INVESTIGATING THE RELATIONSHIP BETWEEN THE ELEMENTS OF INFORMATION RISK AND RISK PREMIUM

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AFLATOONI ABBAS; ZALGHI HASAN; AZAR ATEFEH

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Journal Paper

Paper Information

Journal: JOURNAL OF FINANCIAL ACCOUNTING KNOWLEDGE Year:2015 | Volume:1 | Issue:3 Page(s): 49-64

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Information Journal Paper

Title

INVESTIGATING THE RELATIONSHIP BETWEEN THE ELEMENTS OF INFORMATION RISK AND RISK PREMIUM

Author(s)

AFLATOONI ABBAS | ZALGHI HASAN | AZAR ATEFEH | Issue Writer Certificate

Keywords

DISCLOSURE QUALITYQ2

ACCRUALS QUALITYQ2

RISK PREMIUMQ2

INFORMATION RISKQ2

Abstract

The recent researches in agency theory focus on imperfect information. In agency theory, the imperfect information means that shareholders cannot see the managers’ all activities, and this leads to information asymmetry. In this condition, the firm’s INFORMATION RISK increases and this leads to distaste of shareholders to shift the financial resources to the firm and increases the firm’s cost of capital, because the shareholders request the higher rate of return in risky situations. The elements of INFORMATION RISK include DISCLOSURE QUALITY and ACCRUALS QUALITY. In this research, using data for 103 firms listed firms in Tehran Stock Exchange from 2003 to 2013 and apply the Fama-MacBeth (1973) regression approach, the relationship between the elements of INFORMATION RISK and RISK PREMIUM is investigated. The research results show that the increase in INFORMATION RISK (due to low disclosure and ACCRUALS QUALITY) leads to the higher RISK PREMIUM. Also, the results indicate that ACCRUALS QUALITY risk factor has higher impact on RISK PREMIUM than that of DISCLOSURE QUALITY.

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