Abstract

This study investigates the impact of the COVID－19 pandemic (hereafter “COVID”) on information asymmetry in capital markets. In particular, it examines whether the roles of foreign investors and Big4 auditors—both key human resources in corporate governance that serve as effective external monitors—have changed in their ability to mitigate information asymmetry during the COVID period. COVID, as an infectious disease, led to widespread infections, hospitalizations, and fatalities, while also bringing about significant social changes such as restricted mobility and the normalization of remote work. Moreover, it caused considerable disruptions to global capital markets. Accordingly, it is reasonable to anticipate that information asymmetry in capital markets increased during this period. Due to the unique nature of COVID as a pandemic－induced capital market crisis, its impact likely varied significantly depending on firm and industry characteristics. Additionally, it was a period in which corporate governance mechanisms may have faced constraints in functioning effectively, as supported by the findings of Shin and Choi (2025). Prior studies conducted before COVID generally conclude that a high proportion of foreign ownership and the engagement of big4 auditors serve as positive elements of corporate governance, effectively restraining managerial opportunism through external monitoring. Numerous previous studies have found that both foreign investors and big4 auditors contribute to reducing information asymmetry. However, given the substantial disruption to human capital－intensive and face－to－face operations during the COVID period, it is plausible that the efficacy of such governance mechanisms may have changed. Therefore, this study aims to determine whether foreign investors and big4 auditors continued to play a mitigating role in information asymmetry during the pandemic as they did prior to it. The empirical findings of this study are as follows. During the full sample period, firms with higher foreign ownership or those audited by big4 auditors exhibited lower levels of information asymmetry, consistent with prior research. However, the mitigating effects of foreign ownership and big4 audits on information asymmetry diminished during the COVID period. Specifically, during COVID, neither high foreign ownership nor big4 audits were associated with reductions in information asymmetry；rather, the analysis revealed significantly positive coefficients, indicating that these mechanisms failed to alleviate the rise in information asymmetry. Taken together, the results suggest that governance mechanisms involving human capital, which typically function to reduce information asymmetry, did not operate effectively during the COVID period. This underscores the extraordinary nature of the pandemic and suggests that corporate governance systems were less effective under such chaotic conditions. The findings imply a need for institutional arrangements that can reduce market uncertainty and minimize disruption even in times of crisis.

Keywords

• Foreign ownership ratio
• Big4 auditors
• Covid－19
• Information asymmetry

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