An-Najah University Journal for Research - B (Humanities)


Information asymmetry is considered as a limitation to the financial market efficiency due to its effect on the liquidity and the risk of the listed stocks. Moreover, it causes an increase in the cost of capital. It is believed that the legal and regulatory environment and the nature of the information provided to investors mitigate information asymmetry. Thus, this study examined the effect of governance practices, as established in the Code of Palestinian Corporate Governance, and disclosure quality (voluntary disclosure and financial disclosure quality in financial statements) of the Palestinian companies listed on the Palestine Exchange (PEX), except banks, during the period 2006-2017. Data was obtained from the annual reports of the companies and the trading reports released by the PEX. The relation between the study variables was estimated by Pearson correlation matrix and OLS regression estimator. The results showed that while information asymmetry has a negative relationship with the size of the audit committee, it is positively related to the equity concentration. Moreover, enhancing the quality of annual reports through voluntary disclosure significantly reduces information asymmetry in the PEX. Finally, the results indicated that discretionary accruals have a significant effect in reducing information asymmetry too. This result support the informational perspective of earnings managements, as many studies established.