Information asymmetry in disclosure of foreign exchange risk management: can regulation be effective?

A.P. Marshall, P. Weetman

Research output: Contribution to journalArticle

30 Citations (Scopus)

Abstract

A reduction in information asymmetry, and hence in the monitoring burden between agent and principal, is one of the aims of the regulation of financial reporting disclosure in active capital markets. Theoretical models of voluntary disclosure have sought to explain the persistence of information asymmetry in terms of the perceptions of those who supply information and those who use it in market decisions. In the late 1990s listed companies in the US and the UK implemented annual report disclosures to satisfy regulatory requirements for disclosure relating to foreign currency risk management. This paper presents empirical evidence of financial statement disclosure where the information asymmetry may be assessed by comparing ex post the explicit disclosure of information in the annual report with prior questionnaire responses from the same companies. It shows, through a two-country comparison, that disclosure regulations drawn up at similar times and with similar driving forces, can have a different impact in two different regulatory environments. Also, in both regulatory regimes a substantial element of information asymmetry remains, consistent with the expectations generated from the theoretical voluntary disclosure models. The paper concludes that regulation of qualitative disclosures, while taking heed of the market's requirements for information, has not yet found the mechanism whereby transparency is complete.
LanguageEnglish
Pages31-53
Number of pages22
JournalJournal of Economics and Business
Volume54
Issue number1
DOIs
Publication statusPublished - Jan 2002

Fingerprint

Risk management
Disclosure
Information asymmetry
Foreign exchange risk
Asymmetry of information
Voluntary disclosure
Annual reports
Persistence
Foreign currency
Currency risk
Driving force
Transparency
Capital markets
Burden
Regulatory environment
Empirical evidence
Listed companies
Financial statements
Regulatory regime
Financial reporting

Keywords

  • disclosure policies
  • foreign exchange risk
  • information economics
  • risk management
  • voluntary disclosure

Cite this

@article{7b23cea4e0e44b83ac92e0ac3094a533,
title = "Information asymmetry in disclosure of foreign exchange risk management: can regulation be effective?",
abstract = "A reduction in information asymmetry, and hence in the monitoring burden between agent and principal, is one of the aims of the regulation of financial reporting disclosure in active capital markets. Theoretical models of voluntary disclosure have sought to explain the persistence of information asymmetry in terms of the perceptions of those who supply information and those who use it in market decisions. In the late 1990s listed companies in the US and the UK implemented annual report disclosures to satisfy regulatory requirements for disclosure relating to foreign currency risk management. This paper presents empirical evidence of financial statement disclosure where the information asymmetry may be assessed by comparing ex post the explicit disclosure of information in the annual report with prior questionnaire responses from the same companies. It shows, through a two-country comparison, that disclosure regulations drawn up at similar times and with similar driving forces, can have a different impact in two different regulatory environments. Also, in both regulatory regimes a substantial element of information asymmetry remains, consistent with the expectations generated from the theoretical voluntary disclosure models. The paper concludes that regulation of qualitative disclosures, while taking heed of the market's requirements for information, has not yet found the mechanism whereby transparency is complete.",
keywords = "disclosure policies, foreign exchange risk, information economics, risk management, voluntary disclosure",
author = "A.P. Marshall and P. Weetman",
year = "2002",
month = "1",
doi = "10.1016/S0148-6195(01)00058-3",
language = "English",
volume = "54",
pages = "31--53",
journal = "Journal of Economics and Business",
issn = "0148-6195",
number = "1",

}

Information asymmetry in disclosure of foreign exchange risk management: can regulation be effective? / Marshall, A.P.; Weetman, P.

In: Journal of Economics and Business, Vol. 54, No. 1, 01.2002, p. 31-53.

Research output: Contribution to journalArticle

TY - JOUR

T1 - Information asymmetry in disclosure of foreign exchange risk management: can regulation be effective?

AU - Marshall, A.P.

AU - Weetman, P.

PY - 2002/1

Y1 - 2002/1

N2 - A reduction in information asymmetry, and hence in the monitoring burden between agent and principal, is one of the aims of the regulation of financial reporting disclosure in active capital markets. Theoretical models of voluntary disclosure have sought to explain the persistence of information asymmetry in terms of the perceptions of those who supply information and those who use it in market decisions. In the late 1990s listed companies in the US and the UK implemented annual report disclosures to satisfy regulatory requirements for disclosure relating to foreign currency risk management. This paper presents empirical evidence of financial statement disclosure where the information asymmetry may be assessed by comparing ex post the explicit disclosure of information in the annual report with prior questionnaire responses from the same companies. It shows, through a two-country comparison, that disclosure regulations drawn up at similar times and with similar driving forces, can have a different impact in two different regulatory environments. Also, in both regulatory regimes a substantial element of information asymmetry remains, consistent with the expectations generated from the theoretical voluntary disclosure models. The paper concludes that regulation of qualitative disclosures, while taking heed of the market's requirements for information, has not yet found the mechanism whereby transparency is complete.

AB - A reduction in information asymmetry, and hence in the monitoring burden between agent and principal, is one of the aims of the regulation of financial reporting disclosure in active capital markets. Theoretical models of voluntary disclosure have sought to explain the persistence of information asymmetry in terms of the perceptions of those who supply information and those who use it in market decisions. In the late 1990s listed companies in the US and the UK implemented annual report disclosures to satisfy regulatory requirements for disclosure relating to foreign currency risk management. This paper presents empirical evidence of financial statement disclosure where the information asymmetry may be assessed by comparing ex post the explicit disclosure of information in the annual report with prior questionnaire responses from the same companies. It shows, through a two-country comparison, that disclosure regulations drawn up at similar times and with similar driving forces, can have a different impact in two different regulatory environments. Also, in both regulatory regimes a substantial element of information asymmetry remains, consistent with the expectations generated from the theoretical voluntary disclosure models. The paper concludes that regulation of qualitative disclosures, while taking heed of the market's requirements for information, has not yet found the mechanism whereby transparency is complete.

KW - disclosure policies

KW - foreign exchange risk

KW - information economics

KW - risk management

KW - voluntary disclosure

UR - http://dx.doi.org/10.1016/S0148-6195(01)00058-3

U2 - 10.1016/S0148-6195(01)00058-3

DO - 10.1016/S0148-6195(01)00058-3

M3 - Article

VL - 54

SP - 31

EP - 53

JO - Journal of Economics and Business

T2 - Journal of Economics and Business

JF - Journal of Economics and Business

SN - 0148-6195

IS - 1

ER -