Three essays on information asymmetry

This Ph.D thesis explores various aspects of information asymmetry in international settings. The first study analyzes the relative forecast accuracy between local and foreign analysts across a large sample of firms from 32 countries. We find strong evidence that local analysts provide more accurate earnings per share forecasts than their foreign counterparts. Further analysis shows that this local analyst advantage is more prominent for less transparent firms and for firms from poor disclosure countries. Our results are robust to various model specifications and control variables.;The third study shows that in 31 emerging markets, the returns on highly investable stocks that allow large access of foreign investors lead the returns on the non-investable stocks that are closed to foreign investors. This result holds even after we control for size, turnover, analyst following, intra-industry, transaction-cost, and country effects. The lead-lag relation between non- and highly-investable stocks is most consistent with the slow information diffusion hypothesis. We find that highly-investable stocks adjust faster to market returns. Thus we show that another benefit of stock market liberalization is that it facilitates the incorporation of market-wide information into the prices of local market stocks.;The second study investigates the impact of differences in accounting standards across countries on foreign analyst following and forecast accuracy. We hypothesize that differences in accounting standards impose information processing costs on foreign financial analysts. We find that the extent to which generally accepted accounting principles (GAAP) differ between two countries is negatively related to both foreign analyst following and forecast accuracy. The negative relations are statistically and economically significant. Our study presents evidence that GAAP differences between countries impose economic costs that effectively deter foreign analysts' following and reduce their forecast accuracy, suggesting at least one potential benefit from global accounting harmonization.