The Asymmetric Cost of Secrecy: A Bayesian Analysis of Governance, Information Gaps, and Extreme Investment Decisions in Baghdad
Abstract
Emerging markets are characterised by severe information asymmetry and governance challenges, yet research often assumes that their effects on investment efficiency are uniform. This study challenges that assumption, positing that the "cost of secrecy" and the value of governance are asymmetrically distributed across firms. We investigate how corporate governance mechanisms and information asymmetry differentially influence investment efficiency across its conditional distribution—from severe inefficiency to elite performance in Baghdad’s secretive market. Utilising a novel Bayesian quantile regression framework on a panel of 326 firm-year observations (2014-2018), we uncover profound heterogeneity. Results reveal that conventional governance tools like board independence are ineffective for firms experiencing extreme inefficiency but are valuable for moving median firms toward efficiency. Foreign institutional ownership provides an "efficiency premium," most beneficial for high-performing firms. The detrimental effect of information asymmetry is catastrophic at the low-efficiency tail but attenuated for top performers. Furthermore, governance only mitigates information asymmetry for median and high-efficiency firms, failing as a remedy in pathological cases. The discussion emphasises the limitations of average-effect models and the need for contingency-based, distributional thinking in governance theory. These findings urge tailored governance strategies for firms at different performance levels and highlight the need for regulatory focus beyond structural compliance to address deep-seated inefficiency.
Copyright (c) 2026 Imad Kadhim Imran
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