David Abad

Does gender diversity on corporate boards reduce information asymmetry in equity markets

We examine the relation between the gender diversity on boards of corporations and the levels of information asymmetry in the stock market. Prior evidence suggests that the presence of women on director boards increases the quantity and quality of public disclosure by firms, and we therefore expect firms with higher gender diversity on their boards to show lower levels of information asymmetry in the market. Using a Spanish sample, proxies for information asymmetry estimated from high-frequency data along with system GMM panel methodology, we find that the gender diversity on boards is negatively associated with the level of information asymmetry in the stock market. Our findings support the changes in the laws that have been introduced in several countries to increase the proportion of female company directors by providing evidence that gender diverse boards have beneficial effects on stock markets.

Analysing bank-issued option pricing

This paper investigates whether Spanish bank-issued options (warrants) trade under a fair price. The analysis is twofold. Price differences between traditional options and equivalent bank-issued options are analysed. The results show that bank-issued options are systematically overpriced with respect to options and that an important portion of such overpricing is related to market design. We also compare the prices of bank-issued options that have the same payoff functions but different issuers. Strikingly, relative price differences between bank-issued options are also found. Moreover, the analysis of the temporal evolution of the price differences between equivalent bank-issued options reveals that they are not decreasing over time.

Audit Opinions and Information Asymmetry in the Stock Market

This paper analyzes the relationship between the content of the audit reports and information asymmetry levels in the stock market for a sample of Spanish firms. By implementing an association study, we document (1) that firms with audit qualifications show higher information asymmetry levels than those with unqualified opinions; (2) firms with non-quantified qualifications show higher informational asymmetry than firms with quantified qualifications; and (3) we find a stronger effect on informational asymmetry level in the case of going concern qualifications. Our findings suggest that audit qualifications reporting more uncertainty on firm accounting statements result in higher adverse selection risk.

Real Earnings Management and Information Asymmetry in the Equity Market

Abstract The literature suggests that real earnings management (REM) activities can increase adverse selection risk in capital markets. Due to their opacity and the difficulties in understanding their implications, REM strategies may increase the level of information asymmetry among investors. This paper examines the association between earnings management through real activities manipulation and information asymmetry in the equity market. To estimate the level of adverse selection risk we use a comprehensive index of information asymmetry measures proposed by the market microstructure literature. For a sample of Spanish listed firms, we find that firms’ strategies of increasing earnings through REM are associated with higher information asymmetry in those firms that meet last year’s earnings. Our findings are consistent with the hypothesis that earnings management through real activities manipulation garbles the market, enhances private information production, and exacerbates information asymmetry in the stock market.