Forecast errors as index for information asymmetry and approach for liquidity analyses

Abstract

The research focused on testing the effect between information asymmetry in the financial statements of a sample of Jordanian industrial and service companies and companies options in the use of cash and bank credit in liquidity management by using the Panel Data model for the period 2010-2017.Information asymmetry, as measured by forecast error measures to earnings. Using mean absolute error and mean square error, the research concluded that the high error of prediction indicates a rise in information asymmetry in the company's data, thus reducing their ability to obtain short-term bank credit, and then a malfunction in liquidity management, The results depend on the company's characteristics, such as Sales growth rate, operational cycle logarithm, systemic risk(Beta) and capital intensity. The results suggest that information symmetry plays an important role in the analysis of corporate liquidity.