Asymmetric Information Theory Research Articles

Influence of Credit Risk Identification on the Financial Performance of Commercial Banks in South Sudan

Banks rely on their profitability to mitigate the chaotic nature of the dynamic environment. High financial performance contributes to the financial institutions and market development of nations. Banks’ primary function is financial intermediation, but this function entails a risk of its own which is the risk of default. The purpose of this study was to determine the influence of credit risk identification on the financial performance of commercial banks in South Sudan. The research was anchored on the following three theories: Asymmetric information theory, portfolio theory, and credit risk theory. The study adopted an explanatory research design. The target population for the study was 711 employees of the 28Commercial Banks in South Sudan. The sample size was 195 respondents comprising Branch Managers, Credit Risk Managers, and Loan Officers of the Commercial Banks selected using the purposive sampling method since they are the ones exclusively dealing with lending matters daily. Primary data was used. Structured questionnaires were used, which included closed-ended to collect the primary data. The study conducted validity and reliability analysis and found a Cronbach of 0.708. Kaiser-Meyer-Olkin (KMO) Measured of Sampling Adequacy of credit risk identification was at 0.732 which was above 0.5. Data was analyzed using descriptive statistics involves the use of mean, standard deviations, percentages, and frequencies, while inferential statistics involves the use of correlation and multiple regression analysis through Statistical Package for Social Sciences (SPSS). The confidence level was 95% with an error margin of 5%. The findings showed that the combined effect of credit risk identification activities influenced the financial performance of commercial banks in South Sudan positively. The study concluded that credit risk identification activities significantly influence the financial performance of commercial banks. This study recommends commercial banks’ managers and loan officers focus on enhancing their credit risk identification practices by implementing comprehensive and effective risk assessment frameworks. This can include facilitating the understanding of credit risk identification based on the products the banks offer, conducting thorough credit assessments before offering credit, evaluating potential risks associated with new loan services or products before launching the product, and engaging external experts to ensure a holistic approach to risk identification.

Information quality and IPO underpricing: The role of underwriter pricing and allocation powers

In response to concerns over the use of book-building as the dominant price-setting mechanisms in IPOs, regulatory bodies in the emerging markets have implemented policies to restrict discretion exercised by underwriters. This study examines the regulatory policy effect on IPO underpricing, based on theories which explain information asymmetries among participants in the IPO process as the determinant of underpricing. Using the Korean IPO market with varying underwriter price-setting and allocation powers, I test for changes in the process by which information quality affects the initial return of IPOs when IPO reforms are withdrawn. The results suggest that when regulations limit underwriters' pricing and allocation powers, information is not impounded in the pricing of IPOs efficiently, but the inefficiency disappears when underwriters gain control over pricing and allotment of shares. Specifically, I find that IPOs are underpriced more for firms that produce poor quality accounting information, in accordance with asymmetric information theories, only when allocation powers are in the hands of underwriters. The results offer policy implications on regulating the IPO market in regard to the market price discovery process.

Financing SMEs and business development as new post Covid-19 economic recovery determinants

This study explores the relationship between the business environment, economic growth, and funding sources of Chinese small- and medium-sized enterprises (SMEs) to determine the relevance of the business environment for technological SMEs. The agency theory was used as a theoretical framework to describe how asymmetric information among SMEs and borrowers affects SMEs’ financial decisions as well as China’s investment climate and GDP growth. A binary logistic test was used to assess the financing of SMEs and business development for economic recovery after the pandemic in China. Data from the World Economic Forum and Development Bank were examined. According to the results, funding (e.g., formal and informal) under the banking structure and tax regulation may potentially boost standard credit choices and lower casual credit choices. Consequently, it has demonstrated a considerable impact on GDP growth for technologically small and medium-sized enterprises. This study is the first to examine the asymmetric information and institutional theory regarding funding a café. These findings are essential for business leaders and policymakers concerned with the financial health of small and medium-sized enterprises. Policy implications for important stakeholders are also included in this study.

The fit of dividends on investment decisions in the Vietnam capital market

This paper explores the effect of dividends on the investment decisions of listed firms in Vietnam from 2010 to 2020. The study employs quantitative research methods to demonstrate a significant effect of dividends on investment decisions. In addition, the phenomena involving endogeneity, and over-identifying restrictions are tested to ensure the reliability of the findings. The dividend-investment relationship is explained based on some theories, including the bird-in-the-hand theory, the asymmetric information theory, and the agency theory. In particular, the study focuses on an emerging market under transparent information issues, as in Vietnam.

Residential Mortgage Portfolio, Product Innovation and Performance of Commercial Banks in Kenya

This study sought to investigate the relationship between residential mortgage portfolios, product innovation, and performance of commercial banks in Kenya. The study was anchored on the Modern Portfolio Theory, Agency Theory, and Asymmetric Information Theory. The study adopted a correlational descriptive research design and data collected from the annual residential mortgage surveys conducted by the central bank of Kenya (CBK) on commercial banks covering a 13-year period from 2006 to 2018. Further, the financial statements of commercial banks and Kenya Bankers Association database were used as a source of secondary data. Data were analyzed via panel data approaches. The Baron and Kenny (1986) approach was used to test the hypothesis. The results revealed that residential mortgage portfolio attributes, namely: portfolio quality and mortgage interest return significantly influence bank performance. The effect of mortgage terms on the relationship between mortgage portfolio quality and performance was negative and statistically significant. Loan to value (LTV) ratio was however found not to significantly intervene in the relationship between residential mortgage portfolios and the performance of banks operating in Kenya. From the findings, the study suggested that bank managers pay attention to the institutional environment and product characteristics in designing their mortgage loan portfolios.

INFLUENCE OF LENDING DECISIONS ON SMALL AND MEDIUM ENTERPRISES DEVELOPMENT (CASE OF VIETINBANK, TIEN GIANG PROVINCE, VIETNAM)

Small and medium-sized enterprises (SMEs) in the world are an indispensable part of the national economy. Customer information is always an important input data for the banking industry. Currently, banks are facing the problem of information asymmetry because borrowers provide unreliable and transparent information (data on financial and non-financial statements). 
 Research approaches the theory of distribution of bank credit capital based on the theory of Asymmetric Information; The theory of adverse selection of credit markets; Moral hazard theory; Social capital theory; Theory of application in banking administration. 
 The results of the factors affecting the bank's lending decision from high to low: (1) Information about the relationship with the bank (MQHNH) (ES = 0.207, P = 0.000); (2) Information on the capacity of the owner of the enterprise (NLCSH) (ES = 0.158, P = 0.005); (3) Social Information (ESR) (ES = 0.111, P = 0.020); (4) Information on Collateral (TSTC) (ES = 0.100, P = 0.022); (5) Information on Corporate Finance (TCDN) (ES = 0.088, P = 0.005) and (6) Information on Credit History (LSTD) (ES = 0.070, P = 0.009).

Cash holdings, the internal capital market, and capital allocation efficiency in listed companies

The rise in firm-level cash asset ratios has become a prominent trend in countries around the world which may further influence the capital allocation efficiency. This study analysed the inefficient effect of cash holdings on the capital allocation by combining the internal capital market theory with principal–agent theory and asymmetric information theory. The theoretical hypotheses were tested using linear panel regression models based on financial data from Chinese listed enterprises. We found that corporations holding more cash assets had lower capital allocation efficiency than those with fewer cash assets, which is consistent with agency theory and asymmetric information theory. Internal capital markets exacerbated this adverse effect. Additional testing was conducted to examine the heterogeneity of this effect between different types of ownership and strategy; the findings showed that an increase in cash holdings had a greater marginal impact on overinvestment among privately owned enterprises and underinvestment among state-owned enterprises. Internal capital market operation alleviated the problem of overinvestment but exacerbated the problem of underinvestment in privately owned enterprises, whereas it increased overinvestment in state-owned enterprises. The results suggested that different types of enterprises should deal with the inefficient effect of cash assets based on the causes of inefficient investment.

Can Dividends Affect the Investment Decisions of Listed Firms in Vietnam?

This paper aims to estimate the impact of dividends on the investment decisions of listed firms in Vietnam. The relationship between dividends and investments is explained using agency and asymmetric information theories. In markets with low information transparency, such as the Vietnamese stock market, these theories are used. Fama and Miller (1972), for example, argued that the dividend should not be based on the investment of firms. The study, however, uses a quantitative research method known as the System Generalized Method of Moments (SGMM), which addresses the endogeneity issue and tests the hypothesis in the model to highlight dependent investment decisions on dividends. As a result, the author concludes that dividends have a statistically significant negative impact on investment decisions.

Effect of Credit Information Bureau and Appraisal Methods on performance of Commercial Banks in Mwanza Region

This study intended to identify the effect of credit information bureau and appraisal methods on performance of commercial banks in Mwanza Region. Specifically, the study intended to assess the effect of Credit Reference Bureaus’ information sharing on the credit performance of commercial banks, to assess the effect of the credit scoring appraisal method employed on the performance of commercial banks and to assess the effect of non-performing loans on the performances of Commercial Banks in the Mwanza Region. The study was guided by three theories; the theory of asymmetric information, moral hazard theory and multiple - bank lending model. The study adopted a descriptive research design, sampling 105 respondents randomly and purposefully and collected data through questionnaires. The aim is to establish the effect of credit information bureau and appraisal credit scoring methods on the performance of commercial banks in the Mwanza Region. Results revealed that credit information bureau had a positive, strong effect on the credit performance of commercial banks, and this effect is significant in Mwanza region. Non-performing loans had a positive, weak effect on the credit performance of commercial bank and it was not significant. Finally the credit scoring appraisal approach has a negative, weak effect on commercial bank credit performance. The study concluded that credit information bureau has a significant influence on credit performance of commercial banks and therefore should be used to reduce non-performing loans. The study recommended that banks should continue to use the credit reference bureau’s information-sharing services as it enhances their profitability through the reduction of non-performing loans.

Resolving Information Asymmetric and Social Network Theories Challenges in Crowdfunding Campaigns.

Using Asymmetric Information and Social Networking theories the paper highlights the relevance of these two theories to crowdfunding. The study combines these theoretical perspectives with the practical aspects of startup companies raising finance using the crowd. The key concepts of these theories are critically considered and the study is conducted in the form of a review of the literature and expressing of opinion. Consequently, the experiential justification of the theories presented is not within the scope of this paper. The study is also limited generally to the field of crowdfunding as an alternate source of funding for start-up companies. We evaluate and discuss how lack of information between project initiators and backers can result in the project's inability to meet the project goal. We also consider how social network connection affects fundraising using the crowd. First, crowdfunding has some information difficulties because it involves the raising of funds using internet platforms. Second, the number of a founder's social network connections is associated positively with the capital raised from a project.

Lemons in the university: asymmetric information, academic shopping and subject selection

ABSTRACT This article investigates the impact that information has on subject selection, if the information available to students during subject selection was considered adequate and if this was related to the increasing number of students taking an academic shopping approach to selection. Applying the theory of asymmetric information to a survey of 413 undergraduate students, we ascertained the quality and usefulness of information that was available to them during course selection. The results show that as students progress through their degree, they are more likely to find the course information inadequate and that the adoption rate of academic shopping increases. This demonstrates that the number of students dropping out of courses early could be reduced by providing more timely and accurate information.

Size Discount and Size Penalty: Trading Costs in Bond Markets

We show that larger trades incur lower trading costs in government bond markets (“size discount”), but costs increase in trade size after controlling for clients’ identities (“size penalty”). The size discount is driven by the cross-client variation of larger traders obtaining better prices, consistent with theories of trading with imperfect competition. The size penalty, driven by within-client variation, is larger for corporate bonds and during major macroeconomic surprises as well as during COVID-19. These differences are larger among more sophisticated clients, consistent with theories of asymmetric information. We propose a trading model with bilateral bargaining and adverse selection to rationalize the co-existence of the size penalty and discount.

A DESCRIPTIVE ANALYSIS OF THE ROLE OF MORTGAGE PLANNING IN QUICK SALE OF RESIDENTIAL PROPERTIES IN THE CITY OF BRAMPTON, CANADA

The research article describes the role of mortgage planning in sale of residential properties in the city of Brampton, Canada. Mortgage financing is an essential part of real estate buying & selling process in Canada where a number of people rely on mortgage loans to purchase houses. The need of housing is rapidly increasing but still a large quantity of listed properties is left UNSOLD in the real estate market despite of buyers demand. At the same time, the ratio of mortgage decline is also increasing and buyers cannot make a purchase without having the required funds. The paper examines the 07 years data from 2011 to 2017 and attempts to explain the function of mortgage planning in smooth sale of real estate. Some people pursue to get a pre-approval of mortgage from lenders before searching for properties because it gives an idea about the borrowing capacity of buyers. The paper investigates the percentage of buyers who purchase houses with a pre-approval of mortgage, the gender of buyers, the percentage of co-signers in the mortgage applications and the percentage of bargain on listed pricing, and also an analytical review on duration of time for marketing the listed properties and closing the transaction of sale. The paper relies on Asymmetric Information Theory which states that imperfect knowledge of information restricts the smooth or quicker sale of products in the markets.

Asymmetric information risk in FX markets

This work studies the information content of trades in the world’s largest over-the-counter (OTC) market, the foreign exchange (FX) market. It analyzes a novel, comprehensive order flow data set, distinguishing among different groups of market participants and covering a large cross-section of currency pairs. We find compelling evidence of heterogeneous superior information across agents, time, and currency pairs, consistent with the asymmetric information theory and OTC market fragmentation. A trading strategy based on the permanent price impact, capturing asymmetric information risk, generates high returns even after accounting for risk, transaction cost, and other common risk factors shown in the FX literature.

Asymmetric information, business environment, and transactions costs among business owners in Nigeria: Implications for female entrepreneurial sustainability transitions

AbstractThis article assesses the link between asymmetric information and transaction cost and how this can enhance or hinder female business owners from attaining entrepreneurial sustainability transitions in the Nigerian business space. The concept of information dissemination, business environment, and ease of doing business were scrutinized as a subdivision of asymmetric information and transaction cost theory among female entrepreneurs in Nigeria using the Enterprise Survey Data of the World Bank. Key indicators like regulations and taxes, gender, firm characteristics, finance, and infrastructure were highlighted as major business obstacles limiting female entrepreneurs. These were found to limit female entrepreneurs in accessing information, which can help them adequately flourish in the Nigerian business environment, as well as the attainment of entrepreneurial sustainability transitions.

Information frictions and entrepreneurship

AbstractResearch SummaryWhy do individuals become entrepreneurs? Why do some succeed? We propose two theories in which information frictions play a central role in answering these questions. Empirical analysis of longitudinal samples from the United States and the United Kingdom reveals the following patterns: (a) entrepreneurs have higher cognitive ability than employees with comparable education, (b) employees have better education than equally able entrepreneurs, and (c) entrepreneurs' earnings are higher and exhibit greater variance than employees with similar education. These and other empirical tests support our asymmetric information theory of entrepreneurship that when information frictions cause firms to undervalue workers lacking traditional credentials, workers' quest to maximize their private returns drives the most able into successful entrepreneurship.Managerial SummarySteve Jobs, Bill Gates, Mark Zuckerberg, Rachael Ray, and Oprah Winfrey are all entrepreneurs whose educational qualifications belie their extraordinary success. Are they outliers or do their examples reveal a link between education and success in entrepreneurship? We argue that employers assess potential workers based on their educational qualifications, especially early in their careers when there is little direct information on work accomplishments and productivity. This leads those who correctly believe that they are better than their résumés show to become successful entrepreneurs. Evidence from two nationally representative samples of workers (from the United States and the United Kingdom) supports our theory, which applies to equally to the immigrant food vendor lacking a high school diploma as well as the PhD founder of a science‐based startup.

Formal and informal financing decisions of small businesses

This study investigates small businesses’ financing decisions. Drawing upon asymmetric information theory, institutional theory and relevant literature on cognitive financial constraints, human capital and social capital, we propose a theoretical framework in which financing determinants come from three dimensions: entrepreneurs’ individual factors, organisational (firm-level) factors and contextual (institutional) factors. We employ this model to distinguish four types of firms: (1) firms that use no external finance, (2) firms that use informal finance only, (3) firms that use formal finance only and (4) firms that use both formal and informal finance. An empirical test on Vietnamese small businesses shows that factors from all three dimensions are important in understanding small businesses’ financing decisions.

The Myth of the Lead Arranger’s Share

We make use of Shared National Credit Program (SNC) data to examine syndicated loans in which the lead arranger retains no stake. We find that the lead arranger sells its entire loan share for 27 percent of term loans and 48 percent of Term B loans, typically shortly after syndication. In contrast to existing asymmetric information theories on the role of the lead share, we find that loans that are sold are less likely to become non-performing in the future. This result is robust to several different measures of loan performance and is reflected in subsequent secondary market prices. We explore syndicated loan underwriting risk as an alternative theory that may help explain this result.

Elementos subjacentes aos regulamentos e a divulgação do risco de crédito em fundos de investimento em direitos creditórios

O objetivo do estudo é analisar a influência de elementos subjacentes à regulação contábil na evidenciação do risco de crédito praticada pelos Fundos de Investimentos em Direitos Creditórios (FIDCs). A amostra é composta por 148 FIDCs cujas notas explicativas de 2012 a 2014 foram analisadas quanto ao nível de atendimento das normas de evidenciação por meio de análise de conteúdo e testes estatísticos. Os resultados indicam que os FIDCs atendem parcialmente aos requisitos normativos de evidenciação do risco de crédito, que houve relativa melhoria no nível de divulgação ao longo do tempo, que o atendimento da ICVM nº 489/11 é maior em relação ao CPC 40 (R1) e que critérios normativos quantitativos são os aspectos mais divulgados. Os constructos da Teoria da Informação Assimétrica permitem compreender que a assimetria de informações do risco de crédito permanece no mercado de securitização e que a especificidade dos regulamentos influencia a sua ocorrência.

Formal and Informal Financing Decisions of Small Businesses

This study investigates small businesses’ financing decisions. Drawing upon asymmetric information theory, institutional theory and relevant literature on cognitive financial constraints, human cap...