Gusau Journal of Accounting and Finance (GUJAF) Vol. 5 Issue 1, April, 2024 ISSN: 2756-665X A Publication of Department of Accounting and Finance, Faculty of Management and Social Sciences, Federal University Gusau, Zamfara State -Nigeria Gusau Journal of Accounting and Finance, Vol. 5, Issue 1, April, 2024 ii © Department of Accounting and Finance Vol. 5 Issue 1 April, 2024 ISSN: 2756-665X A Publication of Department of Accounting and Finance, Faculty of Management and Social Sciences, Federal University Gusau, Zamfara State -Nigeria All Rights reserved Except for academic purposes no part or whole of this publication is allowed to be reproduced, stored in a retrieval system or transmitted in any form or by any means be it mechanical, electrical, photocopying, recording or otherwise, without prior permission of the Copyright owner. Published and Printed by Ahmadu Bello University Press Limited, Zaria, Kaduna State, Nigeria. Tel: 08065949711 e-mail: abupress@abu.edu.ng info@abupress.com.ng abupress2013@gmail.com Website: www.abupress.com.ng mailto:abupress2013@gmail.com http://www.abupress.com.ng/ Gusau Journal of Accounting and Finance, Vol. 5, Issue 1, April, 2024 iii EDITORIAL BOARD Editor-in-Chief: Prof. Shehu Usman Hassan Department of Accounting, Federal University of Kashere, Gombe State. Associate Editor: Dr. Muhammad Mustapha Bagudo Department of Accounting, Ahmadu Bello University Zaria, Kaduna State. Managing Editor: Umar Farouk Abdulkarim Department of Accounting and Finance, Federal University Gusau, Zamfara State. Editorial Board Prof.Ahmad Modu Kumshe Department of Accounting, University of Maiduguri, Borno State. Prof Ugochukwu C. Nzewi Department of Accounting, Paul University Awka, Anambra State. Prof Kabir Tahir Hamid Department of Accounting, Bayero University, Kano, Kano State. Prof. Ekoja B. Ekoja Department of Accounting, University of Jos. Prof. Clifford Ofurum Department of Accounting, University of PortHarcourt, Rivers State. Prof. Ahmad Bello Dogarawa Department of Accounting, Ahmadu Bello University Zaria. Prof. Yusuf. B. Rahman Department of Accounting, Lagos State University, Lagos State. Gusau Journal of Accounting and Finance, Vol. 5, Issue 1, April, 2024 iv Prof. Suleiman A. S. Aruwa Department of Accounting, Nasarawa State University, Keffi, Nasarawa State. Prof. Muhammad Junaidu Kurawa Department of Accounting, Bayero University Kano, Kano State. Prof. Muhammad Habibu Sabari Department of Accounting, Ahmadu Bello University, Zaria. Prof. Okpanachi Joshua Department of Accounting and Management, Nigerian Defence Academy, Kaduna. Prof. Hassan Ibrahim Department of Accounting, IBB University, Lapai, Niger State. Prof. Ifeoma Mary Okwo Department of Accounting, Enugu State University of Science and Technology, Enugu State. Prof. Aminu Isah Department of Accounting, Bayero University, Kano, Kano State. Prof. Ahmadu Bello Department of Accounting, Ahmadu Bello University, Zaria. Prof. Musa Yelwa Abubakar Department of Accounting, Usmanu Danfodiyo University, Sokoto State. Prof. Salisu Abubakar Department of Accounting, Ahmadu Bello University Zaria, Kaduna State. Prof. Sunusi Sa'ad Ahmad Department of Accounting, Federal University Dutse, Jigawa State. Prof. Isaq Alhaji Samaila Department of Accounting, Bayero University, Kano State. Gusau Journal of Accounting and Finance, Vol. 5, Issue 1, April, 2024 v Dr. Fatima Alfa Department of Accounting, University of Maiduguri, Borno State. Dr. Nasiru A. Ka’oje Department of Accounting, Usmanu Danfodiyo University Sokoto State. Dr. Aminu Abdullahi Department of Accounting, Usmanu Danfodiyo University Sokoto, State. Dr. OnipeAdebenege Yahaya Department of Accounting, Nigerian Defence Academy, Kaduna State. Dr. Saidu Adamu Department of Accounting, Federal University of Kashere, Gombe State. Dr. Nasiru Yunusa Department of Accounting, Ahmadu Bello University Zaria. Dr. Aisha Nuhu Muhammad Department of Accounting, Ahmadu Bello University Zaria. Dr. Lawal Muhammad Department of Accounting, Ahmadu Bello University Zaria. Dr. Farouk Adeza School of Business and Entrepreneurship, American University of Nigeria, Yola. Dr. Bashir Umar Farouk Department of Economics, Federal University Gusau, Zamfara State. Dr Emmanuel Omokhuale Department of Mathematics, Federal University Gusau, Zamfara. State Gusau Journal of Accounting and Finance, Vol. 5, Issue 1, April, 2024 vi ADVISORY BOARD MEMBERS Prof. Kabiru Isah Dandago, Bayero University Kano,Kano State. Prof A M Bashir, Usmanu Danfodiyo University Sokoto, Sokoto State. Prof. Muhammad Tanko, Kaduna State University, Kaduna. Prof. Bayero A M Sabir, Usmanu Danfodiyo University Sokoto, Sokoto State. Prof. Aliyu Sulaiman Kantudu, Bayero University Kano, Kano State. Editorial Secretary Yazid Kabir Ibrahim Department of Accounting and Finance, Federal University Gusau, Zamfara State. Gusau Journal of Accounting and Finance, Vol. 5, Issue 1, April, 2024 vii CALL FOR PAPERS The editorial board of Gusau Journal of Accounting and Finance (GUJAF) is hereby inviting authors to submit their unpublished manuscript for publication. The journal is published in two issues of April and October annually. GUJAF is a double-blind peer reviewed journal published by the Department of Accounting and Finance, Faculty of Management and Social Sciences, Federal University Gusau, Zamfara State Nigeria The Journal accepts papers in all areas of Accounting and Finance for publication which include: Accounting Standards, Accounting Information System, Financial Reporting, Earnings Management, , Auditing and Investigation, Auditing and Standards, Public Sector Accounting and Auditing, Taxation and Revenue Administration, Corporate Governance Issues, Corporate Social Responsibility, Sustainability and Environmental Reporting Issue, Information and Communication Technology Issues, Bankruptcy Prediction, Corporate Finance, Personal Finance, Merger and Acquisitions, Capital Structure, Working Capital Management, Enterprises Risk Management, Entrepreneurship, International Business Accounting and Finance, Banking Crises, Bank’s Profitability, Risk and Insurance Issue, Islamic Finance, Conventional and Islamic Banks and so forth. GUIDELINES FOR SUBMISSION AND MANUSCRIPT FORMAT The submission language is English and must be a well-researched original manuscript that has not previously been submitted elsewhere for publication. The paper should not exceed more than 15 pages on A4 type paper in MS-word format, 1.5-line spacing, 12 Font size in Times new roman. Manuscript should be tested for plagiarism before submission, as the maximum similarity index acceptable by GUJAF is 25 percent. Furthermore, the length of a complete article should not exceed 5000 words including an abstract of not more than 250 words with a minimum of four key words immediately after the abstract. All references including in text citation and reference list, tables and figures should be in line with APA 7th Edition publication manual. Finally, manuscript should be send to our email address elfarouk105@gmail.com and a copy to our website on journals.gujaf.com.ng http://www.gujaf.com.ng/ Gusau Journal of Accounting and Finance, Vol. 5, Issue 1, April, 2024 viii PUBLICATION PROCEDURE After receiving a manuscript that is within the similarity index threshold, a confirmation email will be send together with a request to pay a review proceeding fee. At this point, the editorial board will take a decision on accepting, rejecting or making a resubmission of the manuscript based on the outcome of the double-blind peer review. Those authors whose manuscript were accepted for publication will be asked to pay a publication fee, after effecting all suggested corrections and changes made on the manuscript. All corrected papers returned within the specified time frame will be published in that issue. PAYMENT DETAILS Bank: FCMB Account Number: 7278465011 Account Name: Gusau Journal of Accounting and Finance FOR INQUIRY The Head, Department of Accounting and Finance, Federal University Gusau, Zamfara State. elfarouk105@gmail.com +2348069393824 FOR MORE INFORMATION, CONTACT The Editor-in-Chief on +2348067766435 The Associate Editor on +2348036057525 OR visit our website on www.gujaf.com.ng or journals.gujaf.com.ng http://www.gujaf.com.ng/ http://www.gujaf.com.ng/ Gusau Journal of Accounting and Finance, Vol. 5, Issue 1, April, 2024 ix CONTENTS Impact of Audit Quality on Earnings Management of Consumer Goods Firms in Nigeria Sirajo Bappah, Auwal Saad, Shehu Usman Hassan PhD, Saidu Adamu PhD Board Characteristics and Corporate Social Responsibility of Listed Oil and Gas Companies in Nigerian. Aliyu Abubakar, Yunusa Nasiru PhD, Dr. Umar Abubakar Board Characteristics and Audit Quality of Listed Consumer Goods Firms in Nigeria Aliyu Shehu Usman, Danson Andrew, Abdullahi Bala Ado PhD, CEO Characteristics and Financial Reporting Quality in Listed Consumer Goods Companies in Nigeria Okika Nkiru Philomena, Oyeneye Temitope Esther, Adedeji Daniel Gbadebo Liquidity Risk and Financial Performance of Listed Deposit Money Banks in Nigeria Bashir Abdulrauf Mohammed, Aliyu Ahmed Abdullah PhD, Prof. Salisu Mamman Ibrahim Yusuf PhD, Suleiman Salami PhD Information Asymmetry and Cost of Capital: A Review of Empirical Evidence Sunusi Ridwan Ayagi PhD, ACA, Rashida Lawal, PhD Ownership Structure and Female Inclusion of Listed Financial Firms in Nigeria Gbemigun Catherine Omoleye , Alade Muyiwa Ezekiel Phd CSR Initiatives and Sustainability Resilience in Nigeria's Oil and Gas Industry: A PLS-SEM Approach from Local Communities' Perspective Tajudeen Alaburo, Rofiat Bolanle, Abdussalam, Abdulrahman Abubakar, Tajudeen, Akeem Olamilekan Babatunde Capital Structure and the Financial Performance of Listed Information and Communications Technology Firms in Nigeria Nasiru Adamu Kanoma, Nurudeen Usman Miko, Augustine Ayuba, Idris Mohammed, Mark G, Tagwai Gusau Journal of Accounting and Finance, Vol. 5, Issue 1, April, 2024 x Profitability and Turnover Appraisal of Listed Deposit Money Banks in Nigeria Odogu, Terry Keme Zuode (PhD) and Koroye, Amapamo Stephen Board Attributes and Timeliness of Financial Reports of Listed Non-Financial Firms in Nigeria Rashida Lawal PhD and Prof. Kabir Hamid Tahir Board Independence and Financial Reporting Quality of Listed Oil and Gas Companies in Nigeria: Moderated by Firm Size Adamu Lawal Bello, Prof. J. Okpanachi, Prof. T. Nyor and Lateef Olumude Mustapha (Ph.D) Does ESG Investment Impact the Financial Sustainability of Nigerian Energy Companies: A Panel Regression Approach? Tajudeen Alaburo, Abdulsalam and Adedeji Daniel Gbadebo Board Attributes and Sustainability Reporting of Listed Firms in Nigeria Idris Mohammed, Bejamin K, Gugong PhD, Rofiat Adedokun, Abdulrahman A, Olorunloga and Mark, G, Tagwai Mediating Effect of Internal Auditors’ Ethical Conduct on The Relationship Between Usage of Information Technology, Management Support for Internal Audit Department, and Internal Audit Effectiveness: A Conceptual Framework Nura Badamasi, Adura Binti Ahmad Gusau Journal of Accounting and Finance, Vol. 5, Issue 1, April, 2024 109 INFORMATION ASYMMETRY AND COST OF CAPITAL: A REVIEW OF EMPIRICAL EVIDENCE Sunusi Ridwan Ayagi PhD Department of Accounting, Bayero University, Kano, Nigeria srayagi.acc@buk.edu.ng +2348061312384 Rashida Lawal PhD Department of Accounting, Bayero University, Kano, Nigeria rlawal.iiibf@buk.edu.ng +2348036596226 Abstract This paper reviewed relevant empirical studies that examined the effect of information asymmetry (IA) on corporate cost of capital (COC) over seventeen years (2007 -2023). Critical/integrative review approach was adopted and the paper found that results obtained by the reviewed studies regarding the impact of IA on COE or WACC are in two sets: positive and negative. However, most of them have agreed and corroborated one another on the positive effect of IA on COE or WACC. And, this goes in line with the basic argument of the pecking order theory in its first proposition. Also, regarding IA and COD, the reviewed studies have agreed that IA positively affects COD. Other findings of the paper are that most of the reviewed studies were carried out in Asia, focusing on non-financial firms. Moreover, most of the studies assessed IA's effect on COE by employing Bid-ask spread and Eastos's (2004) PEG ratio models as common measures. Based on the summary of major findings, the paper concluded that corporate firms will be experiencing a rise in financing cost as long as there is an increase in asymmetric information in the capital market. The increase will affect equity financing, debt financing and overall financing costs. Thus, in line with the conclusions drawn, the paper recommended that corporate firms should strive to minimize the level of IA in the capital market through a commitment to providing high-quality financial reports that furnish the capital providers with relevant, reliable and comprehensive information. Keywords: Information Asymmetry, Adverse Selection, Moral Hazard, Cost of Equity, Cost of Debt, Weighted Average Cost of Capital 1. Introduction Financing growth and expansion at times requires that corporate firms shift from cost-free internal funds to long-term sources of finance that generally bear cost. The long-term sources of finance available to firms are shares and debts. Borrowing via issue of shares and debts demands that a firm compensate the fund providers through periodic returns and yield in the form of dividends and interests that mailto:srayagi.acc@buk.edu.ng mailto:rlawal.iiibf@buk.edu.ng Gusau Journal of Accounting and Finance, Vol. 5, Issue 1, April, 2024 110 constitutes a cost of capital (COC) from the firm's view point (Lukanima, 2023). COC, cost of borrowing, cost of finance, borrowing cost or financing cost are alternative terms used in finance to mean the rewards given to financiers for providing corporate firms with the required funds to meet various long-term financing needs. It is, in other words, seen as the minimum return required by finance providers (Khomsiyah & Susanti, 2003 in Dewi et al., 2020). Firm’s COC as first premised by Pecking Order Theory is a function of adverse selection and moral hazard risks associated with information asymmetry (IA). Adverse selection is when one party to a contract or transaction appears more informed than the other (Eid, 2015). On the hand, moral hazard is a situation that arises after an agreement is reached between parties to a given transaction. It was defined as the tendency of an imperfectly monitored person to engage in dishonest or otherwise undesirable behaviour (Mankiw, 2011 in Rymar, 2016). Adverse selection and moral hazard as components of IA have been considered the source of problems or imperfections while borrowing or lending in the financial market (Pettinger, 2017). When a borrower is better informed about his real financial state than the financier, the latter will have some challenges in appreciating the borrower's creditworthiness and actual financial status. As a result, he would indemnify himself for the adverse selection and moral hazard risks by charging a higher risk premium resulting in higher COC. COC is one of the key elements in corporate financial decisions. A change in COC and its determinants (for instance, IA) can have implications on the ability of corporate firms to undertake profitable investment projects (Majeed et al.,2018; Nasir et al., 2018; Ayagi & Kurawa, 2019; Ayagi & Salisu, 2023). The change may also have far-reaching implications on their capital structure, financial performance and value (Hussain et al. 2021; Kurniasih & Rustam, 2022; Lukanima, 2023). Hence, IA and COC have been two of the areas that have attracted the attention of research studies from different parts of the world. The extant empirical literature on IA and COC has covered different industries in developed and developing economies. They have adopted other variable measurements, tools and data analysis technique in their various attempts to assess the effect of IA on corporate COC. For instance, Derrien et al. (2014) employed five different models of IA to examine the impact of IA on COD of 824 listed firms in the United State of America (USA). On the other hand, Ra and Lee (2018) Gusau Journal of Accounting and Finance, Vol. 5, Issue 1, April, 2024 111 covered 25 industries in South Korea in their attempt to examine the influence of IA on COE using a quantitative research method. This paper is literature-based. It aims to assess, critique and synthesize empirical literature on IA and COC over 17-year period (2007 -2023). The paper aimed explicitly to critically the relevant empirical literature to know their position on the relationship or impact of IA on corporate cost of equity (COE), cost of debt (COD), and weighted average cost of capital (WACC). Other specific objectives of the paper are to find out about the focus of the relevant empirical literature, the nature of their sample, coverage of the study period, the cost of capital type they mostly analyzed, the common measurements of the study variables, common research methods used and data analysis technique. The remaining sections of the paper covered a literature review, methodology, result and discussion, conclusion and recommendation. 2. Review of related studies Information Asymmetry is a situation where there is imperfect knowledge between buyers and sellers in the market (Pettinger, 2017). It is a circumstance in which one party in a transaction has more or superior information than another (Bloomenthal, 2019). The model of IA presupposes that at least one party to a transaction possesses some relevant information that the other party does not have. Aside from posing power imbalance in a transaction, IA creates two types of risks: adverse selection and moral hazard. Adverse selection refers to a situation where sellers have relevant information about some aspects of product quality that buyers do not have (Hayes, 2019). It is a situation where two (or more) persons are about to agree on a trade, but one of them appears to possess some information that the other(s) do not have (Quy-Toan Do, 2003). On the other hand, moral hazard is a circumstance in which IA arises after an agreement is reached between parties to a given transaction (Quy-Toan Do, 2003). Moral hazard is usually analyzed in the framework or context of a principal-agent problem whereby after signing the contract, the agent takes an action (hidden action) that is not observable by the principal or gathers some relevant information about the environment that the principal cannot obtain. Diantimala et al. (2022) viewed COC from the perspective of fund providers. And so, they defined it as the compensation that capital owners and lenders charge for the funds they provide to a company for more productive investments. Dewi et al. (2020) viewed it from the perspective of a company that receives or borrows funds Gusau Journal of Accounting and Finance, Vol. 5, Issue 1, April, 2024 112 as the cost of the funds obtained by that company. It is the cost a company must pay to obtain funds such as debt or equity (Souissi and Khlif, 2012). Thus, the term can be used to refer to the cost of debt, equity or preference shares. It can also be used to mean weighted average cost of capital (WACC), where a firm combines debt, equity and preference shares or at least two of the sources of finance while financing its activities. Therefore, WACC denotes the overall or total cost of capital for all sources of funds in a firm or the minimum return a company must make to repay capital providers (Wilkinson, 2013). On the influence of IA on COC, Hughes et al. (2007) documented that the presence of IA in the capital market brings about higher risk premiums and, hence higher COC. Rogo (2007) studied 4,709 US firms from 1993 to 2003. Using the data generated from CRSP and Compustat, the study confirmed that the effect of IA on COE increases with a higher degree of uncertainty in the US capital market. Lambert and Verrecchia (2010) agreed with this position by confirming that IA could affect market liquidity and COC. Also, Consistent with Lambert and Verrecchia (2010) stance, Armstrong et al. (2011) in the study of US listed firms from 1976 to 2006 reaffirmed that in imperfectly competitive markets, higher IA results in higher COE of the sampled firms. Findings from Lambert et al. (2012) corroborate Armstrong et al. (2011) position. Therefore, it can be deduced from the findings of Hughes et al. (2007), Rogo (2007), Armstrong et al. (2011) and Lambert et al. (2012) that IA influences COC by first bringing about uncertainty in the capital market. The level of uncertain will not only negatively affect investors' willingness to lend the required fund, it will also raise the risk premium to be charged by the providers of capital. Subsequent studies like Barron et al. (2012) and Kazemi and Rahmani (2013) supported the stand point of Lambert et al. (2012). For instance, Kazemi and Rahmani (2013) established that investors would rationally demand higher risk premiums whenever there is IA in the capital market, which would raise the COC for corporate firms. However, it should be noted that Barron et al. (2012) further confirmed that the significance of the relationship between IA and COE might vary with the inclusion of moderating variables such as information precision, quantity and quality of available information and finally, market competition among investors. Gusau Journal of Accounting and Finance, Vol. 5, Issue 1, April, 2024 113 The results obtained by Armstrong et al. (2011), Lambert et al. (2012), Barron et al. (2012) and Kazemi and Rahmani (2013) suggest that the impact and direction of the relationship between IA and COC is positive, that is, as the IA increases, COC also increases. The results also implied that the relationship is positive regardless of the studies' differences in domain, scope, variable measurements and data analysis technique used. For instance, the methods Barron et al. (2012) employed to measure both IA and COE capital in the study of USA firms differ from those used by Kazemi and Rahmani (2013). In their study, Barron et al (2012) used Sheng and Thevenot's (2011) model of IA, which differs from bid-ask spread model employed by Kazemi and Rahmani (2013). Also, for COC, Barron et al. (2012) used Easton's (2004) PEG ratio method, which is not the same as Omran and Pointon (2004) model applied in Kazemi and Rahmani (2013). Besides, the two differed in scope. Barron et al. (2012) covered a sample of 614 US firms from1983 to 2010, which can be seen as more comprehensive compared to 109 Iranian firms over 2005 to 2010, covered by Kazemi and Rahmani (2013). He et al. (2013) supported Kazemi and Rahmani (2013) documented a positive and significant relationship between IA and COE capital. He et al. (2013) used ex ante investor's required rate of return to proxy COE capital and two measures of IA i.e. earnings forecast dispersion and analyst coverage. In a review of evidence from three studies conducted by Kelly and Ljunqvist (2012), Choi et al. (2013) and Berkman et al. (2013) in the USA, China and Finland, respectively, Choi and Yan (2013) concluded that unequal access to relevant information between managers and investors has every tendency to increase the COC for corporate organizations. An increase in asymmetric information resulting from loss of an analyst (that is, 43 broker closures and broker mergers) was found to have increased the COD of publicly listed firms in USA (Derrien et al. 2014). The study used five different measures of IA (Bid-ask spread, Amihud liquidity measure, Ratio of zero and missing returns days to total days, Magnitude of earnings announcement surprises and Volatility of the market reaction to earnings announcements) to capture changes in the degree of IA. In addition, the study used excess yield spread of a bond issue to proxy COD. The results confirmed that loss of an analyst of the sampled firms has significantly widened the level of IA between firms and debt holders, which in turn influenced the COD positively. In their work, Levi and Zhang (2014) proved that not only long-lasting changes in firms' disclosure policies and information environment could influence the COE Gusau Journal of Accounting and Finance, Vol. 5, Issue 1, April, 2024 114 capital, but a temporary increase in the level of IA could also significantly raise the cost. They argued that since corporate firms produce financial reporting information regularly (e.g. annually or quarterly), IA changes and adverse-selection risk increase between these disclosure dates or interval. Thus, expected returns increase significantly in days during the fiscal quarter when there is high adverse- selection risk and low liquidity. Eid (2015) studied 50 companies listed on the Palestine Stock Exchange and measured COE using a required rate of return computed based on the closing price of the sampled companies' shares. Findings from the study revealed that the bid- ask spread employed to measure IA significantly affects COE in a positive direction. The position of Asadbakhti and Malgharni (2016) is in line with Eid (2015). However, Asadbakhti and Malgharni (2016) considered the effect of IA on the investment cost of corporations listed on the Tehran Stock Exchange. The study failed to explain how it defined and measured the IA and investment cost. Saa'deh et al. (2017) also supported the position of Eid (2015) after reviewing the literature on voluntary disclosure, IA and COC that focused on Amman Stock Exchange (ASE). The position reached by Babaie et al. (2018) further strengthened the findings of Eid (2015). After analyzing similar relationships in about 123 corporate firms listed with the Tehran Stock Exchange from 2008 to 2014, the conclusions suggested that less IA resulting from quality financial reporting would give rise to lower COE. The study analyzed the data generated using GLS Regression Model. However, it should be noted that, despite the spread and disclosure quality index employed to measure IA and information quality respectively, the study failed to quantify and capture COE precisely in any model. A similar result supporting Babaie et al. (2018) was obtained by Ra and Lee (2018) in a study of selected South Korean firms drawn from 25 industries. Ra and Lee (2018) specifically assessed the effect of changes in the information environment (attributable to adopting a capital market disclosure mechanism known as eXtensible Business Reporting Language in 2006 and 2007) on the cost of equity of voluntary and mandatory filers. Using 152 firm-year samples, the study found statistical evidence which suggests that a reduction in the level of IA resulting from eXtensible Business Reporting Language (XBRL) adoption has caused a decline in the COE of the sampled firms. Gusau Journal of Accounting and Finance, Vol. 5, Issue 1, April, 2024 115 The result obtained by Ayagi and Kurawa (2019) from model two supported Babaie et al. (2018) and Ra and Lee (2018) by affirming that IA has a positive yet insignificant effect on COC in both Underinvesting and Overinvesting banks listed on the Nigerian Stock Exchange. Since their study involved testing the mediating role of IA, Ayagi and Kurawa (2019) used regression analysis and bootstrapping procedure in analysing the data generated from Thomson Reuters data stream and annual reports and accounts of the selected banks for a period of 10 years (2008 - 2017). Moreover, the study measured IA using Bid-ask spread developed by Chiang and Vinkatesh (1986), and then quantified COC in line with Kazemi and Rahmani (2013) model. Contrary to Ayagi and Kurawa (2019) stance, Melinda and Barokah (2019) found a negative and significant association between IA and COE. The study covered one hundred and twenty-three (123) manufacturing firms listed on the Indonesian Stock Exchange from 2007 to 2012. Bid-ask spread and capital asset pricing model (CAPM) were employed to measure IA and COE respectively. The bootstrapping method as used in Ayagi and Kurawa (2019) was employed in hypotheses testing, since the study used IA as a mediator between earnings quality and COE. Some factors that might be responsible for the differences in results obtained by Ayagi and Kurawa (2019) and Melinda and Barokah (2019) are studies’ domain, market, industry, period, and variable measurement. Ayagi and Kurawa (2019) focused on Deposit Money Banks listed on the Nigerian stock exchange over 10 year period (2008 to 2017). In addition, the study considered weighted average cost of capital and thus, followed Kazemi and Rahmani (2013) model while computing the components of COC. On the other hand, Melinda and Barokah (2019) work centered on manufacturing firms listed on the Indonesia Stock Exchange over 6 years (2007 to 2012). Moreover, the CAPM used while computing COE differed from the Omran and Pointon (2004) model employed by Ayagi and Kurawa (2019). Dewi et al.'s (2020) results disagreed with Melinda and Barokah's (2019) and reaffirmed the findings of Ayagi and Kurawa (2019). It should be noted that although Melinda and Barokah (2019) and Dewi et al. (2020) works were carried out in similar manufacturing firms listed on the Indonesian Stock Exchange, factors like study periods, samples, variable measurements and other methodological differences might be responsible for the varied results. For instance, while Melinda and Barokah (2019) covered 6 years (2007 to 2012), Dewi et al. (2020) covered only three years (2016-2018) that did not overlap at all. Also, the number of Gusau Journal of Accounting and Finance, Vol. 5, Issue 1, April, 2024 116 sampled firms (that is, 123) covered by Melinda and Barokah (2019) is more significant than that of Dewi et al. (2020), which stood at 76. Varied results were obtained by Muslim and Setiawan (2021), thus corroborating Dewi et al. (2020) on one hand and disputing it on the other. Muslim and Setiawan (2021) research work was conducted in the same domain as Dewi et al. (2020) and covered listed firms drawn from more than eight industries (including manufacturing) for the period 2016 to 2019. However, the study employed the Capital asset pricing model (CAPM) for measuring COE and then used two different measures of IA i.e. trading volume and Price non-synchronisation. The result found regarding the Trading volume and COE suggested that IA positively and significantly affects COE and for Price non-synchronization and COE, the result strengthened the stance of Melinda and Barokah (2019) by suggesting that IA exerts a negative and significant influence on COE. In a related study, Diantimala et al. (2022) used IA and COE as the intervening variables while assessing the effect of voluntary disclosure on the value of non- financial firms listed on the Indonesian Stock Exchange from 2012 to 2019. However, the recursive path model used did not allow for the effect of IA on COC to be statistically tested and revealed. Hence, the study is silent about the possible link between the variables. To examine the relationship between IA and COC in companies listed on the Iraqi Stock Exchange, Khaleefah and Al-Hussainy (2023) used trading volume to quantify the level of IA and the autoregressive model to analyze data generated. The results confirmed that IA exerts a negative influence on WACC. The paper used the first proposition of Pecking Order Theory to explain the relationship between IA and COC. The same was used in Ayagi and Kurawa (2019) and Muslim and Setiawan (2021). In the proposition, Pecking Order Theory premised that COC increases with the rise in the level of IA. Because; the adverse selection and moral hazard risks associated with IA have direct consequences on firms' COC. In other words, capital providers who have imperfect information and hence unable to forecast the real risk of investing in the company will rationally compensate themselves for the risks by demanding higher COC through charging higher risk premium on stock or debt issued by the company. According to the theory, this will then influence the choice between internal and external financing and between the issue of debt or equity. Gusau Journal of Accounting and Finance, Vol. 5, Issue 1, April, 2024 117 Previous research works have also argued that COC is associated with asymmetric information between borrowers and lenders in the capital market. For instance, Easley and O'Hara (2004) and Xie (2013) have pointed out that shareholders who are always less informed about the company's future prospects respond by demanding higher returns on their shareholding in a company. According to Xie, (2013), the same applies to debt financing. Because; banks and bond-holders reimburse themselves for the asymmetric information risks by charging higher loan interest rates. Therefore, the position of Xie (2013) on IA and COC is that the two tend to move in the same direction. 3. Methodology As the main aim of the paper is to assess, critique and synthesise empirical literature on IA and COC. It employed an integrative/critical approach to the literature review. The paper also took a wider view of IA and COC by considering, their various aspects based on different perspectives of the extant literature and measurement models employed. Relevant empirical research articles published from 2007 to 2023 in different Accounting and Finance journals were used as the data for the study. The major inclusion criteria used is that the article must have IA and COC in or as part of their title. They must also have an objective of assessing the effect of IA on COC. A summary of the results found by the reviewed articles and other information derived therefrom was first presented using Table and then analysed and discussed using percentages, bar and dots via the use of Pie chart, bar chart and simple dot plot. 4. Results and Discussion Focus of the Empirical Literature It can be observed from the review that the sixteen (16) relevant studies presented were carried out in eight (8) different countries. Also, the simple dots in Figure 1(Simple Dot Plot of Countries) show that the studies were conducted mainly in the USA and Indonesia. Each recorded four dots that indicate the number of studies. They were followed by Iran, which recorded three studies. Other countries, Australia, Palestine, South Korea, Nigeria and Iran have one dot each, suggesting that the study was conducted only once. Moreover, the simple dot plots in Figure 1 show that Asian countries (Iran, Palestine, South Korea and Indonesia) recorded nine (9) dots jointly. And that suggests most of the relevant studies on IA and COC were conducted in Asia. The Gusau Journal of Accounting and Finance, Vol. 5, Issue 1, April, 2024 118 continent was followed by North America which recorded 3 dots. Africa and the Middle East have one dot each, suggesting that the issue (that is, the effect of IA on COC) is yet to attract more research efforts. Figure 1: Simple Dot Plot of Countries Source: SPSS 26 outputs based on scores of countries Nature of Sample and Study Period The sample covered by the reviewed works cut across various publicly listed firms and industries. They can be broadly classified into financial and non-financial based on the sample data presented in the Table. There was no evidence of covering or studying the relationship in private companies. Also, the period of the studies as reviewed shows that the analysis period covered by the reviewed works is about 44 years (that is, 1976 - 2020). The years can be ascertained by taking the study period covered by Armstrong et al. (2011), that is, 1976 – 2006 and then; Khaleefah and Al-Hussainy (2023), which covered 2010 – 2020. This suggests that research efforts to assess the impact of IA on COC have been ongoing for more than four decades. Cost of Capital Type The review.1 shows that the reviewed works assessed the effect of IA on the elements of COC (COE and COD) and the overall COC (that is, WACC). Using simple dot plots on Figure 2, it can be observed that COE has 10 dots, which suggests that ten (10) out of the sixteen (16) reviewed studies have focused on assessing the effect of IA on COE. WACC has four (4) dots, suggesting that four studies have attempted to examine the impact of IA on WACC. Only one paid attention to assessing the influence of IA on COD. It could be connected to the argument and view of Xie (2013), who argued that with IA in the capital, debt Gusau Journal of Accounting and Finance, Vol. 5, Issue 1, April, 2024 119 holders react similarly by rationally raising the COD. Asadbakhti and Malgharni (2016) are about IA and investment costs. It is silent about what constitutes investment cost and how it is measured. Hence, it was not captured in Figure 2. Therefore, based on the information reviewed and depicted in Figure 2, this paper concluded that the reviewed empirical works focused mainly on COE capital. Figure 2: Simple Dot Plot of Cost of Capital Type Source: SPSS 26 outputs based on scores of COC Measurement of the Study Variables The reviewed research works employed different measures of IA. The review shows that two research works (Asadbakhti & Malgharni, 2016; Dewi et al., 2020) did not disclose the method used in quantifying the value of IA and so, eighteen (18) measures of IA were found to have been used and disclosed clearly in the reviewed works. Thus, this paper used a simple bar count of the measures employed to show the commonly used method of measuring IA among the reviewed works. Figure 3 (Bar Count of IA Models) shows that Bid-Ask spread was the most widely used method of quantifying IA, as it recorded eight (8) counts. And this could be connected to the availability of data required in computing the spread. Analyst coverage and Trading volume recorded two (2) counts each, suggesting that they were used twice in the reviewed studies and were next after Bid-Ask spread. Gusau Journal of Accounting and Finance, Vol. 5, Issue 1, April, 2024 120 Figure 3: Bar Count of IA Models Source: SPSS 26 outputs based on scores of IA Models in The review Furthermore, four (4) out of the reviewed works (Asadbakhti & Malgharni, 2016; Babaie et al., 2018; Dewi et al., 2020; Khaleefah & Al-Hussainy, 2023) did not disclose the methods they used in measuring the COC. For measurement of COE, the review shows that reviewed research studies employed six (6) various measures. Also, Figure 4 (Bar Count of Measurement of COE) shows that the most commonly used model of measuring COE among the reviewed works was Easton's (2004) PEG ratio method. Four research studies used it. And this could be attributed to it being based on analysts' forecasts that could capture well variation in COE, as pointed by Pastor et al. (2008) in Peláez (2010). Easton's (2004) model was followed by CAPM and Omran and Pointon (2004) models that were employed in two works each. The required rate of return (RRR) and Ex ante investor's required rate of return were used once in separate studies. Figure 4: Bar Count of Measurement of COE Source: SPSS 26 outputs based on scores of COE Measures in The review Gusau Journal of Accounting and Finance, Vol. 5, Issue 1, April, 2024 121 Moreover, the review shows that the excess yield spread of a bond issue was the model Derrien et al. (2014) used in the study of 824 publically listed USA firms. Thus, Kazemi and Rahmani (2013) model of measuring COD was the most widely used model as it was used in two reviewed works, that is, Kazemi and Rahmani (2013) and Ayagi and Kurawa (2019). The review also shows that all the reviewed works used quantitative research methods. There was no evidence of qualitative or mixed methods used by the reviewed research studies. Also, the data analysis technique employed by the reviewed articles was a regression. Only one study, Diantimala et al. (2022), used recursive correlation in studying Indonesian non- financial firms. Analysis of Findings from the Reviewed Articles The analysis of findings from the reviewed articles is classified based on the effect of IA on each type of COC considered in the articles. It should be noted that Asadbakhti and Malgharni (2016) dropped due their failure to disclose what constitutes investment cost and how it was measured. Also, Diantimala et al. (2022) were dropped from the analysis due to inability of the technique employed (that is, recursive correlation) to capture the effect of IA on COE specifically. Thus, the study of findings is restricted to the remaining fourteen (14) reviewed articles, as depicted in figures 5, 6 and 7. Figure 5: IA and COE Source: SPSS 26 outputs based on findings from IA and COE review The review shows that the results found by the reviewed studies regarding the influence of IA on COE are in three sets, that is, positive, negative and mixed. Gusau Journal of Accounting and Finance, Vol. 5, Issue 1, April, 2024 122 Seven (7) articles established that IA positively affected on COE. This is represented by a blue area and about 77.78% in Figure 5. The implication is that COE will continue to increase as long as there is an increase in the level of IA. This supported and strengthened the first premise advanced by the Pecking Order theory, in which the theory proposed that an increase in asymmetric information would directly affect financing cost. Conversely, the review shows that one study conducted by Melinda and Barokah (2019) confirmed a negative impact of IA on COE, which contradicts the basic argument of the Pecking Order theory. This is represented by the red portion and 11.11% in Figure 5. Another study also contradicted that basic proposition on the one hand and strengthened it on the other; it found results that varied with the models of IA used. This is also represented by 11.11% in Figure 5. Figure 6: IA and COD Source: SPSS 26 outputs based on findings from IA and COD review From the review, only Derrien et al. (2014) was found to have specifically examined the effect of IA on COD and the result confirmed that IA positively impact COD. That also explains the 100% and all blue depicted in Figure 6. This position supported the arguments of scholars such as Xie (2013), who argued that COD will increase with an increase in IA. Gusau Journal of Accounting and Finance, Vol. 5, Issue 1, April, 2024 123 Figure 7: IA and WACC Source: SPSS 26 outputs based on findings from IA and WACC in the review The review shows that the number of studies that examined the effect of IA on WACC is four (4) and the results found are in two sets, positive and negative impacts. The number of studies that confirmed that IA positively effects on WACC is three (3). They are represented by 75% and blue area in Figure 7. Their findings are in agreement with the first proposition of the Pecking Order theory. The remaining 25% in Figure 7 represents one study (Khaleefah and Al-Hussainy, 2023) as presented in the review, which found a conflicting result with the first three. Thus, its stance contravened the first premise of the Pecking Order theory. 5. Conclusions and Recommendations From the critical review carried out in the previous section, this paper has found that results obtained by the reviewed studies regarding the impact of IA on COE or WACC are in two sets: positive and negative. However, most of them have agreed and corroborated one another on the positive effect of IA on COE or WACC. And; this goes in line with the basic argument of the pecking order theory in its first proposition. Also, regarding IA and COD, the reviewed studies have agreed that IA positively affects COD. Other findings of the paper are that most of the reviewed studies were carried out in Asia, focusing on non-financial firms. Most of the studies assessed the effect of IA on COE by employing Bid-ask spread and Easton's (2004) PEG ratio models as the respective measures. Moreover, the research method employed by the reviewed works is quantitative. Regression analysis has been the major data analysis technique used by the reviewed works. Gusau Journal of Accounting and Finance, Vol. 5, Issue 1, April, 2024 124 Based on the summary of major findings, the paper concluded that corporate firms will be experiencing a rise in financing costs as long there is an increase in asymmetric information in the capital market. The increase will affect the equity financing, debt financing and overall financing costs. Thus, in line with the conclusions drawn, the paper recommended that corporate firms should strive to minimise the level of IA in the market through a commitment to providing high- quality financial reports that furnish the capital providers with relevant, reliable and comprehensive information. References Armstrong, C. S., Core, J. E., Taylor, D. J., & Verrecchia, R. E. (2011). When does information asymmetry affect the cost of capital?. Journal of Accounting Research, 49(1), 1-40. Asadbakhti, N., & Malgharni, A. M. (2016). Investigating the relationship between information asymmetry and investment cost in corporations of accepted in Tehran Stock Exchange. International Academic Journal of Accounting and Financial Management, 3(7), 88-96. Ayagi, S.R., & Kurawa, J.M. (2019). Financial reporting quality and investment efficiency of listed deposit money banks in Nigeria: The mediating effects of information asymmetry and cost of capital. FUW Journal of Accounting and Finance, 1(2), 106-130. https://www.fuwjaf.com/journal articles-detail/30 Ayagi, S. R., & Salisu, M. (2023). Financial Reporting Quality and Information Asymmetry: A Review of Empirical Literature. FUDMA Journal of Accounting and Finance Research [FUJAFR], 1(3), 19-29. DOI: 10.33003/fujafr-2023.v1i3.51.19-29 Babaie, J., Mohammad, M., & Salamati, Z. (2018).The relationship between disclosure quality of information on its asymmetry and the cost of capital of all accepted companies in Tehran Stock Exchange. International Journal of Multidisciplinary Research and Development, 5( 10, 28-32 Barron, O., Sheng, X., & Thevenot, M. (2012). Information Environment and the Cost of Capital: A New Approach (No. 2012-12). Choi, J., Yan, H. (2013). Information asymmetry raises the cost of capital for corporations. https://voxeu.org/article/information-asymmetry-raises- cost-capital corporations Coman, F. (2011). How does information asymmetry manifest in the cost of capital?. Economics, Management, and Financial Markets, 6(3), 154-159. https://www.fuwjaf.com/journal%09articles-detail/30 https://www.fuwjaf.com/journal%09articles-detail/30 http://dx.doi.org/10.33003/fujafr-2023.v1i3.51.19-29 https://voxeu.org/article/information-asymmetry-raises-cost-capital%09corporations https://voxeu.org/article/information-asymmetry-raises-cost-capital%09corporations Gusau Journal of Accounting and Finance, Vol. 5, Issue 1, April, 2024 125 Derrien, F., Kecskés, A., & Mansi, S. A. (2014). Information asymmetry, the cost of debt, andcredit events: Evidence from quasi-random analyst disappearances. Journal of Corporate Finance, 39, 295-311. Dewi, D. R., Habbe, A. H., & Arifuddin (2020). The effect of asymmetry information on the investment efficiency and cost of capital with integrated reporting as the moderating variable. GlobalScience Journals: Volume 8, Issue 9, September 2020 Diantimala, Y., Syahnur, S., & Islahuddin, I. (2022). Recursive correlation between voluntary disclosure, cost of capital, information asymmetry, and firm value. Cogent Business & Management, 9(1), 2154489. Eid, M. Y. (2015). The impact of information asymmetry on the cost of eguity capital in the Palestine Exchange. http://www.iug.ps/bitstream/handle/20.500.12358/19993/file_1.pdf?seque nce=1&isAllo He, W. P., Lepone, A., & Leung, H. (2013). Information asymmetry and the cost of equity capital. International Review of Economics & Finance, 27, 611- 620. Hughes, J. S., Liu, J & Liu, J. (2007).Information asymmetry, diversification, and cost of capital. The Accounting Review 82(3), 705-729. Hussain, F., Ahmad, A., Khan, A., Khan, M. N., Jan, K., Rashid, A., & ur Rehman, Z. (2021). The cost of capital and firm performance: an empirical evidence from Pakistan. Elementary Education Online, 20(4), 3028-3028. Kazemi, H., & Rahmani, F. (2013). Relationship between information asymmetry and cost of capital. Management Science Letters, 3(1), 321-328. Khaleefah, W. S., & Al-Hussainy, D. N. (2023). Information asymmetry and its impact on the weighted average cost of capital - Applied to the Iraqi Stock Market for the period (2010- 2020). Journal of TANMIYAT AL-RAFIDAIN (TANRA) Vol. 42, No. 137 March 2023 Kurniasih, A., & Rustam, M. (2022). Cost of capital and firm value: Evidence from Indonesia. Investment Management & Financial Innovations, 19(4), 14. Lambert, R. A., Leuz, C., & Verrecchia, R. E. (2012). Information precision, information asymmetry, and the cost of capital. Review of Finance, 16(2012), 1-29. Lambert, R., & Verrecchia, R. (2010). Cost of capital in imperfect competition settings. Unpublished paper, University of Pennsylvania. Levi, S., & Zhang, X. J. (2014). Do temporary increases in information asymmetry affect the cost of equity?. Management Science, 61(2), 354-371. http://www.iug.ps/bitstream/handle/20.500.12358/19993/file_1.pdf?sequence=1&isAllo http://www.iug.ps/bitstream/handle/20.500.12358/19993/file_1.pdf?sequence=1&isAllo Gusau Journal of Accounting and Finance, Vol. 5, Issue 1, April, 2024 126 Lukanima, K. B. (2023). An Overview of Capital Structure and Cost of Capital. Corporate Valuation: A Practical Approach with Case Studies, 323-337. Majeed, M. A., Zhang, X., & Umar, M. (2018). Impact of investment efficiency on cost of equity: evidence from China. Journal of Asia Business Studies, 12(1), 44-59. https://doi.org/10.1108/JABS-09 2015-0163 Mankiw, G. (2011). Principles of Economics (6th ed.). South-Western College Pub. Melinda, D., & Barokah, Z. (2019). The effect of earnings quality on cost of equity through information asymmetry: An empirical study of the manufacturing companies in the Indonesia Stock Exchange. The Indonesian Journal of Accounting Research, 22(3). Muslim, A. I., & Setiawan, D. (2021). Information asymmetry, ownership structure and cost of equity capital: The formation for open innovation. Journal of Open Innovation: Technology, Market, and Complexity, 7(1), 48. Nasir, A., Haris, A., Qaisar, A. M., & Abdul, W. (2018). Impact of investment efficiency on cost of equity: An empirical study on shariah and non shariah compliance firms listed on Pakistan Stock Exchange. Pakistan Administrative Review, 2(3), 307-322. Peláez, B. B. (2010). Segment disclosure, cost of capital and investment efficiency. http://orff.uc3m.es/bitstream/handle/10016/9145/belen_blanco_tesis.pdf?s equence=1 Pettinger, T. (2017). Asymmetric information problem. https://www.economicshelp.org/blog/glossary/asymmetric-information/ Quy-Toan, D. (2003). Asymmetric Information. Retrieved from http://siteresources.worldbank.org/DEC/Resources/847971114437274304/ Asymmetricinfo_Sep2003.pdf Ra, C. W., & Lee, H. Y. (2018). XBRL adoption, information asymmetry, cost of capital, and reporting lags. iBusiness, 10(03), 93. Rogo, R. (2007). Information and Cost of Capital with Uncertainty about Types. http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.511.7422&rep= rep1&type=p Rymar, I. E.(2016). Information asymmetry and its impact on cost of equity capital: Volkswagen case. https://ddd.uab.cat/record/160457 Saa'deh, M. Y., Mohamad, N. R., & Hashim, H. A. (2017). The Role of Voluntary Disclosure on Information Asymmetry and Its Impact on the Cost of Capital. Advanced Science Letters, 23(9), 8389-8394. https://doi.org/10.1108/JABS-09%092015-0163 https://www.economicshelp.org/blog/glossary/asymmetric-information/ http://siteresources.worldbank.org/DEC/Resources/847971114437274304/Asymmetric http://siteresources.worldbank.org/DEC/Resources/847971114437274304/Asymmetric http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.511.7422&rep=rep1&type=p http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.511.7422&rep=rep1&type=p https://ddd.uab.cat/record/160457 Gusau Journal of Accounting and Finance, Vol. 5, Issue 1, April, 2024 127 Souissi, M., Khlif, H. (2012) Meta-analytic Review of Disclosure Level and Cost of EquityCapital, International Journal of Accounting and Information Management, Vol. 20, Issue 1, pp. 49 –62. Xie, L. (2013). How does asymmetric information relate to investment efficiency? Evidence from analysts' earnings forecasts and daily stock trading. http://commons.ln.edu.hk/cgi/viewcontent.cgi?article=1006&conte xt=fin_etd http://commons.ln.edu.hk/cgi/viewcontent.cgi?article=1006&context=fin_etd http://commons.ln.edu.hk/cgi/viewcontent.cgi?article=1006&context=fin_etd