The Impact of Information Asymmetry on Investment Sensitivity to Cash Flow in Companies Listed on the Tehran Stock Exchange
Keywords:
Tehran Stock Exchange, Information Asymmetry , Investment Sensitivity to Cash FlowAbstract
The objective of this study is to investigate the impact of information asymmetry on investment sensitivity to cash flow in firms listed on the Tehran Stock Exchange. This applied and correlational study uses panel data from 119 listed companies over the period 2011–2016. Sampling was based on a systematic elimination approach. Investment sensitivity was measured using the ratio of capital expenditures to beginning fixed assets, while information asymmetry was calculated using the relative bid–ask spread. Control variables included Tobin’s Q, firm size, and leverage. A panel regression model was estimated using EViews 7 after performing normality, multicollinearity, autocorrelation, and heteroscedasticity diagnostics to ensure the validity of classical regression assumptions. Information asymmetry showed a significant negative impact on investment sensitivity to cash flow (t = –2.690, p = 0.0073). The interaction term between cash flow and information asymmetry was positive and significant (β = 0.309, p = 0.0328). Cash flow itself had a positive and significant effect (β = 0.023, p = 0.0256). Tobin’s Q, firm size, and leverage were also significant positive predictors. The model demonstrated strong explanatory power with an R² of 0.67 and adjusted R² of 0.60, while the Durbin–Watson statistic of 1.98 confirmed the absence of autocorrelation. The findings indicate that information asymmetry meaningfully alters firms’ reliance on internal cash flows when making investment decisions. Enhancing financial transparency may reduce inefficiencies in capital allocation and improve firms’ access to external financing.
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Copyright (c) 2025 Sholeh Danesh (Author); Ramezan Rezaeyan (Corresponding author)
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