Can Internet-based disclosure reduce information asymmetry?

Abstract

The Internet is widely used by listed companies to manage investor relations. Since January 2007, the French Financial Authority has required companies listed on Euronext-Paris to disclose all mandatory financial information via the Internet in order to enhance information transparency. This paper examines the impact of Internet-based disclosure on the French stock market by analyzing the relationship between information asymmetry and Internet disclosure practices. Extending previous studies on Web-based disclosure, a checklist of 40 items is developed to evaluate the level of Internet-based voluntary disclosure. Measuring information asymmetry by the spread and the probability of informed trading, we show that greater Web-based disclosure lowers information asymmetry in the French financial market.

The Impact of Web-Based Disclosure on the Capital Market Risk

“…Three measures are used to present the capital market risk: total risk is measured by the standard deviation of stock returns, and systematic risk and idiosyncratic risk are the beta and standard deviation of the residuals generated from the market model, respectively. The web disclosure is measured by a check list of 40 items based on the study of Gajewski and Li [1].…”

“…The main objective is to investigate the impact of Internet-based disclosure on capital market risk. Following the method of Gajewski and Li [1], the Web-based disclosure is measured by an index of 40 items. Three risk measures are included: total risk (expressed as the standard deviation of daily stock returns), and systematic and idiosyncratic risk (respectively expressed as the beta and standard deviation of the residuals generated from the market model).…”

The link between Internet investor relations and information asymmetry

“…A number of studies have used different proxies for information asymmetry (e.g. Ajina et al 2015;Fu, Kraft & Zhang 2012;Gajewski & Li 2015;Orens et al 2010). Three are retained here -the quoted or relative bid-ask spread, price impact, and analyst following.…”

“…Gajewski and Li (2015) studied the relationship between internet-based disclosure and information asymmetry. They used five proxies for information asymmetry (i.e., quoted spread, effective spread, time-weighted spread, probability of informed trading [PIN] and adjusted PIN) and found negative associations with disclosure for all five proxies.…”

“…Although there exists a substantial amount of research measuring the use of corporate websites as communication channel, both in South Africa (Barac 2004;Esterhuyse & Wingard 2016;Loxton 2003;Nel & Baard 2006;Venter 2002) and internationally (Aerts, Cormier & Magnan 2007;Chang et al 2008;Froidevaux 2004;Gajewski & Li 2015;Orens et al 2010;Trabelsi, Labelle & Dumontier 2008), the measurement instruments used by such studies are often criticised (as discussed in the literature review) and few of these studies explicitly measured investor relations.…”