the relationship between information asymmetry and earnings stability does not change.

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