Firm Asymmetry Research Articles

Sequential versus concurrent final phase product development: Approval uncertainty, time‐sensitive consumers, asymmetric competition, and government subsidy

Should a firm begin its production even before its new product is approved? In a competitive market with time‐sensitive consumers, a firm may choose to adopt the “concurrent process” by conducting the approval process and the production process in parallel so that the product will become available for sale once approved. However, to avoid incurring upfront (production related) investments that are nonrecoverable should the product fail to receive approval, a firm may opt for the “sequential process” so that the production process will only begin after approval. But such a sequential process can delay product launch, making the firm less competitive. These trade‐offs between the concurrent and sequential development processes and the recent Covid‐19 vaccine development motivate us to examine the process choice in the presence of three salient factors: (a) uncertain product approval, (b) time‐sensitive consumers, and (c) asymmetric firm competition—firms have different ex ante approval probabilities. Our equilibrium analysis reveals that it is possible for the laggard firm (the firm with lower ex ante approval probability) to aggressively adopt the concurrent process whereas the leading firm (the firm with higher ex ante approval probability) adopts the sequential process. First, as the approval requirement tightens, both firms have a lower chance of receiving approval, and the laggard firm is more likely to adopt the sequential process than the leading firm. Second, as consumers become more time sensitive, the leading firm is more eager to adopt the concurrent process than the laggard firm. Finally, when the firm asymmetry is large, competition does not always soften and both firms may compete directly by adopting the sequential process. We also examine the case when consumers are “forward‐looking” instead of “myopic.” We find that forward‐looking behavior increases competition and motivates both firms to adopt the concurrent process. Finally, we consider the case when the government offers subsidies to defray the nonrecoverable investments to increase the chance of having an approved product available sooner. Interestingly, we find such a subsidy can backfire resulting in lower consumer welfare and lower profit for the firms especially when consumers are time insensitive.

Production Structure and Multiple Equilibria - A DSGE Perspective

This paper integrates the Austrian school’s production structure theory and financial market theory, considers the impact of heterogeneity of firms’ production cycles on economic fluctuations, constructs a DSGE model that incorporates production structure, and uses the model to analyse the existence of multiple equilibria and endogenous financial economic cycles. Compared with previous DSGE models, this paper highlights the asymmetry of firms’ responses due to the existence of different production cycles and considers emotional shocks as the main source of economic volatility, as Keynes’ “animal spirits” suggest.

Behavior-based price discrimination in a horizontally and vertically differentiated duopoly with switching costs

This paper analyzes behavior-based price discrimination (BBPD) in an asymmetric duopoly with switching costs and including both vertical and horizontal differentiation. We demonstrate that there are two configurations of market share in equilibrium. In the first configuration, where both firms poach their rival’s consumers, the equilibria arise when switching costs are low and the firms are relatively symmetric. In the second configuration, where only the firm with more supporting services poaches the rival’s consumers, the resulting equilibria reverse. We reveal the impact of switching costs on firm profits under BBPD as well as under uniform pricing and show that with either high switching costs or sufficiently large firm asymmetries, BBPD may benefit both firms. Moreover, we find that in the second market configuration, social welfare can be higher with BBPD than with uniform pricing under high switching costs and large firm asymmetries. We also reach the same conclusion regarding social welfare when consumers are myopic in the first market configuration.

Informal Network Integration and MNEs Territorial Embeddedness: Mapping Differences

This article deals with a theoretical opposition of two similar, but conceptually different spatial models of transborder network cooperation (namely MNEs’ territorial embeddedness and informal network integration) from the aspect of corporate power asymmetry of firms participating in such network structures. Two external phenomena of power asymmetry (symmetry) are presented giving as example cases of territorial embeddedness and informal network integration in North America and East Asia regions. The study is resulted in several features allowing the attribution of specific transborder production systems to be proposed to different types of network structures. The latter is done by a consideration of network characteristics, network effects and specifics of network core and periphery interaction.

Behavior-based personalized pricing: When firms can share customer information

We study a two-period model of behavior-based price discrimination where firms can agree to share customer information before the first-period competition begins, and the information can be used for personalized pricing in the second-period competition. We show that information sharing is individually rational for firms as it softens upfront competition when information is gathered, consumers are worse off as a result, but total surplus can increase thanks to the improved quality of matching between firms and consumers. These findings are robust to firm asymmetries and varying discount factors for consumers and firms.

Information Asymmetry, Capital Structure and Equity Value of Firms Listed on the WSE

The paper investigates the impact of capital structure and information asymmetry on the value of companies listed on the Warsaw Stock Exchange. The study was conducted using the ordinary least squares (OLS) method on a sample of 273 companies in 2017 and the GMM dynamic paneldata approach with instrumental variables. Data retrieved from the Notoria, Bloomberg and Orbis databases were used. The results show that despite its impact on reducing the cost of capital, increasing debt does not lead to an increase in equity value. Therefore, the benefi ts of higher short-term leverage are limited and visible only for long-term debt. On the other hand, despite bigger information asymmetry, companies are valued higher, which means that asymmetrical information does not necessarily hurt valuation in the short term but in the long term. The results contribute to the literature on firms’ use of leverage under information asymmetry, showing higher trust in cash flow than profits in books.

High-Speed Railway Opening and Corporate Fraud

The impact of high-speed railway (HSR) on corporate behavior has recently attracted both practical and theoretical interest. In this paper, based on a sample of A-share listed companies from 2007 to 2020 in China, we use a difference-in-difference model to explore the impact of HSR openings on corporate fraud and analyze its mechanism. We find that HSR introduction has several important implications. First, it reduces the tendency and frequency of corporate fraud. Second, HSR opening restrains corporate fraud by improving the external supervision level and reducing the financing constraints of the company. Third, the inhibitory effect of the HSR opening on corporate fraud is significant when the market competition is less intense, and the company’s internal control level is poor. Fourth, after distinguishing types of fraud, HSR opening can still significantly inhibit information disclosure fraud and manager fraud, but not operation fraud. These results indicate that HSR openings promote the flow of information and labor across regions, alleviating the information asymmetry of firms. Our findings are conducive to improving the governance environment of the listed companies, which provides new clues for discovering and restricting corporate fraud.

How to Regulate Corporate Social Responsibility Reporting - International Evidence on the Impact of Different Regulatory Approaches

This paper examines how differences in CSR reporting regulations influence their impact on information asymmetry for both the firms affected and their non-affected peers. Using an international sample of firms based in 24 countries, of which 12 countries have adopted CSR regulations, we find that the decrease in bid-ask spreads after CSR mandates is stronger for mandates issued by governments than for those issued by stock exchanges and stronger for mandates requiring standalone CSR reports than for those requiring other formats. We document that CSR mandates also mitigate the information asymmetry of non-affected firms due to comparability externalities. In cross-sectional analyses, we find that the effect on information asymmetry associated with mandates is greater for firms that use well-established reporting guidelines, such as the Global Reporting Initiative (GRI). We control for firms’ CSR performance in sensitivity analyses and find that the decrease in information asymmetry is attributable to increased disclosure rather than to a change in CSR activity.

The long-term impact of trade with firm heterogeneity

This paper explores the welfare effects of openness in a setting with firm heterogeneity and country asymmetry and presents results in terms of the well-known formula from Arkolakis et al. (Am Econ Rev 102(1):94–130, 2012). By allowing agents to save and the economy to grow, new channels for the welfare effects of openness appear, since firm selection affects the value of accumulated savings and the average efficiency of the economy, and therefore its future growth rate. Country asymmetry yields differentiated, and in some cases opposite, results between countries. In line with the empirical literature, net welfare effects in each region depend on countries’ specific conditions and losses may occur. A numerical exercise fits the model to the UK and EU economies to show the magnitude and direction that each effect can take if trade barriers increase between them. It is shown that welfare losses for UK consumers can be greatly underestimated if asymmetries and dynamics are removed from the analysis.

Experimenting to Learn about Demand in Duopoly with Forward‐Looking Consumers

Using a two‐period model, I show that competition between two symmetric duopolists trying to learn about unknown features of demand results in an informationally suboptimal process. Because a firm’s marginal return to price experimentation equals zero if the rival’s price is matched in the first period, myopic symmetric pricing arises in equilibrium even though a firm’s expected second‐period profit attains a local minimum. Furthermore, forward‐looking consumers suffer from ratcheting because their first‐period purchase decisions partly reveal their preferences, which exacerbates the informational suboptimality of the firms’ experimentation process without affecting their pricing. The role of firm asymmetries is also analyzed.

Asymmetric Networks and Access Charges

In order to suggest an appropriate regulatory regime in the context of firm asymmetry, this study has developed a mathematical model that allows to elucidate comparisons of three different regulatory scenarios. In the unregulated market, the low-cost firm is more likely to become dominant in the market. Symmetric regulation has an immediate effect on off-net prices, which fall to the level of its marginal costs. Finally, asymmetric regulation is a highly effective way of promoting market entry. Asymmetric regulation can generate higher social welfare.

Financial Information Asymmetry and Delisting of IPO Firms

본 연구는 2000년 1월부터 2011년 9월까지 국내 주식시장의 신규 상장기업을 대상으로 기업 공개과정에서 재무보고서의 정보 비대칭이 신규 상장기업의 생존확률에 미치는 영향을 살펴보았다. 재무보고서의 정보 비대칭은 이익조정에 따른 Jones(1991), Dechow et al.(1995), Kothari et al.(2005) 모형의 재량적 발생액을 이용하였다. 본 연구에 대한 실증 결과는 다음과 같다. 첫째, 상장폐지 기업은 생존 기업에 비해 설립일로부터 상장일 까지 소요 기간, 상장 후 생존기간이 상대적으로 짧았으며 수익성도 낮았다. 정보 비대칭의 수위도 상대적으로 높게 나타났으며 기업의 장단기 성과도 부진하였다. 둘째, Cox의 비례위험 모형(1972)을 통한 생존분석에서는 설립일로부터 상장일 까지 소요기간이 길고, 기업규모가 크면 상장폐지 확률은 감소하였다. 또한 핫 마켓에 신규 상장된 기업과 정보 비대칭의 수위가 높은 기업은 상장폐지 확률이 높았다. 셋째, 기업공개 이후 주가의 장단기 성과를 통제하였을 때 단기성과는 상장폐지와 유의적인 관계를 갖고 있지 않으나 60개월 간의 장기성과는 유의적인 음(-)의 관계를 갖고 있었다.We test for the association between information asymmetry for financial reports and delisting of IPO firms in Korea stock market over the period 2000 to 2011 by using discretional accrual measures as proxy for information asymmetry. By using Cox proportional hazard model, this research investigates whether low survival probability after going public is associated with higher information asymmetry in the IPO process. The results are as follows: First, delisted firms are more short-lived after going public and less profitable than survival firms. Second, survival probability after going public is significantly positively related to age and firm size. Firms that list in hot market and have larger information asymmetry in IPO process are more likely to delist. Third, survival probability of IPO firms isn’t significantly related to short run performance but significantly positively related to long run performance. Specifically, firms that have relatively better long-run performance have higher survival probability and lower hazard ratio as compared to firms that have worse long-run performance.

Does information asymmetry lead to higher debt financing? Evidence from China during the NTS Reform period

Purpose The purpose of this paper is to test an implication of the pecking order theory to explain capital structure decisions among Chinese listed companies during the 2005-2007 NTS Reform transition period. Design/methodology/approach The authors utilize direct proxies for information asymmetry based on microstructure models including Probability of the arrival of informed trades (PIN), Adverse selection component of the bid-ask spread (λ), Illiquidity ratio (ILLIQ) and liquidity ratio, and Information asymmetry index (InfoAsy) to examine their relation with firms’ debt financing. Findings Consistent with the prediction of Pecking Order Theory, the authors find that companies for which stock investors are challenged with more severe informational disadvantages are associated with higher degree of leverage use. Originality/value The study provides a more direct test on the positive relation between information asymmetry and financial leverage of Chinese firms. In contrast to previous findings by Chen (2004), the results suggest that capital structure choices among Chinese firms progressively conform to conventional finance theories (e.g. Pecking Order Theory) with the decline of non-tradable shares.

Investigating relationship between earnings management and information asymmetry of firms listed in Tehran Stock Exchange

Investigating relationship between earnings management and information asymmetry of firms listed in Tehran Stock Exchange

Determinants of Financial Inclusion Strategies Adoption by Savings and Credit Cooperatives in Kirinyaga County

This study sought to analyse determinants of adoption of financial inclusion strategies in SACCOs in Kirinyaga County. Specifically, the study sought to analyze the effect of financial resources, and loan repayment on adoption of financial inclusion strategies. The study was guided by the theory of the firm and information asymmetry theory. The target population was SACCOs in Kirinyaga County. Purposive sampling was conducted to recruit study a sample of 246 persons. Primary and secondary data were collected. Descriptive methods (frequencies, percentages, mean and standard deviation) were used to analyse data. Regression analysis was conducted to assess relationships between variables and test hypotheses. Findings were presented in the form of tables and figures. ANOVA test revealed that selected variables were significant (p=0.00) to financial inclusion in SACCOs. The findings indicated that the variables under investigation contributed 63% to financial inclusion. The findings showed that financial resources (p=0.00) and loan repayment (p=0.00) were all significant at 95% confidence level. The study concluded that the determinants of financial inclusion in order of magnitude are financial resources and loan repayment. The study recommended that more SACCOs should embrace utilization of credit reference bureau.

Corporate Disclosures and Financial Performance of Selected Indian Manufacturing and Non- Manufacturing Companies

Disclosures play a pivotal role in addressing the issues related to information asymmetry and agency costs of firms. Voluntary disclosures are those disclosures which are beyond the compulsory ones and are communicated portraying a better image of the company and its prospects in front of its investors. Therefore this study intends to extend various aspects of corporate disclosure practices, mainly voluntary disclosures of selected Indian companies. Under contract theory of economics, information asymmetry leads to superfluous decisions because of information gap between the parties. It is also important to assess the possible economic consequence of voluntary disclosures i.e. the incentive by way of enhanced firm performance. The results of the study obtained through correlation and regression approach are very encouraging and are evident of stock returns responding to corporate voluntary disclosures, financial as well as non- financial, particularly in the recent years. The effect of increased disclosures on stock prices is of possible interest to investing community and stakeholders at large including the policy makers and regulators. It is not just about the level of disclosures but also the type of disclosures e.g. non-financial disclosure like forward looking, social, and environmental which play an important role in enunciating the association between the two variables. The paper sufficiently contributes towards literature on voluntary disclosures. Its major contribution is focused towards economic consequences of disclosures by way of better stock returns and implications for Indian stock market regulator to assess the impact of its policy on manufacturing and non-manufacturing companies listed in CNX 100 index of National Stock Exchange of India.

Bid-Ask Spread Decomposition and Information Asymmetry of Firms Cross-Listed in the London and New York Exchanges

This paper compares the effective bid-ask spread and examines the decomposition of spread in the London Stock Exchange (LSE) and New York Stock Exchange (NYSE). Results indicate that order persistence cost is generally higher in NYSE than in LSE while order processing cost in NYSE is lower, and higher proportion of the bid-ask spread is directly related to the information inefficiency in LSE.

Modalidades de despliegue de infraestructura en telecomunicaciones

This study is aimed at investigating the firm’s decisions about the degree of quality improvements for advanced technology services when other approaches to infrastructure deployment, especially co-investment, act as alternative ways to launch new services. The model developed in this study considers the asymmetry of firms. This study shows that co-investment results in greater consumer welfare than fully distributed cost regulation, even though investment levels in quality improvements are lower. However, compared to individual investment, co-investment produces a deterioration in quality improvements when infrastructure sharing induces a considerable amount of incremental costs. The regulator should monitor co-investment agreements to avoid situations of tacit collusion especially when firms exhibit cost asymmetry in the deployment of advanced technology.

Stock liquidity on China NEEQ exchange

With the recent deregulation, the National Equities Exchange and Quotations (NEEQ) has become the fastest growing exchange in China. Despite its phenomenal growth, the NEEQ has an urgent need to improve its liquidity, as 70 % of the stocks listed are never traded and more than half of the stocks have an average daily price swing over 10 %. We study factors that affect the liquidity of the NEEQ-listed firms and provide evidence that large information asymmetry decreases liquidity on the NEEQ. Specifically, we find that informed ownership and concentrated ownership both have significantly negative influence on a stock’s liquidity, while institutional ownership and leverage have no impact. In addition, market makers do not alleviate the information asymmetry of firms listed on the NEEQ. However their involvement does improve firms’ liquidity by providing more efficient price discovery. We conclude that the information asymmetry in firms contributes to the extreme lacking of liquidity on the NEEQ. To improve their liquidity, firms can adopt more diffused ownership and/or reduce the informed ownership while the exchange needs to improve its institutional settings such as enforcing the market making transaction to all firms and strengthening its information releasing requirement to enforce more frequent information releasing and better releasing quality.

Asymmetric Payoffs and Spatial Competition

We investigate the location choice of two firms whose objectives are the weighted average of their own profit and social welfare, in which they simultaneously decide their locations before setting their prices. The purpose of this paper is to examine whether the asymmetric locations are influenced by the asymmetry of the firms’ objectives or by the asymmetry of firms’ marginal costs. We show that, when both firms have the same marginal cost, the equilibrium locations are always symmetric even in the case of the asymmetric objectives. On the other hand, the cost differences lead the asymmetric locations in equilibrium. That is, the asymmetric locations are a result of the cost asymmetry, but not the asymmetry of the firms’ objectives. We also demonstrate that the pursuit of profit by the cost-inefficient firm may increase consumer surplus.