It refers to an imbalance of information between the shareholders and management of a company. Usually, directors of a company have more information on the position of a company compared to shareholders and thus the difference in power in executing economic transactions. Information asymmetry is also known as information failure.
Asymmetry often refers to the imbalance of the details and information acquired by the stockholders and the management of the company. There are moments when this occurs because of mismanagement or because the wrong information has been passed.
The stockholders would always like to know the current state of the company. Usually, the stockholder who has the highest percentage of the company’s stocks will have a lot of power about the decisions that the company would have in the future.
For example, there are some stockholders who will have the power to decide who they want to lead the company as president and CEO. Undergoing asymmetry may be a big thing for the stockholders and the company managers.