The problem of information asymmetry can be reduced by
A) aggressive accounting.
B) accounting standards.
C) adverse selection.
D) only focusing on positive events.

Question

Quizplus · Accepted Answer

Accounting standards can help reduce information asymmetry by setting uniform guidelines for how financial information is reported and disclosed. This promotes transparency and allows investors to make informed decisions based on accurate information. Aggressive accounting (choice A) can actually exacerbate the problem of information asymmetry by manipulating financial information in a way that misleads investors. Adverse selection (choice C) occurs when one party has more information than the other before a transaction occurs, so it does not help to reduce information asymmetry. Focusing only on positive events (choice D) also does not address the issue of information asymmetry, as it ignores negative information that may be relevant to investors.

The Problem of Information Asymmetry Can Be Reduced by