Address Information Asymmetry Research Articles

The Quality of Fair Revaluation of Fixed Assets and Additional Calculations Aimed at Facilitating Prospective Investors’ Decisions

The main objective of this study is to find out why sugar companies’ revaluation of their fixed assets has no direct financial impact. The purpose of this financial statement analysis of the sugar sector is to help potential investors make better decisions. It can also be used to address information asymmetries and alert investors. Fixed assets form a major part of a company’s value. During 2013–2018, 19 selected enterprises of Pakistan’s sugar sector adopted the International Accounting Standards Board’s international accounting standard 16 for fixed assets. Ordinary least squares, fixed effects, and random effects methods were used as a static panel, a panel-corrected standard errors method was used for the robust standard error and the system generalized method of moments was used as a dynamic panel. The surplus had a negative impact on operative income on revaluation of fixed assets in sugar businesses. As expected, revaluation by fixed asset firms resulted in changes in potential outcomes, as measured by cash in operating income and revenue, both of which were extremely negative. The return on assets was also linked to revaluation balance. The debt over the proportion of assets resulted in a strong correlation between revaluations, which meant that motivation affected how the volatility in asset value reflected the revaluation. Relationships were generally worse and more uncertain for listed companies at a time of strong economic volatility. Investors should not consider such accounting justice. The price-earnings ratio had a beneficial effect on operative income. The statistics support the idea that external concerns help the revaluation of assets.

Overcoming Information Asymmetry in Public-Private Relationships: Boundary Objects in Contracts

The paper builds on information processing theory to investigate the yet under-explored roles of contracts and their nested boundary objects to address information asymmetry in public-private relationships. Drawing on interviews, observation, archival data and contracts, we examine relationships between a pharmaceutical company and three public healthcare organizations. While findings reveal that contracts can function as a common reference point, boundary objects differ both in their information processing capacities and effect on information uncertainty and equivocality. Also, where one partner is more dominant than the other, boundary objects may have a negative impact on information asymmetry.

Half a loaf is better than none: The new data protection regime for China's platform economy

The global platform economy is entering a new era of regulation. This trend is attested by one of the most recent regulatory endeavours to curb market failures as manifested within the China's platform economy. The Personal Information Protection Act, effective as of November 2021, erects a comprehensive regulatory framework to address information asymmetry and power imbalance concomitant with big data handling. This paper contributes an analytical overview of why and how the new regulation is shaped by focusing on its legislative background, substantive rules and enforcement mechanisms. The influence of the GDPR in shaping this regulatory paradigm is scrutinized, with reference to pertinent concerns that could compromise the effectiveness of this paradigm in the Chinese context. The central edifice is that this landmark statutory instrument, broadly resembling the GDPR with certain variations, revamps the existing data protection regime in China. Nevertheless, as in its current form, the law fails to address several critical matters. The tentative conclusion is that the current construction of PIPA is necessary but far from sufficient. Alas, half a loaf is better than none.

Signaling-Based Incentive Mechanism for D2D Computation Offloading

Due to the limited computing capacity in mobile devices, device-to-device (D2D) computation offloading has been proposed as a promising solution to improving the quality of service in the Internet of things (IoT) networks, by allowing mobile devices to exploit spare computing resources in nearby user devices. However, a major challenge to realizing this new paradigm is how to effectively motivate user devices to participate as computation providers (CPs) for computation requesters (CRs), which is further exacerbated by the fact that user incentives are usually coupled with information asymmetry between the network operator and user devices. This has not been sufficiently studied for D2D computation offloading. In this paper, we propose a signaling-based incentive mechanism that leverages contract theory to address information asymmetry for D2D computation offloading. Based on the proposed contract-based incentive mechanism, we also solve the many-to-many CP-CR pairing problem by devising a polynomial-complexity matching scheme. Simulation results show that our proposed algorithm can effectively motivate user devices to participate in D2D computation offloading and select the most appropriate CPs to perform the computation tasks for corresponding CRs.

The Power of Renegotiation and Monitoring in Software Outsourcing: Substitutes or Complements?

Monitoring and contract renegotiation are two common solutions for addressing information asymmetry and uncertainty between a client and a vendor of software outsourcing services. Monitoring is mostly applied in time-and-materials contracts, as a basis for inspecting and reimbursing the vendor’s efforts in system development. Renegotiation, by contrast, is deployed in fixed-price and time-and-materials contracts to mitigate the loss of surplus from uncertainty after system development. We investigate the interaction between monitoring and renegotiation and examine the corresponding contract choice problem. We find that the client benefits from renegotiation based on two effects: an uncertainty-resolution effect and a post-development incentive effect, which incentivizes the vendor to exert additional effort in system development. Monitoring does not resolve uncertainty, although it does encourage the vendor to exert additional effort, a pre-development incentive effect. Our analysis shows that the choice of renegotiation or monitoring depends on the interactions of the above effects, which are moderated by the renegotiation cost, monitoring cost, and bargaining power in renegotiation. When renegotiation cost is low: if the client has high bargaining power and low monitoring cost, monitoring and renegotiation are complements and both are selected; otherwise, the two instruments are substitutes and contract renegotiation is preferred. When renegotiation cost is high: monitoring substitutes for renegotiation and the client only chooses monitoring if the cost to do it is low; or else neither is used. Overall, this research shows that four appropriate contract strategies should be used under somewhat different circumstances. We further analyze the impacts of some other key aspects of software outsourcing and extend the base model to address two alternative situations to show the robustness of our findings. The results apply to a range of software reliability growth models, including when machine learning or cloud computing are used.

Managing information asymmetry in public–private relationships undergoing a digital transformation: the role of contractual and relational governance

PurposeInter-organisational governance is an important enabler for information processing, particularly in relationships undergoing digital transformation (DT) where partners depend on each other for information in decision-making. Based on information processing theory (IPT), the authors theoretically and empirically investigate how governance mechanisms address information asymmetry (uncertainty and equivocality) arising in capturing, sharing and interpreting information generated by digital technologies.Design/methodology/approachIPT is applied to four cases of public–private relationships in the Dutch infrastructure sector that aim to enhance the quantity and quality of information-based decision-making by implementing digital technologies. The investigated relationships are characterised by differing degrees and types of information uncertainty and equivocality. The authors build on rich data sets including archival data, observations, contract documents and interviews.FindingsAddressing information uncertainty requires invoking contractual control and coordination. Contract clauses should be precise and incentive schemes functional in terms of information requirements. Information equivocality is best addressed by using relational governance. Identifying information requirements and reducing information uncertainty are a prerequisite for the transformation activities that organisations perform to reduce information equivocality.Practical implicationsThe study offers insights into the roles of both governance mechanisms in managing information asymmetry in public–private relationships. The study uncovers key activities for gathering, sharing and transforming information when using digital technologies.Originality/valueThis study draws on IPT to study public–private relationships undergoing DT. The study links contractual control and coordination as well as relational governance mechanisms to information-processing activities that organisations deploy to reduce information uncertainty and equivocality.

Responding to information asymmetry in crisis situations: innovation in the time of the COVID-19 pandemic

ABSTRACT Crises test the resilience of public service organizations. Healthcare providers must respond and innovate within tight constraints to address challenges. Presenting COVID-19 as a knowable unknown (black swan event), we adopt information processing theory to investigate how healthcare providers and their suppliers address information asymmetry to support decision-making. Building on primary and secondary datasets, we demonstrate managers were innovating internal structural responses. For black swan events, in-house ‘intelligent clients’ are intrinsic not only in managing information uncertainty associated with early stages of the crisis, but also in addressing information equivocality and joint decision-making with other organizations associated with implementing solutions.

Accounting and auditing of credit loss estimates: The hard and the soft

A key goal of financial reporting is to address information asymmetries, which are amplified in the case of banks given their credit, maturity and liquidity transformation and complex, judgmental accounting standards dealing with expected credit losses (ECL). The paper explores the role of bank management in estimating and recognizing ECL, and how external auditors challenge the resulting figures. Based on analysis of G-SIB disclosures, it concludes that management and auditors tend to prioritize observable and verifiable, hard information to reduce challenge to their reported estimates and protect against the threat of legal liability. Emphasis on such information facilitates loss deferral, damaging the reliability of banks’ financial reporting, obscuring their safety and soundness picture and jeopardizing financial stability. Based on these conclusions, the paper seeks to open a new path to the research and policy analysis of credit loss recognition, introducing proposals to address the procyclicality of credit loss accounting by tackling inappropriate incentives that decouple risk taking from its translation onto banks’ financial statements.

The Effect of Product Image Dynamism on Purchase Intention for Online Aquatic Product Shopping: An EEG Study.

PurposeThe normalization of epidemic prevention and control triggered a fierce scuffle in the e-commerce of fresh food, as well as for aquatic products online shopping. The main difficulty for consumers to buy fresh food online has always been information asymmetry. Previous study reported that the image is still the primary information source to address information asymmetry. Yet, few studies have focused on the image presentation of aquatic products in e-commerce. The current study aims to probe the effect of perceived movement of e-commerce pictures on purchase intention of aquatic products. Further, we examine how consumers’ cognitive conflict and emotion occur when purchasing specific aquatic products with different image dynamism.MethodsTwenty-eight subjects participated in an experiment with a 2-level product category (fresh vs frozen) × 2-level image dynamism (static vs dynamic) design. During the experiment, participants were asked to rate their purchase intention after they browse the experimental stimulus. We recorded subjects’ electroencephalograms (EEGs) throughout the experiment.ResultsBehaviorally, participants’ purchase intention for the dynamic image was significantly greater than that for the static image, regardless of aquatic product categories. At the neural level, we found that dynamic image produced less cognitive conflict and aroused consumers’ positive feelings, which were reflected in decreased N2 amplitudes and latency as well as increased LPP (late positive potential) amplitude, respectively. This effect was enhanced for fresh aquatic products.ConclusionAlthough picture dynamism only increases perceived movement, it can still induce positive emotions toward the product and lead to a greater purchase intention. The current study emphasized the value of the neuroscience method in revealing consumer cognition and emotion duration product evaluation.

Earning management, agency cost and value: Non-rent seeking and rent seeking prone firms - Indian evidence

The study explores and contrasts the earning management and its nature of the non-rent seeking and rent seeking prone firms followed by their respective valuation implication in the light of agency problem (cost) in India, where rent seeking is central to the economy. The empirical results suggest that the cash flow management by the non-rent seeking firms having lesser agency cost, is likely to be beneficial from equity valuation point as the same might aid in addressing information asymmetry as to superior operating cash flow and cash flow growth. Accrual management is considered detrimental from valuation perspective for these firms- may be due to information risk of accruals. For rent seeking prone firms where agency cost is documented to be higher, both cash flow management and cost of production management are opportunistic because they are likely to be aimed at reaping private benefit, as such, both have an inverse relation with the equity value.

Characterization of smallholder farmers and agricultural credit institutions in Rwanda

The significance of access to agricultural credit in perpetuating agricultural productivity is unquestionable, because it is a means to achieving optimal productivity. The minimization of any barriers to agricultural credit access should,thus,be a global priority. One of the most significant and current barriers to agricultural credit access is information asymmetry which results into mutual distrust between lending institutions and borrowers in this case the smallholder farmers. To address information asymmetry, both the lending institutions and borrowers need to have definitive descriptive information about either party. Without the profiling of institutions and potential borrowers, an information gap persists, thereby increasing mutual distrust. This study addresses that gap, in the context of Rwanda by characterizing smallholder farmers and agricultural credit institutions. Across-sectional survey design was used in this study with smallholder farmers and staff in agricultural credit institutions in the Eastern, Western, and Central provinces of Rwanda as the units of analysis. A multistage sampling procedure was used,with stratified sampling of administrative levels spanning from province(stage 1) to districts (stage 2) and sectors(stage 3),followed by a simple random sampling of cells per sector, and the convenience sample of households. Staff in the financial institutions were purposively sampled. The data collected was analyzed using principal component analysis and cluster analysis with the K-means statistic(SPSS version 25). The largest cluster of smallholder farmers has the following characteristics: household size of1to 5 people, farmers with education, owning arable land not exceeding a hectare, with more than five years of farming experience,earning from other off-farm activities, with no dependents under five years of age, and renting less than an acre of land. As for agricultural credit institutions, the largest cluster has following compositions:have mechanisms or measures established for managing loan defaults with the majority using refinancing, rescheduling, and collateral release, with variable loan payback options, and provide targeted agricultural credit to farmers such as agricultural input premium.The research findings are particularly pertinent for maize-and rice-growing farmers,and how to reduce the information gap and the implications of broadening access to credit to smallholder farmers were discussed. This study emphasizes the need for characterization for both parties to be better informed about the characteristics and dynamics of each other, all in a bid to lessen asymmetric information and thus improve access to credit.

Addressing information asymmetry during design: customer-centric approach to harmonization of car body split-lines

Implementation of methods for perceived quality evaluation is an integral part of the automotive manufacturers’ strategic development plans. The development of models for objective assessment of perceived quality is a very important task, addressing information asymmetry between designers and customers. This study seeks to understand how customers perceive and prioritize attributes associated with the car body split lines. We applied best-worst scaling methodology (BWS) to understand the importance of different shape design forms from a customer perspective. This approach was tested on 125 respondents. Our results indicate the improvement of engineering practices regarding complex product development solutions and their evaluation.

What is in a Price? Evidence on Quality Signaling for Experience Goods

Lack of quality information is an ubiquitous problem for consumers. Consumer associations in many countries address information asymmetry by conducting quality tests. We exploit the timing of product testing and information release in a RD-approach to estimate the effects on prices and product exit. Results show a price increase after quality disclosure for high quality durables, and a price decrease for high quality non-durables. Product exit is faster for products of low quality. Our results show a strong effect of consumer association testing, giving evidence on their role as a source of independent quality information that complements market-based and regulatory mechanisms.

Determinants of nursing home choice: Does reported quality matter?

Quality report cards addressing information asymmetry in the health care market have become a popular strategy used by policymakers to improve the quality of care for older people. Using individual level data from the largest German sickness fund merged with institutional level data, we examine the relationship between reported nursing home quality, as measured by recently introduced report cards, nursing home prices, nursing home's location, and the individual choice of nursing homes. Report cards were stepwise introduced as of 2009, and we use a sample of 2010 that includes both homes that had been evaluated at that time and that had not yet been. Thus, we can distinguish between institutions with above and below average ratings as well as nonrated nursing homes. We find that the probability of choosing a nursing home decreases in distance and price. However, we find no economically significant effect of reported quality on individuals' choice of nursing homes.

English

Institutional arrangements for making the benefits of expert information systems technology available to state enterprises in South Africa have been impacted by information asymmetry. The proliferation of infrastructure improvements has become palpable, hence the necessity to address information asymmetry in the public sector. The reliance on the private sector for expertise and knowledge has exacerbated the information asymmetry gap. A systematic literature review was done on 102 articles using words such as public value, return on government investments, public-private partnerships governance and public accountability, risk management, risk-sharing, and information asymmetry. Content analysis with the use of ATLAS/TI an automated tool was used to analyse the 102 articles that were published in management journals, conference proceedings, and books. The struggle faced by the public sector to overcome information asymmetry was discussed and described. The findings indicated that there is a specific gap in the literature relating to information asymmetry, regarding information and communication technology service delivery using PPP contracts. The contribution of this paper provides literature on information asymmetry and the management of PPP contracts. The employment of skilled information technology professionals in the public sector could eliminate the dependency on private sector resources, thereby minimising the risk of information asymmetry. Key words: Governance, risk sharing, public value, accountability.

Information Asymmetry Meets Data Security: The Lemons Market for Smartphone Apps

This article examines the market for smartphone applications (commonly called “apps”) with the goal of assessing current information asymmetry about app security and consumer privacy. It also reviews signaling as a potential policy intervention designed to address information asymmetry. Given the rapid growth of the app market, comparisons can be drawn between the market for smartphone apps and a market for lemons, as commonly found in a developing economy that lacks structured quality-control mechanisms. Despite growing concern over personal data collection and how these data are used, traded, and/or sold, the public remains relatively uneducated about and either ignorant of or apathetic toward privacy concerns when downloading apps to their smartphones. Incorporating simple security cues—similar to the “star” scale used in consumer reviews—is one example of a signaling mechanism that could help address the information asymmetry in the app marketplace.This article first examines similarities between the smartphone app market and George A. Akerlof’s classic lemons market. The goal is to expose the lemons market for app security—to simplify the scenario, an app will either be secure or insecure. Regular consumers do not have full information and therefore make purchases without knowing if an app is secure or insecure. Next, the article investigates how average consumers make decisions about cybersecurity and whether addressing the information asymmetry in the app market will alter decision making. Finally, it suggests incorporating a simple, icon-based security signal to reduce the information asymmetry and discusses the potential impact of such a policy.

Optimal Risk Pooling for Area-Yield Insurance Design: A Machine-Learning Approach

Area-yield insurance has gained much attention in acdademy and practice due to its capability of addressing information asymmetry and data limitation, as well as its low administrative cost. However, by its index insurance nature, area-yield insurance suffers the problem of basis risk. The objective of this paper is to reduce the basis risk of area-yield crop insurance by finding the optimal risk pooling using machine learning algorithms. Two clustering algorithms, including the K-means algorithm and the Gaussian Mixture Model (GMM) optimized with Expectation-Maximization (EM) algorithm, are investigated and compared in searching alternative grouping methods. Five model selection algorithms are utilized to determine the optimized number of risk pools by taking the weather, location, and historical yield information into consideration. The five model selection algorithms are Elbow Point of Within Group Sum of Squares (WSS), validity measurement, Average Silhouette Index, Gap Statistic, and Weighted Stochastic Block Model (WSBM). Finally, the proposed optimal risk pooling algorithms are empirically tested and cross-compared with the U.S. corn production and weather data from 12 States in the Midwest region.

Online Reputation and the Regulation of Information Asymmetries in the Platform Economy

In recent years, online rating and reputational mechanisms have become increasingly important in the regulation of behavior in the platform economy. Consumers tend to rely on online reviews to distinguish between service providers both in the business-to-consumer and the peer-to-peer economy. The European Commission and the Federal Trade Commission, as well as a strand of legal scholarship, have praised these online mechanisms for generating valuable information while reducing market failures and consumer risks. However, this position has overlooked evidence suggesting that the additional data provided by online reputation might not be able to address information asymmetries and manage risks due to the multiple shortcomings of existing online reputational mechanisms. In this article, I discuss the regulatory potential of online reputational feedback and offer a nuanced reflection on the traditional assumption that the availability of more information in the market reduces the need for public regulation. I suggest a co-regulatory framework for the regulation of online reputation that could help promote the transparency and trustworthiness of these informal enforcement mechanisms.

International Diversification, SFAS 131, and Debt Maturity Structure

This study examines the impact of geographic segment disclosures under the Statement of Financial Accounting Standards No. 131 (SFAS 131) on the debt maturity structure of internationally diversified firms. I find that the proportion of short-maturity debt increases with a firm’s international diversification. Moreover, the implementation of SFAS 131 attenuates the positive relation between international diversification and short-maturity debt. This attenuation effect is more pronounced for firms that continue to disclose geographic segment earnings in the post-SFAS 131 period than firms that do not. As short-maturity debt subjects firms to refinancing and potential costly liquidation risks, these results suggest a beneficial role of SFAS 131 in reducing firms’ reliance on short-maturity debt to address information asymmetry and agency costs of debt arising from international diversification. Furthermore, this study suggests that enhanced mandatory disclosure has a real effect on firms’ financing activities and capital structure.

Consumer Response to Composite Ratings of Nursing Home Quality.

Health care report cards are intended to address information asymmetries and enable consumers to choose providers of better quality. However, the form of the information may matter to consumers. Nursing Home Compare, a website that publishes report cards for nursing homes, went from publishing a large set of indicators to a composite rating in which nursing homes are assigned one to five stars. We evaluate whether the simplified ratings motivated consumers to choose better-rated nursing homes. We use a regression discontinuity design to estimate changes in new admissions six months after the publication of the ratings. Our main results show that nursing homes that obtained an additional star gained more admissions, with heterogeneous effects depending on baseline number of stars. We conclude that the form of quality reporting matters to consumers, and that the increased use of composite ratings is likely to increase consumer response.