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Title: Topics in asymmetric information : the role of firm disclosure policy
Author: Ghani, Osman
ISNI:       0000 0004 5921 9461
Awarding Body: University of Warwick
Current Institution: University of Warwick
Date of Award: 2016
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In a world of asymmetric information, firms can use accounting policy as a means to signal information to outsiders and thereby, attempt to reduce the level of asymmetric information that outsiders face. I examine ‘commitment’ mechanisms that can be used by firms to signal information to outsiders. In particular, I examine the use of International Financial Reporting Standards (IFRS) and the use of Fair Value Accounting (FVA). The first paper examine the influence of Uncertainty Avoidance (UAI) as introduced by Hofstede (1980), on the cost of equity for IFRS adopters in the EU. The results suggest that though UAI has a detrimental impact on the cost of equity, UAI interacts with IFRS adoption, leading to a reduction in the cost of equity for firms based in higher UAI countries that use IFRS. The results are being driven by the mandatory adopters group, who were found to benefit from IFRS adoption and a higher UAI, while voluntary and Voluntary/Mandatory adopters appear to suffer from an increase in their cost of equity. The paper therefore suggests that differences in cultural norms towards uncertainty may be able to explain part of the heterogeneity in the cost of equity exhibited by firms that have adopted IFRS. The second paper examines the influence of FVA on the design and renegotiation of debt contracts. The paper is an extension of the Garleanu and Zwiebel (2009) model and incorporates the use of FVA as a disclosure mechanism and compares it to a setting where the firm uses Historical Cost Accounting (HCA). The model suggests that FVA firms would benefit from fewer covenants and a lower cost of debt. In subsequent extensions to the model, I incorporate the different FVA classifications and the model suggests that the Level 1 classification is expected to be more information relevant to lenders compared to the Level 3 classification. The third paper uses the predictions from the second paper and examines the influence of FVA on a sample of US private loans obtained from LPC/Dealscan. The results of the paper suggest that the Level 1 FVA classification results in a lower number of Balance sheet covenants, and a lower cost of debt. However, we do not find positive evidence to suggest that the Level 1 classification leads to a reduction in the Covenant intensity index or an increase in the number of loan amendments. The Level 2 and 3 classifications appear to exhibit results that suggest that they are considered less informationally relevant compared to the Level 1 classification.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available
Keywords: HB Economic Theory