Defining "asymmetric information risk"--its importance.

Author:Hooda, Sheila
Position:GOVERNANCE LESSONS - Editorial - Brief article
 
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Management typically has more detailed firm-specific knowledge about the daily operations of the company.

Boards in their independent, external role bring professional experience, alternate perspectives and objectivity, and exercise oversight.

This information imbalance--or asymmetric information--is a positive and complementary to management's internal views. However, it could also present a serious governance challenge and risk if the information, underlying assumptions and analyses that are critical i.e., risk related measures and assessment, performance metrics etc., is not received in a timely manner and thoroughly discussed at the board level.

Management's presentation of the information could include their biases. Relying on this information could preclude boards from...

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