Development of Asymmetric Information Index Using Principal Component Method
Keywords:
Asymmetric information, asymmetric information index, capital structure, investment, feedback effect, speed of adjustment, agriculture allied firms, non-financial firms.Abstract
The objective of this study is to develop an index of asymmetric information that not only captures the information environment but also determines the level of asymmetric information around the firms. The index is constructed through the Principal Component Method (PCM) by incorporating trading volume, price impact measures, relative bid-ask spread, volume coefficient of variation, discretionary accruals, and abnormal returns. Equity data of 280 firms, which comprises 155 firms from agriculture allied sectors and 125 firms from other non-financial sectors of Pakistan is extracted from DataStream and Worldscop for the
period of 19 years from 2000 to 2018. Descriptive statistics, correlation analysis, and PCM are used for data analysis. Year by year statistics is calculated to check the level of asymmetric information over the sample period for the full sample, agriculture allied firms, and other non-financial firms. Mean values of the asymmetric information show no specific pattern;
however, it increases from 2007 to 2008, the period of financial crises.
