International Journal of Hospitality Management 111 (2023) 103481

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International Journal of Hospitality Management

journal homepage: www.elsevier.com/locate/ijhm

Is information asymmetry always detrimental to firm value? findings from

the restaurant industry
Jaehee Gim a, *, SooCheong (Shawn) Jang b, Hugo Tang b, Kyuwan Choi c, Carl Behnke b
a
School of Hotel and Tourism Management, The Hong Kong Polytechnic University, 17 Science Museum Road, TST East, Kowloon, Hong Kong
b
School of Hospitality and Tourism Management, Purdue University, Marriott Hall, 900 W. State Street, West Lafayette, IN 47907, USA
c
College of Hotel and Tourism Management, Kyung Hee University, Dongdaemun-gu, Seoul 130-701, South Korea

A R T I C L E I N F O A B S T R A C T

Keywords: The purpose of the current study was to investigate the impact of information asymmetry on firm value in the
Information asymmetry restaurant industry. Secondary financial data were collected for U.S.-based publicly traded restaurant firms. In
Bid–ask spread addition, fixed-effects panel regression analyses were performed to examine the proposed relationship. The re­
Firm value
sults of the current study showed that in the restaurant industry, not only high information asymmetry but also
Restaurant industry
an overly transparent information environment can be detrimental to firm value, as evidenced by an inverted U-
shaped relationship between asymmetric information and firm value in the restaurant industry. This result differs
from the findings of previous studies, which mostly support the negative impact of asymmetric information on
firm value. Furthermore, the current study showed that firm age and financial leverage serve as moderators of
the curvilinear relationship between the asymmetric information environment and firm value in the restaurant
industry.

1. Introduction
Information that individual investors can publicly obtain about a
firm rarely paints a complete picture of the firm. The firm’s management
(i.e., the CEO and other senior managers) knows nearly all of the firm’s
information, leaving external stakeholders mostly reliant on information
selectively presented to them by the firm (Cohen and Dean, 2005).
Consequently, an information imbalance between internal management
and market participants is inevitable. Firm managers, then, often exploit
their information advantages by giving inside information to selected
market participants (Bushee et al., 2017). Therefore, whether news
about a firm is positive or negative, stock price movement is commonly
observed to begin even before the news becomes publicly available
(Agapova and Madura, 2011). This suggests that selected market par­
ticipants enjoy a position as informed traders (Schrand and Walther,
2000).
The existence of information asymmetry not only hampers fairness in
stock trading among investors but also has a detrimental impact on firm
value. The value-decreasing impact of an asymmetric information
environment can be twofold. First, a firm’s asymmetric information
environment raises the cost of external financing (Morellec and
Schürhoff, 2011). Finance theory posits that external capital providers,
such as debt and equity markets, base their investment decisions on the
net present value (NPV) of a firm’s expected cash flows. For example,
creditors need to know the NPV of a firm’s expected cash flow to eval­
uate the expected recovery of their loans. Similarly, equity investors
determine how much they are willing to pay for a firm’s stock,
depending on the expected return on their investment, which is derived
from the NPV of the firm’s expected cash flows (Dierkens, 1991).
However, when uncertainty exists regarding a firm’s current and future
status due to its opaque information environment, external capital
providers are unable to find an accurate NPV for the firm’s future cash
flows. This could result in creditors imposing high borrowing costs and
equity investors being unwilling to pay a high price for a firm’s stock
(Salehi et al., 2014).
Despite the apparent negative impact of an asymmetric information
environment on firm value, managers do not always proactively attempt
to resolve this issue. An asymmetric information environment enables
managers to serve their self-interest freely at the expense of shareholders
(Olaniyi, 2019). When shareholders have limited information about a
firm due to information asymmetry, they cannot closely monitor or
measure whether managers act in the shareholders’ best interests.
Consequently, managers’ increased self-serving behavior in an asym­
metric information environment is another important reason why

* Corresponding author.
E-mail address: jaehee.gim@polyu.edu.hk (J. Gim).

https://doi.org/10.1016/j.ijhm.2023.103481
Received 18 January 2022; Received in revised form 1 March 2023; Accepted 1 April 2023
Available online 10 April 2023
0278-4319/© 2023 Elsevier Ltd. All rights reserved.
J. Gim et al.
information asymmetry can negatively impact firm value (Alabdullah,
2016). For example, with increased managerial discretion in the pres­
ence of information asymmetry, managers have shown an increasing
tendency to spend firms’ free cash flows on negative NPV investment
projects for private benefits at the expense of shareholders (Tahir et al.,
2019). In addition, in the presence of information asymmetry, firm
managers were found to engage more actively in earnings management
to artificially boost firms’ short-term earnings since the information gap
leads to the reduced chance of the firm managers getting caught
manipulating earnings (Dadbeh and Mogharebi, 2013; Lasdi, 2013).
As discussed above, previous literature examining the relationship
between the asymmetric information environment and firm value has
mostly focused on the value-decreasing impact of information asym­
metry (Fosu et al., 2016; Huynh et al., 2020). However, in the restaurant
industry, an overly transparent information environment could also
result in the deterioration of firm value. Given customers’ rapidly and
constantly changing needs, restaurant firms often choose to imitate their
successful peers as their main business strategy rather than devising
their own strategy (Ding and Chung, 2014). Therefore, in the restaurant
industry, disclosing too much information about a firm’s current and
future status could create a situation in which the firm’s strategic in­
formation is inadvertently shared with its competitors. In line with this
view, Brau and Fawcett (2006) reported that one of the reasons firm
managers are reluctant to go public is their concern about disclosing
information to competitors, along with their desire to maintain
decision-making control. When private firms go public, they are
mandated by law to disclose a certain amount of their information to the
public (Doshi et al., 2013).
In addition, in the restaurant industry, examining the relationship
between the asymmetric information environment and firm value re­
quires circumstance-specific approaches. Given the high default risk
involved in the restaurant industry (Sun et al., 2019), restaurant firms
are likely to be subject to strict debt covenants and monitoring by
creditors. Therefore, managers’ increased self-serving behavior in the
presence of information asymmetry, which is one of the
value-decreasing consequences of information asymmetry, can be miti­
gated more effectively in highly leveraged restaurant firms than in
low-leveraged restaurant firms. Furthermore, during the launch and
growth phase (i.e., the early stage of the firm’s life cycle), restaurant
firms must spend a considerable amount of cash on expansion due to the
highly competitive and capital-intensive nature of the restaurant in­
dustry (Lee, 2010; Koh et al., 2018). This implies that the increased cost
of external financing, another value-decreasing consequence of infor­
mation asymmetry, could be more problematic for young restaurant
firms than for mature ones.
Overall, given the aforementioned implications of information
asymmetry for firm value in the restaurant industry, the relationship
between the asymmetric information environment and firm value re­
quires much attention. However, no previous studies have attempted to
understand the relationship between information asymmetry and firm
value in the restaurant industry. To fill this research gap, the objectives
of the current study were (1) to examine the impact of information
asymmetry on firm value and (2) to further investigate whether the
impact of asymmetric information on firm value varies depending on
firm age and degree of financial leverage. In addition, given that studies
examining the relationship between firm value and the subjects of
agency problems, reduced access to external financing, and reduced
competitive advantage most commonly adopted Tobin’s Q to capture
firm value (e.g., Lin and Chang, 2010; Kim et al., 2015; Li, 2019;
Wijayanto et al., 2019), the current study also used Tobin’s Q as a proxy
for firm value. The results of this study are expected to provide practical
information to internal and external stakeholders in the restaurant in­
dustry by revealing how an asymmetric information environment relates
to firm value.
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International Journal of Hospitality Management 111 (2023) 103481
2. Literature review and hypotheses
2.1. The origin of information asymmetry and its related problems
The concept of information asymmetry was first framed in Akerlof’s
(1978) seminal work. In the used car market, used car buyers do not
know beforehand whether they are looking at a defective or good used
car. This information imbalance in the used car market gives a seller an
incentive to sell a used car of poor quality (lemon) without lowering the
price. Akerlof (1978) referred to this problem of sellers taking undue
advantage of the information imbalance as a “lemon problem” or “moral
hazard problem” of information asymmetry in the used car market.
Akerlof (1978) further postulated that the existence of information
asymmetry deteriorates the overall quality of used cars traded in the
used car market. Because information asymmetry makes it difficult for
buyers to distinguish good used cars from defective ones, the buyer’s
best bidding price is the average price of all used cars traded in the used
car market. This eventually compels the owners of good used cars not to
sell. Consequently, a higher number of bad products (lemons) will be
offered than good products in the used car market, reducing the overall
average quality of the used cars in the market. Akerlof (1978) referred to
this vicious cycle as the “adverse selection problem” or another “lemon
problem” of information asymmetry.
In sum, as exemplified by Akerlof’s (1978) used car market, infor­
mation imbalance can encourage the party with privileged information
(i.e., the informed party) to mislead the ignorant party (i.e., the unin­
formed party) to gain a financial advantage (the moral hazard problem).
Furthermore, information asymmetry can cause the quality of goods
traded in the market to degrade (the adverse selection problem). These
information asymmetry problems can collectively distort market effi­
ciency or lead to a complete breakdown of the market.
2.2. Information asymmetry and firm value
The concepts of moral hazard and adverse selection problems of
information asymmetry in the used car market have been actively
adopted in the corporate finance context to explain the negative impact
of an asymmetric information environment on firm value. First, the
moral hazard problem, which refers to a situation in which informed
parties abuse their information advantage for financial gain at the
expense of uninformed parties, is commonly referred to as an “agency
problem” in a corporate finance setting. The expression “agency prob­
lem” originates from the fact that although firm managers are supposed
to act as faithful “agents” on behalf of shareholders, an asymmetric in­
formation environment can induce those managers (i.e., the informed
party) to engage in self-serving behavior at the expense of shareholders
(i.e., uninformed parties) (Mishra et al., 1998; Boučková, 2015).
In addition, the adverse selection problem, which describes unin­
formed parties’ difficulty distinguishing a good feature from a bad
feature in an asymmetric information environment, can be observed in
the relationship between a firm manager and creditors. When a firm
presents high information asymmetry, external capital providers cannot
distinguish whether the firm is a good borrower or a bad borrower
(Salehi et al., 2014). Therefore, external capital providers often charge a
firm presenting high information asymmetry a high price for using their
funds (Bessler et al., 2011), which could result in the firm’s difficulty in
accessing the external capital market. In sum, previous studies exam­
ining the relationship between asymmetric information and firm value
mostly focused on the value-decreasing consequences of information
asymmetry based on a manager’s agency problem (moral problem) and
a firm’s reduced availability of external financing (the adverse selection
problem).
However, it would be a hasty conclusion that in the restaurant in­
dustry the impact of asymmetric information on firm value is simply
negatively linear. This is because in the restaurant industry, not only
high information asymmetry but also overly transparent information
J. Gim et al.
environment can also be detrimental to firm value. Proprietary cost
theory, which was first proposed by Verrecchia (1983), posits that
although in the absence of disclosure-related costs, firms have incentives
to disclose all their value-relevant information to reduce information
asymmetry, the firms may not engage in full disclosure in the presence of
disclosure-related costs (proprietary costs). Proprietary costs include not
only the costs of preparing, auditing, and disseminating information but
also the cost deriving from disclosing information which may be used by
competitors and other parties in a way that is harmful for the reporting
company (McKinnon and Dalimunthe, 1993; Chan and Watson, 2011;
Pisano et al., 2018). Specifically, disclosing too much information about
firms’ current and future statuses can decrease their competitive edge
since their competitors can glean more information on the inner work­
ings of the corporation (Ellis et al., 2012; Imhof et al., 2022). Therefore,
from the perspective of proprietary costs theory, the larger the pro­
prietary costs, the greater the decrease in firm value upon disclosure and
the greater the incentive not to engage in full disclosure (Scott, 1994).
Consistent with this view, in a survey conducted by Graham et al.
(2005), managers expressed concern that disclosing too much infor­
mation about their firms could harm the firms’ competitive positions.
The argument of proprietary costs theory could be especially true for
the restaurant industry. Restaurant firms exist in a highly competitive
and rapidly changing business environment (Asad and Abid, 2018). The
restaurant industry constantly faces challenges to keep up with the pace
of consumer trends and new technologies (Deloitte, 2020; Euromonitor
International, 2022). Increasing awareness of environmental sustain­
ability, growing demand for healthier food options, and the rapid
advancement of technologies such as artificial intelligence (AI) and ro­
botics are pressuring restaurant firms to adapt to those changes
(Deloitte, 2020; KPMG, 2016). Therefore, when restaurant firms cannot
easily comprehend or keep up with the changing business environment,
they often search for solutions from competing firms (Kwock and
Ching-Yick Tse, 2002; Ding and Chung, 2014). In other words, restau­
rant firms often choose an imitation strategy over an innovation strategy
when determining their business strategies (Ding and Chung, 2014). For
this reason, keeping a certain amount of information regarding a firm’s
strategic movement from competing firms is considered important to
protect restaurant firms’ competitive advantages (Ding and Chung,
2014). This view is also in line with the findings of Darrough and
Stoughton (1990), who showed that as the number and size of rivals
increase, firm managers are less likely to disclose firm information than
is required by law through voluntary disclosure. Similarly, Li (2010)
predicted that the greater competition there is due to high product
substitutability, both the quantity and quality of voluntary disclosure
decreases. The factors that Darrough and Stoughton (1990) and Li
(2010) pointed out, which could discourage firm managers from
disclosing firm information more than what is required by law (e.g., a
high degree of competition and product substitutability), are typical
characteristics of the restaurant industry (DeFranco and Lattin, 2006;
Yang and Nie, 2017).
Furthermore, as the efficient market hypothesis, which is one of the
centerpieces of capital market theory, posits, if all the value-relevant
information about a firm is efficiently incorporated into current stock
prices, it is difficult for investors to have a capital gain (Sewell, 2011);
capital gain refers to the profits that investors make when the current
price of a stock exceeds the purchase price of the stock. This is because if
all stocks are currently fairly valued due to all the value-relevant in­
formation about firms being disclosed, it is impossible for investors to
purchase undervalued stocks and make profits by selling the stocks
when they receive their fair value in the future (Degutis and Novickytė,
2014). The low chance of capital gains due to an overly transparent
business environment could be especially problematic for restaurant
investors. Investors’ total profits from investment can be expressed as
the sum of dividends and capital gains (Alam and Hossain, 2012;
Tanushev, 2016). However, as evidenced by the fact that the dividend
per share of the restaurant industry is among the lowest across sectors
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International Journal of Hospitality Management 111 (2023) 103481
(Aaronallen, 2018), investors in the restaurant industry cannot expect
much investment returns from dividends. Scant dividends paid by
restaurant firms are not surprising since given the high capital intensity
of restaurant firms (high fixed assets) (Lee, 2010), a lot of cash spending
is required for restaurant firms to purchase, maintain, update, and
renovate their fixed assets, leaving insufficient cash for dividend pay­
ments. Therefore, given the low chance of making returns from divi­
dends, investors in the restaurant industry are more likely to rely on
capital gains for investment returns. In this regard, the reduced chance
of realizing capital gains due to the evenly distributed information about
a firm in the restaurant industry could make a restaurant firm particu­
larly an unattractive investment option in the equity market, thus
negatively influencing the value of the firm.
Taken together, given the aforementioned high cost of disclosing too
much information about a firm in the restaurant industry, not only high
information asymmetry but also an overly transparent business envi­
ronment could be detrimental to firm value in the restaurant industry.
Therefore, in the restaurant industry, the impact of asymmetric infor­
mation on firm value might not be simply captured with a generally
accepted negatively linear curve. Instead, given the potential negative
impact of an overly transparent information environment on firm value,
the relationship between asymmetric information and firm value could
be captured with a curvilinear curve (inverted U-shaped). Based on this
reasoning, this study hypothesizes that:
H1. : In the restaurant industry, the relationship between information
asymmetry and firm value is curvilinear (inverted U-shaped) rather than
simply negatively linear.
2.3. Circumstantial impact of information asymmetry on firm value
This study also postulates that there are some circumstances in the
restaurant industry in which the agency problem (i.e., managers’ self-
serving behaviors) and reduced access to external financing, which are
the main negative influences of asymmetric information on firm value,
could be enhanced or reduced. Then, in circumstances with an enhanced
negative influence of information asymmetry on firm value, the turning
point of the inverted U-shaped curve between asymmetric information
and firm value could be located at a lower level of firm value (i.e., more
downward) and at a lower level of information asymmetry (i.e., more to
the left). Conversely, in circumstances with a reduced negative influence
of information asymmetry on firm value, the turning point of the
inverted U-shaped curve could be located at a higher level of firm value
(i.e., more upward) and at a higher level of information asymmetry (i.e.,
more to the right).
2.3.1. Firm age as a moderator for the inverted U-shaped relationship
between information asymmetry and firm value
When exploring firm age in relation to information asymmetry,
previous studies have mostly focused on the direct negative impact of
firm age on information asymmetry. Mature firms have more historical
information available to market participants and are more likely to have
set up concrete business strategies than less mature firms (Lu et al.,
2018). These factors help reduce information asymmetry for mature
firms (Krishnaswami et al., 1999). However, aside from the direct
negative impact of firm age on information asymmetry, the current
study postulates that firm age could also serve as a moderator of the
relationship between asymmetric information and firm value in the
restaurant industry.
Specifically, agency problems (managers’ self-serving behaviors)
and reduced access to external financing in the asymmetric information
environment could have greater value-decreasing impacts for young
restaurant firms than for mature ones. The possible reason that man­
agers’ self-serving behaviors due to information asymmetry could have a
greater detrimental impact on firm value for young restaurants than for
mature ones could be as follows. Due to low entry barriers in the
J. Gim et al.
restaurant industry, even poor-quality restaurant firms can easily
become new entrants (Parsa et al., 2011; Rhou et al., 2016). Further­
more, low entry barriers in the industry lead to fierce competition, with
many substitutions available in the market (DeFranco and Lattin, 2006;
Yang and Nie, 2017). Arguably, this accounts for the alarmingly high
failure rate of restaurant firms in the early stages, as evidenced by the
fact that approximately three out of ten initial public offering (IPO)
restaurant firms file for bankruptcy within the first five years after their
IPO (Mun and Jang, 2019). Similarly, a series of Parsa’s studies—Parsa
et al., (2005, 2011), Parsa et al., (2015, 2021), all of which are
commonly titled “Why restaurants fail?”—consistently pointed out the
high failure rate of the restaurant business at an early stage. This sug­
gests that there is a significantly high business risk involved in young
firms in the restaurant industry. Therefore, given the already-high
business risk present in young restaurant firms, managerial increased
self-serving behaviors in the presence of information asymmetry
(agency problem) could have a confounding detrimental impact on firm
value for young restaurant firms than for mature ones.
In addition, limited access to external financing due to information
asymmetry could do more harm to young restaurant firms than to
mature ones. In a competitive and saturated market environment, such
as that of the restaurant industry, it is essential for young firms to exploit
investment opportunities rapidly and expand their businesses to suc­
cessfully penetrate the market (Durmaz and İlhan, 2015). Consistent
with this view, Mun and Jang (2019) investigated which factors in the
restaurant industry cause restaurant firms to be delisted within five
years after an IPO and reported that small firm size is a significant
determinant of restaurant firms being delisted within five years after an
IPO. This could mean that young restaurant firms are in great need of
cash to fund quick expansion and thus survive the competitive market.
According to pecking order theory, when firms finance expansion, they
first use internally generated cash (i.e., profits from firms’ regular op­
erations) and then turn to external financing (i.e., debt and equity
financing) for additional funds since the cost of using internally gener­
ated cash is cheaper than that of external financing (Vanacker and
Manigart, 2010). However, restaurant firms’ ability to generate internal
cash, which is the cheapest source of capital in the financing hierarchy,
could be severely limited since due to the low markup of food products
and the capital-intensive nature (high fixed assets) of the restaurant
industry, low profitability is typical of restaurant firms (Perez and
Mirabella, 2013; Mun and Jang, 2018). This means that the restaurant
firms’ innate difficulty in generating internal cash could be especially
problematic for young restaurant firms, which are in great need of cash
to fund quick expansion and penetrate the competitive industry.
Therefore, young restaurant firms’ easy access to external financing,
which is the second preferred financing option in the financing hierar­
chy, could be essential (Fryges et al., 2015). This means that when access
to external financing becomes limited due to information asymmetry, it
could affect young restaurant firms more adversely than mature ones.
Overall, for the aforementioned reasons, the value-decreasing impact
of an asymmetric information environment could be greater for young
restaurant firms than for mature ones. This means that for young
restaurant firms with an enhanced negative impact of asymmetric in­
formation on firm value, the inverted U-shaped relationship could be
moderated in such a way that the turning point of the inverted U-shaped
curve could be located more downward (i.e., at a lower level of firm
value) and more to the left (i.e., at a lower level of information asym­
metry). Based on this reasoning, this study hypothesizes the following:
H2. : Firm age has a moderating impact on the inverted U-shaped
relationship between information asymmetry and firm value in the
restaurant industry; specifically, the younger a firm is, the more
downward and to the left the turning point of the inverted U-shaped
curve is located.
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International Journal of Hospitality Management 111 (2023) 103481
2.3.2. Financial leverage as a moderator of the inverted U-shaped
relationship between information asymmetry and firm value
Financial leverage can provide another circumstance in which the
inverted U-shaped relationship between asymmetric information and
firm value can be moderated. This is because in the restaurant industry,
debt creation could help restrict opportunistic managerial behavior in
an asymmetric information environment (agency problem), thus
reducing the negative influence of information symmetry on firm value.
Previous studies have reported mixed results regarding the impact of
debt creation on opportunistic managerial behavior. According to the
debt monitoring hypothesis, managers of debt-ridden firms may expe­
rience heightened monitoring by debtholders, as lenders often impose
restrictive debt covenants to minimize credit risk (Gul and Tsui, 1997;
Dittmann et al., 2010). Debt covenants are restrictive clauses that
creditors include in lending agreements to limit the actions of bor­
rowers. Typical examples of debt covenants include managers’ obliga­
tion to achieve a specific range of certain financial ratios and to prepare
financial reports that adhere to generally accepted accounting principles
(GAAP) (Janes, 2005; Chava and Roberts, 2008). However, an opposing
argument to the debt monitoring hypothesis also exists; it posits that
debt creation can actually induce opportunistic managerial behavior.
Because violations of debt covenants often result in a lender demanding
early repayment of the debt or imposing additional fees, managers
subjected to restrictive debt covenants may end up engaging in more
deceitful and opportunistic behaviors to avoid violating debt covenants
(Cudia and Dela Cruz, 2018; Zhang et al., 2020). For example, re­
searchers have demonstrated that, in an attempt to meet some pre­
determined financial ratio specified in debt covenants, managers at
highly leveraged firms are more likely to manipulate firms’ earnings
than managers at low-leveraged firms (Rodríguez-Pérez and Van Hem­
men, 2010; Wang et al., 2018).
Among the two conflicting viewpoints on the role of debt creation in
opportunistic managerial behavior, the debt monitoring hypothesis can
more strongly apply to the restaurant industry. Due to the low profit­
ability and high vulnerability of the restaurant business to economic
conditions (Parsa et al., 2021), debt markets are known to take extra
caution when considering restaurant firms as investment options (Mao
and Gu, 2008). This can be clearly seen in how the big three credit rating
agencies (e.g., S&P, Moody’s, and Fitch Group) evaluate the credit­
worthiness of restaurant firms. As of August 2022, even McDonald’s and
Starbucks, which are the two leading firms with the highest market cap
in the restaurant industry, only received a “lower medium” credit grade,
whereas other firms leading their own industries, such as Apple,
Amazon, Coca-Cola, Nestle, Nike, and Visa, generally received a “Prime,
” “High,” or “Upper medium” credit grade from those credit rating
agencies (Wikirating, 2022). Consistent with the credit markets’ caution
about restaurant firms as lending options, some evidence in the
restaurant industry suggests that creditors in the industry serve as
effective monitoring entities for opportunistic managerial behavior. For
example, Jiang and Dalbor (2020) demonstrated that restaurant firms
that take on debt showed improved operating efficiency (reduced
operating expense ratios) since creditors’ monitoring helps firm man­
agers manage day-to-day operations more effectively. In addition, it has
been found that in the restaurant industry, managers at highly leveraged
firms show less tendency to engage in managerial’ opportunistic earn­
ings manipulation behavior than those at low-leveraged firms (Gim
et al., 2019). This means that opportunistic managerial behavior in an
asymmetric information environment could be more effectively allevi­
ated for highly leveraged restaurant firms than for low-leveraged
restaurant firms.
Overall, owing to the role of debt creation in mitigating managers’
opportunistic behavior in the restaurant industry, the negative impact of
information asymmetry on firm value may be weaker for highly lever­
aged firms than for low-leveraged firms. Thus, for highly leveraged
restaurant firms with a reduced negative impact of asymmetric infor­
mation on firm value, the inverted U-shaped relationship could be
J. Gim et al.
moderated in such a way that the turning point of the inverted U-shaped
curve could be located more upward (i.e., at a higher level of firm value)
and more to the right (i.e., at a higher level of information asymmetry).
Based on this reasoning, this study hypothesizes the following:
H3: Financial leverage has a moderating impact on the inverted U-
shaped relationship between information asymmetry and firm value in
the restaurant industry; specifically, the more financially leveraged a
firm is, the more upward and to the right the turning point of the
inverted U-shaped curve is located.
3. Methodology
3.1. Sample and data
The majority of this study’s data were sourced from the CompStat
database of Wharton Research Data Services, which contains compre­
hensive accounting and financial details about companies. In addition,
the data used to measure information symmetry were retrieved from the
CRSP database. Specifically, given that the CRSP database before 1997
contains too many incomplete data to calculate the variables of this
study for analysis, the data for this study consisted of U.S. restaurant
firms (SIC 5812) from 1997 to 2019. All financial and accounting data
were winsorized at 1% and 99% to prevent the effects of outliers on
estimated coefficients. After incomplete and missing data were further
excluded, 721 firm-year observations from 51 firms were used in the
analyses.
3.2. Measuring information asymmetry
As the main purpose of this study was to examine the impact of
asymmetric information on firm value, information asymmetry was used
as an explanatory variable. Measuring information asymmetry between
inside management and outside stakeholders is a challenging task, since
the true level of information asymmetry cannot be directly observed.
Therefore, to measure information symmetry, previous studies mainly
focused on the fact that under an information-asymmetric situation,
varying opinions on a company’s stock price exist between informed
traders, who have private access to the company’s inside information,
and uninformed traders. In this regard, the bid–ask spread, which
essentially measures the deviation of the bidding price from the asking
price of a given stock, is the most commonly used index to measure
information asymmetry. Krishnamurti et al. (2005) and Alves et al.
(2015) highlighted the prominence of bid–ask spread as a proxy for
information asymmetry by showing that a firm’s disclosure policies are
negatively related to its bid–ask spreads.
Given the theoretical and empirical appropriateness of bid–ask
spread to capture information asymmetry, this study also adopted
bid–ask spread to measure information asymmetry. Consistent with
Akhigbe et al. (1998), Chung and Charoenwong (1998), and Eleswarapu
(1997), this study used the following formula to measure bid–ask
spread:
1 ∑ Di.t
(ASK i − BIDi )
%SPREADi.t = 100 ×
Di.t 1 (ASK i + BIDi )/2
Note: D is the number of trading days in year t.
It is important to note that the formula above did not take an abso­
lute value when calculating the difference between the asking and
bidding prices. This is because in theory, the asking price is always
higher than the bidding price. To elaborate, for a given stock at a given
moment, there are multiple asking and bidding prices. Asking prices at
or below the bidding prices are matched instantly, and the next lowest
asking price that has not been matched yet is shown as the current
asking price.
In addition to bid-ask spread, which is the most commonly used
proxy for information asymmetry, this study developed additional var­
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International Journal of Hospitality Management 111 (2023) 103481
iable to capture information asymmetry. Following Bharath et al. (2009)
and Nagano (2017), this study employed principal component analysis
(PCA) and created a composite index (COMi,t ) to serve as the second
variable of information asymmetry. PCA captures commonalty among
different variables and produces a single variable that can best represent
those variables. For the PCA analysis, in addition to bid–ask spread, this
study used two other commonly used proxies for information asymmetry
– namely, analysts’ forecast dispersion (yearly standard deviation of
analysts’ EPS forecasts) and return volatility (yearly standard deviation
of stock returns). When little or no information about a firm’s perfor­
mance is publicly available, analysts’ forecasts diverge (Maskara and
Mullineaux, 2011; Harjoto and Jo, 2015). In addition, previous studies
demonstrated that return volatility surges as more informed traders
participate in stock trading (Roy and Shijin, 2020; Feng, 2021).
3.3. Other variables
As the main objective of this study was to examine the impact of
information asymmetry on firm value, firm value was used as a depen­
dent variable. Tobin’s Q is commonly used in studies linking the subjects
of the agency problem, access to external financing, and competitive
advantage to firm value (e.g., Lin and Chang, 2010; Kim et al., 2015; Li,
2019; Wijayanto et al., 2019;). Therefore, this study used Tobin’s Q
(TOBINit ) as a proxy for firm value.
In addition, through hypotheses 2 and 3, this study intended to
explore whether the inverted U-shaped relationship between informa­
tion asymmetry and firm value varies depending on firm age and
financial leverage. To test the moderating role of firm age and financial
leverage, this study used the variable of firm age (AGEi,t = the number of
years since the firm’s IPO) and financial leverage (LEV i,t = debt-to-
equity ratio).
Finally, following previous studies, this study used several control
variables for firm value (Tobin’s Q). First, firm size (SIZEi.t ) was used as a
control variable. In general, large firms have better control of market
conditions and more resources to enhance firm value (Siahaan, 2014).
Second, firm profitability (ROAi,t ) was included as a control variable,
because high profitability shows good corporate prospects, and there­
fore, investors give more value to firms with high profitability
(Gamayuni, 2015). Third, the sales growth rate (SGRi,t ) was controlled
for, given that a firm with strong growth potential is an attractive target
for investors (Connolly and Hirschey, 2005; Modigliani and Miller,
1963). Fourth, advertising intensity (ADV i,t = advertising expenditure
divided by total assets) was used as a control variable. A firm that spends
significant amounts on advertising is highly exposed to customers,
which could lead to a positive evaluation by market participants (Joshi
and Hanssens, 2010). Finally, year dummies were included as control
variables to prevent any unobserved year effect from confounding the
Table 1
Descriptions of the variables.
Variables Measurement
Information asymmetry Bid–ask spread
(SPRi,t )
Information asymmetry Composite index
(COMi,t )
Firm value (TOBINit ) {Total debt + (Closing stock price × Common share
outstanding) + Preferred stock} / Total assets
Firm age (AGEi,t ) Natural log of number of years since the firm’s IPO
Financial leverage Debt-to-equity ratio
(LEVi,t )
Firm size (SIZEi,t ) Natural log of total assets
Profitability (ROAi,t ) Net income / Total assets
Sales growth rate (Net sales at time t – Net sales at time t − 1) / Net sales at
(SGRi.t ) time t − 1
Advertising intensity Advertising expenditure / Total assets
(ADVi,t )
DYEAR1997− 2019 Year dummies
J. Gim et al. International Journal of Hospitality Management 111 (2023) 103481

results. The study included 23 time dummies representing the 23 years
from 1997 to 2019. Table 1 provides the definitions of the variables.
3.4. Model development
As discussed above, this study used the variables the bid–ask spread
(SPRi,t ) and the composite index (COMi,t ) to capture information
asymmetry. Therefore, two different panel regression equations were
specified to test each hypothesis. First, the following regression equa­
tions were specified to test the curvilinear relationship between infor­
mation asymmetry and firm value (TOBINi,t ):
TOBIN i,t = β0 + β1 SPRi,t + β2 SPR2 i,t + β3− 6 Controlsi.t + eit
TOBIN i,t = β0 + β1 COM i,t + β2 COM 2 i,t + β3− 6 Controlsi.t + eit
Second, following Hitt et al. (1997), this study specified the
following full regression equations to test a moderation of the curvi­
linear relationship. Specifically, this study included the interaction
4. Results
4.1. Descriptive information of variables used in the analyses
Tables 2 and 3 presents the descriptive and correlation information
of the variables used in the analyses. First, in Table 2, the mean value of
the bid–ask spread, the first proxy for information asymmetry, is 1.228.
As denoted by the formula, the bid–ask spread was measured as the
percentage difference between the bidding and asking prices of a given
stock. Furthermore, it was understood that for a given stock, the asking
price is always higher than the bidding price. Given this information, the
mean value of 1.228 for the bid–ask spread suggests that in the restau­
(Model 1a)
rant industry, the asking price exceeds the bidding price by 1.23%.
Additionally, the mean value of the composite index (COMi,t ) is close to
(Model 1b)
zero (− 0.029) because PCA produces a composite index in a way that the
values generated are evenly distributed around zero.
In addition, in Table 3, the correlation matrix shows that the bid–ask
spread (SPRi,t ) and firm value (Tobin sQit ) are weakly negatively corre­
′

terms of SPR2 i,t × AGEi,t and SPR2 i,t × LEV i,t in one model to test the lated (ρ = − 0.1168 at p < 0.10). The composite index (COMi,t ) and firm
moderating impact of firm age (AGEi,t ) and financial leverage (LEV i,t ) on value (Tobin sQit ) do not show a statistically significant linear relation­
′

the relationship between asymmetric information and firm value ship (ρ = − 0.0346). This result provides some possibility that, in the
(TOBINi,t ). restaurant industry, the relationship between asymmetric information
and firm value might not be explained by only a simple negative or
TOBIN i,t = β0 + β1 SPRi,t + β2 SPR2 i,t + β3 AGEi,t + β4 LEV i,t + β5 SPR2 i,t
positive linear relationship but by an inverted U-shaped relationship.
× AGEi,t + β6 SPR2 i,t × LEV+β7− 10 Controlsi.t + eit
(Model 2a)
4.2. Estimation results
TOBIN i,t = β0 + β1 COM i,t + β2 COM 2 i,t + β3 AGEi,t + β4 LEV i,t + β5 COM 2 i,t
× AGEi,t + + β6 COM 2 i,t × LEV + β7− 4.2.1. Inverted U-shaped relationship between information asymmetry and
10 Controlsi.t + eit
firm value in the restaurant industry
(Model 2b)
Table 4 presents the empirical results regarding the relationship
To improve readability, the following interpretations of the regres­ between asymmetric information and firm value (Tobin’s Q) in the
sion equations above are primarily based on the regression models with restaurant industry (hypothesis 1). For the following interpretation of
the bid–ask spread (SPRi,t ) as a proxy for information asymmetry (i.e., the study results, the current study follows Hitt et al.’s (1997) study.
models 1a and 2a). In hypothesis 1, this study proposed an inverted U- Specifically, in hypothesis 1, this study proposed that a curvilinear
shaped relationship between information asymmetry and firm value. To relationship exists between information asymmetry and firm value.
test this hypothesis, this study included a linear term (SPRi,t ) and a First, in model 1a, with the bid–ask spread (SPR2 i,t ) as a proxy for in­
squared term (SPR2 i,t ) of information asymmetry in model 1a. In addi­ formation asymmetry, the coefficient of the squared term of the bid–ask
tion, hypotheses 2 and 3 were formulated to examine whether the pro­ spread (SPR2 i,t ) is statistically significant and negative (β = − 0.3265,
posed inverted U-shaped relationship is moderated depending on firm p < 0.001). The statistically significant and negative squared term of the
age (AGEi,t ) and financial leverage (LEV i,t ). Therefore, in model 2a, this
study specified full regression models that included the interaction Table 2
terms of SPR2 i,t × AGEi,t and SPR2 i,t × LEV i,t . Summary of descriptive statistics.
Variables Mean Min Max SD Obs.
3.5. Additional model specification
Tobin’s 1.671 0.265 5.526 0.355 721
Q(Tobin s Qit )
′

Based on the results of the Hausman test, this study used a fixed- Bid–ask spread 1.228 0.002 4.146 0.746 721
effects model for all the specified regressions. In addition, this study (SPRi,t )
used robust standard error and year dummies to obtain Composite index − 0.029 -1.003 1.023 0.421 721
heteroskedasticity-robust estimators and to control unobserved time (COMi,t )
Firm age (AGEi,t ) 3.203 1.098 (3) 3.988 (54) 0.384 721
effects, respectively. Furthermore, in model 2, with a full regression
(24.627) (10.113)
equation that included multiple interaction terms, high multicollinearity Financial leverage 1.237 0.016 4.846 0.489 721
was expected between first-order variables and the interaction terms. To (LEVi,t )
prevent this, the variables associated with the interaction terms in model Firm size (SIZEi.t ) 7.871 1.4523 10.768 1.892 721
2 (i.e., SPRi,t , COMi,t , AGEi,t and LEV i,t ) were mean-centered. After the (2621) (4.272) (47,476) (5959)
Profitability 0.072 0.008 0.318 0.091 721
variables were mean-centered, the multicollinearity test revealed that (ROAi,t )
the VIF values of the variables of interest in model 2 were all less than Sales growth rate 0.091 -0.764 2.165 0.1923 721
10. However, for the variables used in model 1, this study employed the (SGRi.t )
original values. Employing the original variables can provide a more Advertising 0.041 0.001 0.289 0.034 721
intensity
practical and intuitive explanation for the turning point of information
(ADVi.t )
asymmetry, and the VIF values of the variables of interest in model 1
were all less than 10. Note: Original values (i.e., values before natural log transformation) are also
presented for firm age(AGEi,t ) and firm size (SIZEi,t ) in parentheses to provide
more intuitive descriptive information. Original values for firm size (SIZEi,t ) are
in millions.

6
J. Gim et al. International Journal of Hospitality Management 111 (2023) 103481

Table 3
Summary of Pearson’s correlations.
Variable Obs. (1) (2) (3) (4) (5) (6) (7) (8) (9)

(1) Tobin s Qit

′
721 1
(2) SPRi,t 721 − 0.1168 * 1
(3) COMi,t 721 − 0.0346 0.7915 * ** 1
(4) AGEi,t 721 0.1516 * − 0.1986 * * − 0.2165 * * 1
(5) LEVi,t 721 0.1129 * − 0.0156 − 0.0722 -0.0898 1
(6) SIZEit 721 0.3348 * * − 0.3164 * * − 0.2191 * 0.3265 * ** -0.0156 1
(7) ROAi,t 721 0.3864 * * − 0.2168 * − 0.1923 * 0.1789 * * 0.0315 0.286 * * 1
(8) SGRi,t 721 0.2485 * 0.0156 − 0.0164 -0.2016 * * 0.1258 * − 0.0351 0.2894 * * 1
(9) ADVi,t 721 0.1654 * 0.0846 0.1058 -0.0265 0.0127 0.2684 * * 0.2184 * * 0.2196 * * 1

Note: TOBINi,t = Tobin’s Q; proxy for firm value, SPRi,t = bid–ask spread; proxy for information asymmetry, COMi,t = composite index; proxy for information asym­
metry, AGEi,t = firm age, LEV i,t = Financial leverage, SIZEi.t = firm size, ROAi,t = profitability, SGRi.t = sales growth rate, ADV i,t = advertising intensity.
*p < 0.10, * *p < 0.05, * **p < 0.01.

bid–ask spread (SPR2 i,t ) suggests that a curvilinear relationship (inver­

Table 4
ted U-shaped) exists between information asymmetry, measured by the
Impact of information asymmetry on firm value.
bid–ask spread, and firm value in the restaurant industry. Similarly, in
Dependent variable: TOBIN′ SQi,t Model 1a Model 1b
model 1b, with the composite index (COMi,t ) as a proxy for information
(FE) (FE)
asymmetry, the squared term of information asymmetry (COM2 i,t ) shows
Bid–ask spread (SPRi,t ) 0.79845 * *
statistically significant and negative results (β = − 0.6578, p < 0.05),
(0.3126)
Bid–ask spread2 (SPR2 i,t ) − 0.3265 * ** also supporting the curvilinear relationship (inverted U-shaped) be­
(0.07345) tween asymmetric information and firm value in the restaurant industry.
Composite index (COMi,t ) − 0.5524 * * Although the curvilinear relationship is confirmed by the statistically
(0.17468) significant and negative coefficients of the squared term of bid–ask
Composite index2 (COM2 i,t ) − 0.6578 * *
spread (SPR2 i,t ) and the composite index (COM2 i,t ), it is essential to
(0.23164)
check whether the overall shape of the curvilinear relationship can be
Firm size (SIZEi.t ) 0.39648 * ** 0.93454 * **
(0.10498) (0.14168) practically interpretable within the range of the data set. Therefore,
Profitability (ROAi,t ) 3.1264 * ** 4.7384 * * Fig. 1 provides curvilinear graphs depicting the results of models 1a and
(0.8462) (1.5164) 1b. First, as can be seen from Fig. 1(a), the turning point of the curvi­
Sales growth rate (SGRi.t ) 0.5456 * * 0.5268 * * linear relationship is 1.223 of the bid–ask spread (SPRi,t ). This means
(0.1264) (0.1684)
Advertising intensity (ADVi.t ) 2.1648 * 1.24854
that up to 1.223 of the bid–ask spread, the positive impact of informa­
(1.1234) (1.1748) tion asymmetry on firm value dominates the negative impact of asym­
Constant 3.78456 * ** 4.1204 * * metric information on firm value in the restaurant industry. Moreover,
(0.91647) (1.37184) given that the bid–ask spread’s turning point (1.223) is situated before
R2 0.2937 0.2765
the average value of the bid–ask spread in the study sample (1.228), this
Year fixed effects Included Included
Observations 721 721 result is congruent with the study claim that only a moderate amount of
No. Firms 51 51 information asymmetry can be beneficial to firm value. Similarly, Fig. 1
(b) shows that the turning point of the composite index (− 0.421) is
Note: The numbers in parenthesis are standard errors.
*p < 0.10, * *p < 0.05, * **p < 0.01. situated before the average value of the composite index of this study
sample (− 0.029).

Fig. 1. Inverted U-shaped relationship between information asymmetry and firm value (Tobin’s Q).

7
J. Gim et al. International Journal of Hospitality Management 111 (2023) 103481

Table 5 et al. (2018), and Caglayan and Xu (2019), the current study conducted
The moderating role of firm age and financial leverage. a GMM distance test to ensure that the test results were robust to
Dependent variable: TOBIN′ S Qi,t Model 2a Model 2b endogeneity. The advantage of the GMM distance test (also known as the
(FE) (FE) C-test or Difference-in-J test) is that unlike the Durbin-Wu-Hausman
Bid–ask spread (SPRi,t ) 0.1316 * * test, it does not require manually finding instrumental variables
(0.0568) (Baum et al., 2007). This is because the GMM distance test is a
Bid–ask spread2 (SPR2 i,t ) -0.0487 * * post-estimation test for GMM regression; GMM regression creates
(0.0216) instrumental variables internally by transforming the data.
Composite index (COMi,t ) -0.6016 * *
The lower parts of Tables 6 and 7 present the results for the post-
(0.2165)
-0.7324 * *
estimation statistics for GMM, including the GMM distance tests. To
Composite index2 (COM2 i,t )
(0.2894) begin with, to ensure the reliability of the results for the GMM distance
Firm age (AGEi,t ) -0.2957 -0.3146 * tests, it is important to examine whether the GMM regressions for
(0.1968) (0.1791) analysis were correctly constructed. The insignificant results for all
Financial leverage (LEVi,t ) -0.0059 -0.0044 Hansen J tests and z2 values suggest that the instruments used in the
(0.0054) (0.0061)
GMM regressions were not overidentified and that there were no second-
Bid–ask spread2×Firm age (SPR2 i,t × AGEi,t ) 0.0018 * *
(0.0007)
order serial correlations in the residuals for any of the models. These
Bid–ask spread2×Finanical leverage (SPR2 i,t × LEVi,t ) 0.0081 * * results suggest that the GMM regressions were correctly specified, which
(0.0035) further supports the reliability of the GMM distance test results. The null
Composite index2 ×Firm age (COM2 i,t × AGEi,t ) 0.0611 hypothesis of the GMM distance test is that the specified endogenous
(0.0561) regressors in a GMM regression can actually be treated as exogenous
Composite index2 ×Finanical leverage (COM2 i,t × -0.0021
(Baum et al., 2007). In this regard, the insignificant results for the GMM
LEVi,t )
distance test for all the regression models suggest that there is no
(0.0054)
Firm size (SIZEi.t ) 0.3016 * * 1.2056 * ** obvious endogeneity issue in the estimation, which further indicates that
(0.0126) (0.2165) the current study’s test results based on the fixed-effects models are
Profitability (ROAi,t ) 2.1168 * ** 4.9152 * ** robust to the endogeneity problem.
(0.5168) (1.1126)
Sales growth rate (SGRi.t ) 0.2821 * * 0.4312 * *
(0.1168) (0.1597)
5. Conclusion
Advertising intensity (ADVi.t ) 3.9486 * * 2.2153
(1.3564) (1.4895) The objective of the current study was to examine the relationship
Constant 2.6121 * ** 1.9221 * ** between information asymmetry and firm value in the restaurant in­
(0.2165) (0.2618)
dustry. The results indicate that a nonlinear relationship exists between
R2 0.2989 0.2835
Year fixed effects Included Included information asymmetry and firm value in the restaurant industry, as
Observations 721 721 opposed to the simple negative linear relationship that previous studies
No. of Firms 51 51 have generally documented. This study also examined whether a
Note: The numbers in parenthesis are standard errors. nonlinear relationship can be moderated by firm age and financial
*p < 0.10, * *p < 0.05, * **p < 0.01. leverage. The results showed that the nonlinear relationship between

4.2.2. The moderating impact of firm age and financial leverage on the
Table 6
inverted U-shaped relationship between information asymmetry and firm Robustness tests for endogeneity for H1.
value in the restaurant industry
Dependent variable: TOBIN′ SQi,t Model 1a Model 1b
Table 5 displays the empirical results of the test to determine
(GMM) (GMM)
whether the inverted U-shaped relationship between information
Bid–ask spread (SPRi,t ) 0.4879 *
asymmetry and firm value varies depending on firm age (hypothesis 2)
(0.2945)
and financial leverage (hypothesis 3). First, in model 2a with the bid–ask 2 2 − 0.2106 * *
Bid–ask spread (SPR i,t )
spread (SPRi,t ) as a proxy for information asymmetry, the result for the (0.0868)
interaction term SPR2 i,t × AGEi,t is statistically significant and positive Composite index (COMi,t ) − 0.7879 *
(β = 0.0018, p < 0.05). This suggests that as restaurant firms’ age in­ (0.4261)
Composite index2 (COM2 i,t ) − 0.8065 * *
creases, the turning point of the inverted U-shaped curve is located more
(0.3581)
upward and to the right. This, in turn, means that the younger a firm is, Firm size (SIZEi.t ) 0.2973 * * 0.9719 * *
the more downward and to the left the turning point of the inverted U- (0.1186) (0.3265)
shaped curve is located. This result is consistent with hypothesis 2. Profitability (ROAi,t ) 2.4824 * * 6.0651 * *
However, in model 2b with composite index (COMi,t ) as a proxy for (0.8195) (2.2165)
Sales growth rate (SGRi.t ) 0.6001 * ** 0.5901 * **
information asymmetry, no statistically significant results were found
(0.1368) (0.1364)
for the interaction terms of COM2 i,t × AGEi,t . Therefore, based on the Advertising intensity (ADVi.t ) 1.8911 * 1.5981 *
results of model 2a and 2b, hypothesis 2 was partially supported. (1.1056) (0.8816)
Similarly, in model 2a, the coefficient of SPR2 i,t × LEV i,t was statis­ Constant 4.0873 * * 4.6148 * *
(1.4865) (2.1654)
tically significant and positive (β = 0.0081, p < 0.05), suggesting that
Year fixed effects Included Included
the more financially leveraged a firm is, the more upward and to the Observations 721 721
right the turning point of the inverted U-shaped curve is located. No. Firms 51 51
However, in model 2b, no statistically significant results were found for Post estimation test for GMM
Hansen J test (χ2 ) (P-value) 0.265 0.186
the interaction term of COM2 i,t × LEV i,t . Consequently, based on the
z1 (P-value) 0.005 0.014
results of model 2a and 2b, hypothesis 3 was also partially supported. z2 (P-value) 0.486 0.618
GMM distance test (C-test) (P-value) 0.358 0.216
4.2.3. Robustness test for endogeneity
Note: The numbers in parenthesis are standard errors.
Following Baum et al. (2007), Reguera-Alvarado et al. (2017), Lu *p < 0.10, * *p < 0.05, * **p < 0.01.

8
J. Gim et al. International Journal of Hospitality Management 111 (2023) 103481

Table 7 traded firms in Vietnam and Taiwan (Chao et al., 2010; Thai, 2021). The
Robustness tests for endogeneity for H2 and H3. current study is the first to empirically demonstrate that by focusing on
Dependent variable: TOBIN′ SQi,t Model 2a Model 2b some characteristics of the restaurant industry, not only high informa­
(GMM) (GMM) tion asymmetry but also an overly transparent information environment
Bid–ask spread (SPRi,t ) 0.0942 * * could be detrimental to firm value. The results of the current study
(0.0361) suggest that when investigating the impact of asymmetric information
Bid–ask spread2 (SPR2 i,t ) -0.0545 * on firm value, it is important to take into account the characteristics of
(0.0315) individual industries.
Composite index (COMi,t ) -0.5431 *
The results of this study provide some practical contributions. Pub­
(0.2946)
-0.3283 * **
licly traded firms are obliged by law to disclose a certain set of infor­
Composite index2 (COM2 i,t )
(0.0684) mation about their financial situations and operations activities (Brau
Firm age (AGEi,t ) -0.3367 * -0.3775 * and Fawcett, 2006). However, even with mandatory disclosure re­
(0.1894) (0.2064) quirements, firm managers engage in voluntary disclosure (Kang and
Financial leverage (LEVi,t ) -0.0023 -0.0051 Gray, 2011; Cotter et al., 2011; Gray and Kang, 2014); voluntary
(0.0026) (0.0059)
disclosure is defined as “disclosure in excess of mandated requirements
Bid–ask spread2×Firm age (SPR2 i,t × AGEi,t ) 0.0021 *
(0.0011)
via press releases, internet sites or conference calls to strengthen con­
Bid–ask spread2×Finanical leverage (SPR2 i,t × LEVi,t ) 0.0127 * ** fidence of external investors in relation to management” (Cheung et al.,
(0.0026) 2010). However, disclosing information beyond what is required by law
Composite index2 ×Firm age (COM2 i,t × AGEi,t ) 0.0314 is not without cost, such as the cost of collecting, processing, and
(0.0261) disseminating information, and the risk of exposing a firm’s competitive
Composite index2 ×Finanical leverage (COM2 i,t × -0.0014
business strategy to its competitors (Cotter et al., 2011; Shehata, 2014).
LEVi,t )
In this regard, the confirmed nonlinear relationship between asym­
(0.0016)
Firm size (SIZEi.t ) 0.3861 * * 1.5431 * ** metric information and firm value in the restaurant industry suggests
(0.1348) (0.3164) that when firm managers in the restaurant industry engage in voluntary
Profitability (ROAi,t ) 1.8416 * * 3.8338 * * disclosure activities, they may have to keep in mind that the cost of
(0.6248) (1.3264) keeping the level of information asymmetry to the minimum might
Sales growth rate (SGRi.t ) 0.1987 * 0.3492 *
(0.1137) (0.1964)
exceed its benefit. In addition, managers must keep in mind that in
Advertising intensity (ADVi.t ) 2.9614 * 2.7248 certain circumstances, the extent of the negative impact of asymmetric
(1.6489) (1.9452) information on firm value could vary. Specifically, managers at young,
Constant 2.2202 * * 2.0951 * ** low-leveraged restaurant firms can expect asymmetric information to
(0.9465) (0.4951)
have a greater negative impact on firm value than those at mature,
Observations 721 721
No. of Firms 51 51 high-leveraged firms. In addition, due to the high debt-ridden nature of
Post estimation test for GMM restaurant firms, investors often lose confidence in them (Aaronallen,
Hansen J test (χ2 ) (P-value) 0.233 0.319 2017). However, the confirmed positive moderating impact of financial
z1 (P-value) 0.065 0.026 leverage on the relationship between asymmetric information and firm
z2 (P-value) 0.386 0.481
value suggests that in the restaurant industry, being highly leveraged is
GMM distance test (C-test) (P-value) 0.212 0.182
not necessarily detrimental to firm value, as it can reduce managers’
Note: The numbers in parenthesis are standard errors. opportunistic behavior.
*p < 0.10, * *p < 0.05, * **p < 0.01. The findings of this study also have some theoretical implications.
Previous studies have mostly focused on the negative impact of infor­
information asymmetry and firm value was negatively moderated by mation asymmetry on firm value based on increased agency problems
firm age and positively moderated by financial leverage. However, the and reduced access to external financing due to information asymmetry
moderating role of firm age and financial leverage was only significant (Chao et al., 2010; Thai, 2021; Liu et al., 2022). However, by demon­
when information asymmetry was measured by bid–ask spread, not strating that not only an increasing opaque information environment but
when measured by the composite index. The possible reason that this also an overly transparent information environment could be detri­
study can come up with for the insignificant results may originate from mental to firm value in the restaurant industry, this study provides some
one of the most commonly cited weaknesses of creating a composite support for the main argument of proprietary cost theory—that is,
index using PCA. Although PCA is a commonly used method to create a managers’ decisions to disclose firm information should be based on the
composite index (Chopra and Selvamuthu, 2020), PCA is not free from trade-off between the cost and benefit of information disclosure rather
limitation. PCA is based on linear combinations of original features. than just the benefit of it (Pistoni et al., 2018). Furthermore, in addition
Therefore, if the linearity of the variables used for PCA is not strong, the to Gim et al. (2019) and Jiang and Dalbor (2020), who demonstrated
composite index could suffer from some information loss (Keboola, restaurant firms’ reduced earnings management behaviors and
2020). This might have adversely influenced the current study’s attempt improved operating efficiency in the presence of high financial leverage,
in H2 and H3 to fit the inverted U-shaped relationship more precisely this study once again provided some evidence that the debt monitoring
using higher-order regression (that is, by interacting COM2 i,t with AGEi,t hypothesis may well apply to the restaurant industry. Specifically,
and LEV i,t ). consistent with the debt monitoring hypothesis, which claims that
The findings of this study contribute to the existing literature. As creditors play a disciplinary role in reducing managers’ opportunistic
discussed in Section 2.2, previous studies have mostly focused on the behaviors (Gul and Tsui, 1997; Dittmann et al., 2010), the current study
simple negative linear relationship between information asymmetry and showed that in the presence of high financial leverage, the negative
firm value. Moreover, previous studies have mostly investigated such impact of asymmetric information on firm value is mitigated, possibly
relationships throughout an industry as a whole without taking into because creditors’ increased monitoring helps reduce the agency prob­
account the possible divergence across different industries. For example, lem in the presence of information asymmetry.
Liu et al. (2022) examined publicly traded U.S. firms and demonstrated Despite the study’s contributions, it is not free from limitations. First,
that as the transparency of firms’ information environments decreases the limitations of this study can originate from the fact that the data used
(or increases), the firms’ values decrease (increase). This finding is not in this study are primarily based on U.S. restaurant firms, which resulted
limited to U.S. firms. Similar findings were also reported for publicly in a limited sample size and requires caution when generalizing the

9
J. Gim et al.
study findings. Specifically, to argue for the greater negative impact of
information asymmetry on firm value for younger restaurant firms than
for mature ones, this study pointed out that restaurant firms operate in a
highly saturated and competitive marketplace. However, although such
characteristics of the restaurant industry could be highly true in most
developed countries, this might not be the case in some countries. For
example, in emerging and developing countries, there still could be
enough room for the restaurant industry to grow; therefore, the survival
of new restaurant firms in those countries might not be as tough as that
of new entrants in the already highly saturated and competitive
restaurant industry. Lastly, in examining the circumstances in which the
nonlinear relationship can be moderated, this study mainly focused on
circumstances in which the negative impact of asymmetric information
on firm value could vary. However, moderation of the nonlinear rela­
tionship can also occur if the positive impact of asymmetric information
on firm value diverges under certain circumstances. Therefore, exam­
ining these circumstances would further clarify the relationship between
asymmetric information and firm value in the restaurant industry.
Declaration of Competing Interest
None
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