Information Asymmetry Research Articles

The impact of CEO's green experience on digital transformation

According to resource orchestration theory, key human capital can allocate resources to the critical paths of projects to maximize resource utilization efficiency. This study examines how the green experience acts as an important organization capital and affects a company's digital and green transformation processes. Based on the organization capital theory, we study the performance of China's A-share listed companies from 2013 to 2021. A CEO's green experience inhibits a company's digital transformation while promoting its green transformation. Based on organizational theory, our conclusion is consistent with signal and information asymmetry theories. Executives with green experience have a better understanding of ways to improve the credibility of the public's green environmental practices. This agency cost often has a negative impact on the financial performance of enterprises, which is not conducive to their digital transformation. Companies should carefully recruit executives with green experiences, based on future digital or sustainable development strategies, to maximize the organization capital.

A Marketplace for Honest Ideas

Abstract The marketplace of ideas is a colourful metaphor with a long history of being used to argue for freedom of speech. This paper draws on its historical antecedents to begin with an orthodox understanding of the metaphor whereby the absence of substantive regulation is taken to be conducive to the good functioning of both economic markets and public discourse. This anti-regulation reading is then challenged by analysing a series of legal cases showcasing prohibitions on misrepresentation and fraud. These speech regulations are explained by the economics literature on information asymmetry, which illustrates how honesty regulations maintain good market functioning by facilitating credible reliance by market participants on one another’s assertions. What is thereby proposed is a re-imagining of the marketplace of ideas metaphor which lends support to honesty regulations in the realm of public speech. One potential analogue for these legal and economic findings is identified in the work of Shiffrin and her arguments for deontological sincerity requirements in the public sphere.

Informativeness of Announcement Returns in Cross-border Acquisition Completion: A Perspective from Emerging Economies

This study examines the informative role of announcement returns in the deal-closing decision for cross-border acquisitions from emerging economies. Using a sample of 903 acquisitions from five emerging economies: Brazil, Russia, India, China, and South Africa (BRICS), we find that the likelihood of deal completion increases if the market reacts favorably at the time of announcement. Further, we investigate if the relationship between announcement returns and deal completion becomes more significant under increased information asymmetry. Empirical results attest that the relationship between the market reaction and deal completion becomes more pronounced in unrelated deals and deals without advisors. JEL Codes: G14, G34

Mitigating information asymmetry in 5G networks

Mitigating information asymmetry in 5G networks

Does Financial Derivative Hedging Reduce Firms’ Financial Constraints?

This study examines the relationship between the firms’ derivative risk management and its financial constraints. Firms face a wedge between their internal and external financing for their investments. I test whether this wedge reduces firms’ financial constraints when they hedge using interest rate, foreign currency, and commodity derivatives. Using an event study and a difference-in-differences framework around implementing Financial Accounting Standard (FAS) 123R, this study shows a strong causal relationship between derivative hedging and financial constraints. I find that net debt increases for the derivative hedging firms, on the other hand, cash holdings and net equity issuance decreases. When managers of non-financial corporations believe that their firm will face a liquidity shortage, they save more cash out of cash flow as a precautionary measure. Both cash flow-cash sensitivity and investment-cash flow sensitivity decrease. The analysis also shows that both the loan spread and the probability of covenant violation decrease after firms start derivative hedging. The main implication of the analysis is that risk management influences the asymmetric information between lenders and borrowers: the increase in risk management, the less the asymmetry.

Enhancing synergistic performance through implicit incentive contracts: Addressing the “talent dilemma” in the public sector

AbstractBecause of the conflict between the traditional public sector values of egalitarianism and new public management, talent management (TM) in the public sector is more difficult to implement under resource constraints. Equity and efficiency in China's public sector are squeezed out of each other under egalitarianism, resulting in the “ talent dilemma” in which talent works more but does not get more. The “talent dilemma” leads to the fact that it is very attractive for talents to hide their abilities and reduce their efforts in the public sector. In this paper, from the perspective of the “talent dilemma”, we study the contract design problem of the coexistence of heterogeneous talent's adverse selection and moral hazard in the public sector. Specifically, an incentive model combining exclusive and inclusive TM factors under information asymmetry is constructed. The optimal incentive contract is designed to motivate heterogeneous talents to display true information about their abilities and to maintain a maximized level of effort. The results of the study show that the optimal incentive contract can realize the role of information screening and break the “talent dilemma”. These findings provide a theoretical basis for the reform of incentive mechanisms in the public sector.

Does firms’ digitalization affect trade credit provision?

ABSTRACT This study examines the relationship between firms’ digitalization and trade credit provision using data on Chinese A-share listed enterprises from 2007 to 2020. We find that digital transformation significantly increases trade credit provision. The mechanism test shows that digital transformation directly reduces information asymmetry and enhances financial stability, thereby promoting trade credit provision. Furthermore, our heterogeneity analysis suggests that the positive effect of digitalization on trade credit provision is more pronounced for firms that are large and in the non-tech industries, and for firms that are in regions with high levels of digital finance development. Finally, digital transformation positively affects firm value and trade credit financing, indicating that digital transformation enhances the financing capacity of enterprises. This study not only reveals the economic consequences of firms’ digitalization on trade credit provision, it also provides a useful perspective to explain how the firms’ digitalization can enable the development of real economy and industry.

Analysis of connection fault and service maintenance strategy for subsea horizontal clamp connector

The deep-sea environment restricts the collection of reliable data for subsea connectors, leading to a lack of available failure data to develop connection fault detection processes and maintenance strategies. Therefore, this paper proposes an FMECA-BN model. The model developed an algorithm for mapping Risk Priority Number (RPN) to Bayesian network (BN) parameters and enhanced the details for mapping BN structures to match the diversity of FMEA. This enables the establishment of a BN based on a given Failure Mode, Effects, and Criticality Analysis (FMECA). The model was applied to the development of the Subsea Horizontal Clamp Connector (SHCC) to quantify and evaluate failure modes during the connection stage, creating an effective detection process. Then, the system's reliability variations caused by component degradation were analyzed using transformed dynamic BN, offering information for maintenance strategies based on availability. The reliability analysis results of the FMECA-BN model demonstrate a statistical error of 4.5% compared to actual data samples, proving the model's efficacy in addressing issues of information asymmetry, incomplete reliability data, and uncertainty. The analysis revealed that the developed SHCC requires a maintenance cycle of 14,892 h to maintain a 0.99 reliability level, with a cumulative failure probability of 4.6% after 20 years.

ESG and Leverage Adjustment: Based on Stakeholder Theory and Signaling Theory

Many of today's firms are suffering from leverage imbalance. A company's debt can negatively impact its performance when it deviates from its target leverage. Thus, this paper discusses adjusting the firm's capital structure to an optimal one. Combining stakeholder theory and signaling theory, this paper discusses how and under what circumstances ESG may have an impact on capital structure, from which the paper proposes the following conjectures: whether ESG can have a significant impact on a firm's target leverage; how ESG can affect a firm's capital structure when the firm has an asymmetry of information; and whether ESG can be tailored to economic environments that can have an impact on a firm's capital structure changes have an effect. After the inference of this paper, ESG can effectively influence firms' capital structure and accelerate the adjustment speed of firms' leverage to target leverage under the state of firms' information transparency. ESG will be more effective in regulating firms' target leverage in the downturn of the economic environment. The analytical framework of this paper may also be effectively applied to other research directions, such as corporate investment decisions, cash holdings, and dividend policies.

Improving health service design and delivery for men: does gender targeting matter?

Purpose Consumer well-being in health-care settings is often undermined by information asymmetries, uncertainty and complex choices. Men are generally less motivated to adopt support tools designed to facilitate shared decision-making (SDM) and increase involvement in health service delivery. This study aims to examine the effects of sports team metaphors in a male-centered decision aid on empowerment and preparedness within a sleep apnea treatment context, a common disease among men. Individual-level factors that influence the decision aid experience are also considered. Design/methodology/approach An online panel sample of 296 US men was randomly assigned to a generic or gender targeted decision aid. The scenario-based method was used to simulate the decision aid experience. A one-way MANOVA tested the effects of gender targeting on SDM-related outcomes. Structural equation modeling was then undertaken to analyze relationships between self-construal and these outcomes. Findings Participants who experienced the gender-targeted decision aid reported higher levels of empowerment and preparedness. The positive relationship between collective interdependence and empowerment was stronger among those who received the targeted decision aid. The positive relationship between empowerment and preparedness was also significantly stronger in the targeted group. Empowerment mediated the effect of self-construal on preparedness. Originality/value Little to no research has evaluated the effectiveness of sports team metaphors in improving SDM and facilitating health-care value cocreation. Results provide insight into how to enhance service design and delivery for men facing medical decisions.

Can Words Speak Louder Than Actions? Using Top Management Teams’ Language to Predict Myopic Marketing Spending

Myopic marketing spending—curtailing marketing and research and development expenses to boost earnings—damages firms’ long-term value. Despite this, top management teams are often myopic, and by the time investors or boards detect such short-termism, it is too late to react or intervene. This research introduces a novel prediction method by analyzing the language top management teams use in earnings calls, specifically focusing on marketing and earnings emphasis, to predict future instances of myopic marketing spending. Through linguistic dependency parsing of almost 11 million sentences extracted from nearly 25,000 quarterly earnings call transcripts of 1,197 firms between 2008 and 2019, the authors demonstrate that the proposed approach can predict myopic marketing spending at a quarterly frequency for up to one year in advance. They find that an increase of one standard deviation in earnings emphasis is associated with a 23.68% increase in the likelihood of future myopic marketing spending. Investments based on the proposed approach produce 1.61% additional annual abnormal returns compared with models that exclusively use known predictors of myopic marketing spending, while offering earlier foresight and more frequent opportunities for intervention. This reduces information asymmetry for investors and boards of directors.

Study of the Impact of Fairness Concern on Low Carbon Dual Channel Supply Chain

A supplier-dominated secondary low-carbon dual channel supply chain is used as the object of study, and the expected demand function is constructed when the seller has the advantage of market information in the information asymmetry situation, in order to explore the impact of fairness concern on supply chain decision making. The utility functions in the three scenarios were analyzed and compared, and mathematical simulations were conducted according to market demand information available to the seller and the effort input of decision-making subject. Studies have shown that: Whichever decision-making subject has the fairness concern behavior does not affect the supplier as a higher profit maker; information on market demand also needs to be taken into account when considering the impact of the level of fairness concern on profits of the decision maker. When suppliers misjudge market demand, wholesale price increases are slowed if sellers have equity concerns, and sellers may engage in retaliatory behavior if equity demands are not met. In addition, low carbon demand is profitable for suppliers in supplier-led supply chains regardless of market demand, and low carbon sales efforts are not necessarily profitable for retailers.

Investment incentives attract foreign direct investment: evidence from the great recession

AbstractDo investment incentives influence private firms’ location decisions? Whereas prior research emphasizes tax incentives, we focus on incentives that require real-time government spending including job training and infrastructure. Real incentives influence where firms invest by resolving costly information asymmetries, and are subject to budget constraints that give rise to political targeting. This paper evaluates how real incentives shape the location decisions of foreign firms, investors who suffer from acute information asymmetries. We leverage features of the Great Recession and the 2009 American Recovery and Reinvestment Act stimulus, which temporarily increased states’ fiscal capacity to fund real incentives. During the narrow stimulus spending window, states that received more federal Medicaid stimulus—instrumented with the exogenous component of the Act’s funding formula—attracted more foreign direct investment (FDI) and increased state spending on real incentives. The stimulus window approximately coincides with FDI’s temporary geographic expansion into US counties that lacked a history of these investments. On average, these counties had narrow vote margins in the prior gubernatorial election and garnered more state real incentive spending. These correlates are pronounced in counties with idle industrial capacity and in states whose governors sought re-election. Tax incentives had no effect on FDI. These findings have important implications for the efficacy of investment incentives and the political economy of industrial policy.

Context matters: The signaling role of foreign bidders’ reputation in cross-border acquisition contests

Existing research offers limited understanding of how foreign acquirers enhance their chance of success in cross-border acquisition (CBA) deals. Engaging and extending signaling theory, this paper argues that during the bidding stage of an acquisition deal wherein information asymmetry is heightened between the bidder and seller, reputation of foreign bidders can serve as a signal of quality, increasing their likelihood of winning a deal over domestic bidders. Importantly, this signal is only effective when there is strong nationalist sentiment in the seller's country. Analyses of 580 bidders in 275 cross-border multi-bidder acquisition contests between 1994 and 2016 support our predictions.

Аномалии IPO: влияние на эффективность первичных публичных предложений

The article explores the significant role of anomalies in the market for initial public offerings (IPOs), affecting both short-term and long-term stock outcomes upon entering the public market. It addresses the overarching issue faced by investors regarding the low efficiency of IPOs, characterized by a decline in securities’ value immediately after public listing. The article examines various anomalies and factors affecting IPO outcomes and discusses strategies for successful risk management and achieving desired investment results. It highlights the importance of considering underexplored aspects such as financial reporting distortions, information asymmetry, and insider manipulations, which are often encountered in IPOs but rarely studied in depth. This investigation into IPO anomalies aims to provide investors and companies with insights for making more informed decisions during IPOs and adapting their strategies according to market conditions, thereby contributing to a broader understanding of factors affecting IPO profitability. By recognizing and addressing these factors, investors and companies can better navigate the IPO process and achieve more favorable outcomes. Further research is needed to delve deeper into the complexities of IPO anomalies and their implications for market efficiency.

Complexity matters: Normalization to prototypical viewpoint induces memory distortion along the vertical axis of scenes.

Scene memory is prone to systematic distortions potentially arising from experience with the external world. Boundary transformation, a well-known memory distortion effect along the near-far axis of the three-dimensional space, represents the observer's erroneous recall of scenes' viewing distance. Researchers argued that normalization to the prototypical viewpoint with the high-probability viewing distance influenced this phenomenon. Herein, we hypothesized that the prototypical viewpoint also exists in the vertical Angle of View (AOV) dimension and could cause memory distortion along scenes' vertical axis. Human subjects of both sexes were recruited to test this hypothesis and two behavioral experiments were conducted, revealing a systematic memory distortion in the vertical AOV in both the forced choice (n = 79) and free adjustment (n = 30) tasks. Furthermore, the regression analysis implied that the complexity information asymmetry in scenes' vertical axis and the independent subjective AOV ratings from a large set of online participants (n = 1208) could jointly predict AOV biases. Furthermore, in a functional Magnetic Resonance Imaging (fMRI) experiment (n = 24), we demonstrated the involvement of areas in the ventral visual pathway (V3/V4, PPA, and OPA) in AOV bias judgment. Additionally, in a Magnetoencephalography (MEG) experiment (n = 20), we could significantly decode the subjects' AOV bias judgments ∼140 ms after scene onset and the low-level visual complexity information around the similar temporal interval. These findings suggest that AOV bias is driven by the normalization process and associated with the neural activities in the early stage of scene processing.Significance Statement Perceiving a scene with high precision is critical for our navigation and interaction with the surrounding environment. However, systematic memory distortion is quite common. Herein, we discovered that scene memory could be distorted to the upper or lower visual field. According to the behavioral results, multiple measures of scenes' complexity information were critically involved in the formation of this memory distortion. Furthermore, the results support the normalization theory regarding the existence of a high-probability prototypical viewpoint in scene processing. Our findings also suggested that the normalization process-induced scene memory distortion could be beneficial for the observer's future action selection. The identified complexity measures could be used in designing Artificial Intelligence (AI) systems with navigational functions.

Annuity puzzle: Evidence from a Swiss pension fund

AbstractWe analyze individual annuitization decisions at retirement in an environment with mandatory participation in a funded pension pillar and low average annuity price. Using administrative data from a large Swiss insurance company over the period 2011–2015, we document that, even in this favorable environment, only 42.7% of the retirees fully annuitize, against 45% taking full lump sum. We show that individual annuitization decisions strongly respond to financial incentives, measured by the Money Worth Ratio, and to the tax rates on annuity and lump‐sum payments. Lump‐sum payments are more common among French‐ and Italian‐speaking individuals. Using Survey of Health, Ageing and Retirement in Europe data, we show that French‐ and Italian‐speaking Swiss are more likely to leave inheritance—thus suggesting that preferences for bequests may affect annuitization decisions. Finally, we provide evidence of asymmetric information, using the unused observable test, to show that individuals living in high mortality municipalities are less likely to annuitize and more likely to cash out their pension wealth.

Carbon Disclosure and Information Asymmetry

Abstract This study is investigated the influence of corporate disclosure of carbon emissions on information asymmetry. The results found that company emissions and disclosure has a positive impact on information asymmetry, but no relationship between carbon emissions and information asymmetry. This discrepancy may be attributed to the lack of carbon-related regulations on government policy during the study period, which affected investors' response to carbon information asymmetry. JEL classification numbers: G32. Keywords: Carbon disclosure, Information Asymmetry, Sustainable Development.

Sourcing from supplier in the presence of financial service providers’ information asymmetry and quit probabilities

PurposeConsidering the financial service providers’ (FSPs) information asymmetry in evaluating the supplier and their distinct quit probabilities, we want to examine the supplier’s preference of the financing schemes if both the bank and the online platform exist and how the buyer sets the contract terms in the two financing schemes.Design/methodology/approachWe establish a Stackelberg game model to capture the interactions among three parties, i.e. a supplier, a capital-sufficient buyer and an FSP (either a bank or an online platform), within a first-time contract.FindingsIn the non-FSPs’ quit case, the buyer’s profit is higher under the bank loan scenario, while the supplier’s profit performs adversely. The supply chain’s profit is heavily dependent on the buyer’s profit difference between the two financing schemes. Moreover, we find that the supplier borrows the money to exactly cover the production cost. The equilibrium solutions of the FSPs’ quit case and of the capital-sufficient supplier’s case are also derived.Originality/valueFirst, we assign different risk profiles to different FSPs in our setting so that modeling a previously ignored but practically significant problem. Second, we innovatively take the FSP’s quit probability into account in our model. Third, we elucidate how these factors can influence the relative efficiency of the two types of financing schemes and the settings of the contract, which further complements and extends the current SCF research.

Striking a balance: Resolving conflicts of interest in Hong Kong’s insurance market

Hong Kong’s insurance sector plays a vital role in the city’s robust financial landscape, contributing significantly to the economy and serving essential individual protection needs. However, ongoing governance is required to address issues that could undermine consumer confidence and market integrity. The article examines key conflicts of interest in Hong Kong’s insurance industry, including misaligned sales incentives, misleading information from agents, and lack of commission transparency. It proposes regulatory reforms such as standardized commission disclosure and the development of a “Policy Comparator” tool to empower customers and promote ethical practices. By implementing these evidence-based solutions, the insurance industry can enhance transparency, reduce information asymmetries, and incentivize suitable recommendations. Cooperation among regulators, insurers, and consumer advocates remains critical to maintain responsiveness to emerging risks and uphold customer-centric standards. Leveraging technology-enabled reforms, Hong Kong’s insurance sector is well-positioned to thrive while safeguarding vulnerable policyholders and public confidence in this crucial financial pillar.