Authors : Vahid Biglari, Frankie Goh Song Peng and Nasrin Azar
Abstract: This study investigates the relationship between prior period adjustments and information asymmetry. The prior period adjustments are used in the financial statements. However, their possible role in diminishing information asymmetry is not clear. The main purpose of this study is to examine whether information asymmetry among investors is affected by companies’ prior period adjustments. In order to accomplish this aim, prior period adjustments are obtained from statement retained earnings (losses) and information asymmetry is measured by spread. Financial statements of 62 firm listed in Tehran Stock Exchange in period 2007-2014 are investigated. The findings indicate that there is no significant relationship between information asymmetry at a particular period and prior period adjustments of the next period. Furthermore, study results show that the level of information asymmetry doesn’t change in proportional to the changes of prior period adjustments. These findings can contribute to understanding of the nature of prior period adjustments of financial statements.
Vahid Biglari, Frankie Goh Song Peng and Nasrin Azar, 2015. Prior Period Adjustments and Information Asymmetry: The Case of Iran. International Business Management, 9: 1623-1628.