Agency Relationship and Financial Disclosure Effect on Information Asymmetry: Evidence from Mongolia

Abstract

The corporate financial disclosure is vital for effective functioning of capital market; contributes to national productivity; and enables companies to mitigate information asymmetry among the stakeholders followed by the reduction of cost of capital. The financial disclosure’s ability to effectively fulfill these roles depends upon several factors. Among which the agency relationship linked to the company’s ownership structure receives growing attention by the scholars. The ownership structure of company tends to rule the information asymmetry among the stakeholders. The information asymmetry perspective emerges from the role of financial disclosure enables to revealing the economic motivations behind the disclosure decisions. This study aims to investigating the relationship between these three evidently intertwined concepts of financial disclosure, agency relationship and information asymmetry in the context of Mongolian Stock Exchange listed companies. It has found that ownership structure in terms of one largest shareholder do have significant effect over the both of mandatory and voluntary disclosures. The interaction between financial disclosure and information asymmetry is partially explained as there is a significant negative relationship has found between voluntary disclosure and information asymmetry. The research fills gap in corporate governance, finance, and accounting literature in terms of discovering the tripartite relationship in developing country context and contributes to the economics of information in explaining the importance of corporate governance, finance and accounting.