Hard Information Research Articles

Can Mandatory Rotation Policy Distort Incentives? Evidence from Loan O fficer Rotation

Job rotation, where a principal routinely rotates agents among tasks, is argued to be a powerful antidote for agency problems inside an organization. However, when soft information dominates transactions inside a firm, verifying the information set that led to a particular decision becomes difficult. This difficulty imposes costs on job rotation since an incoming agent cannot verify the information set that the outgoing agent utilized when arriving at a key decision. This lack of verifiability distorts incentives for effort when a decision straddles two agents since neither agent receives the entire marginal cost/benefit of her effort. In this study, we highlight this cost of rotation policies. We use unique data on over 50,000 loans sanctioned by 51 loan officers of a large public sector bank in India, which follows a fixed-tenure-based policy of loan officer rotation. We find default probabilities to be about 8% higher for loans that are likely to straddle an incoming and an outgoing loan officer when compared to other loans. This difference does not stem from any differences in hard information captured in borrowers' credit histories or from loan officer rotation destroying lending relationships. Finally, we find evidence of credit rationing as well as the new loan officer rejects 7% more loans for borrowers who have borrowed during the straddling period.

Borrower–lender distance and loan default rates: Macro evidence from the Italian local markets

I test the implications of borrower–lender physical and organizational distance for the loan default rate of Italian firms. I use a macro data set for the 1997–2011 period, which allows me to consider the effects of the international financial crisis too. I find that physical distance impedes information collection and monitoring and is inversely linked to credit quality. I also find that hard information can mitigate the adverse effects of physical distance on financing enterprises, showing the increasing importance of technological changes. Finally, I find evidence of the impact of organizational distance on default rates in less developed regions.

The Long-Run Role of the Media: Evidence from Initial Public Offerings

The unique characteristics of the U.S. initial public offer (IPO) process, particularly the strict quiet period regulations, allow us to explore the effects of media coverage when the coverage does not contain genuine news (i.e., hard information that was previously unknown). We show that a simple, objective measure of pre-IPO media coverage is positively related to the stock’s long term value, liquidity, analyst coverage, and institutional investor ownership. Our results are robust to additional controls for size, to using abnormal or excess media, and to an instrumental variable approach. We also find that pre-IPO media coverage is negatively related to future expected returns, measured by the implied cost of capital. In all, we find a long term role for media coverage, consistent with Merton’s (1987) attention or investor recognition hypothesis.

The chronic kalaemia conundrum.

In this issue, Ritz and Pitt discuss mineralocorticoid-receptor blockade in patients with chronic kidney disease (CKD), the propensity to develop hyperkalaemia, and present a novel suggestion of what to do about it. Actually, the risk of hyperkalaemia in CKD patients may be less of a lethal problem than hypokalaemia; however, hyperkalaemia seems to pack the imagination of clinicians more than hypokalaemia [1]. Nonetheless, hyperkalaemic CKD patients indeed have a risk of death, and the ingestion of antihypertensive drugs blocking the renin–angiotensin–aldosterone system certainly appears to contribute [2]. Ritz and Pitt introduce us to a novel polymeric potassium binder, RLY5016, which packs its potassium-binding punch in the form of 100-µm beads. Clinical experience with RLY5016 is reported in a study assessing RLY5016 in patients with chronic heart failure. In that study, patients receiving renin–angiotensin–aldosterone-blocking drugs were randomized to RLY5016 or placebo [3]. The study group had a lower potassium level, by −0.52 mmol/L, while fewer patients developed hyperkalaemia, 7 compared with 25% with placebo. On the downside, 6% of patients developed hypokalaemia, compared with none with placebo. RLY5016 is not administered with a laxative (no sorbitol) and has not been associated with the occurrence of bowel necrosis. Interference with therapeutic drug absorption thus far seems to involve only a 30% reduction in the bioavailability of valsartan and rosiglitazone. However, the pharmacological testing of this issue may not yet be complete. Relypsa is a clinical-stage biopharmaceutical company that is developing RLY5016. I did my best to learn more about the basic pharmacology of RLY5016, but failed miserably. There are four PubMed citations to date (24 July 2013) and three of those are reviews with hymns-of-praise but little hard information. No structural information on RLY5016 was given. Of course, I would have liked to see some data from normal volunteers receiving a known and fixed dietary potassium intake, along with stool collections, and a comparison with sodium polystyrene sulphonate. For this cation exchange resin, which is also a polymer derived from polystyrene but containing sulfonic acid or sulphonate functional groups, the mode of action is well known. The ion exchange functions effectively as shown (Figure 1) in this case applied to water softening and not to potassium removal. Fig. 1. An idealized image of water softening process involving replacement of calcium ions in water with sodium ions donated by a cation exchange resin is shown. The process for potassium is similar (obtained from https://en.wikipedia.org/wiki/Polystyrene_sulfonate ... Those of us predating the ‘evidence-based era’ generally did as we were told by our chiefs-of-service, back in the ‘eminence-based era’. Way back then, dialysis was the last-resort option shortly before death, so I administered a lot of sodium polystyrene sulphonate. Anecdotally, sodium polystyrene sulphonate led to laparotomy for bowel obstruction in some patients not receiving sufficient quantities of sorbitol. Potassium removal appeared to be a function of how much sorbitol was given. Perhaps the diarrhea was more important than the sodium polystyrene sulphonate. An alternative was the sodium polystyrene sulphonate enema. This therapeutic option tortured not only the patients but also the nurses. I suppose that sodium polystyrene sulphonate must go. A decade ago I was very much interested in an N Engl J Med report on a very ill patient with bowel necrosis of unknown aetiology [4]. Ten years later, everyone knows about the association between oral sodium polystyrene sulphonate given with sorbitol and colonic necrosis, so I will not dwell on the subject here [5, 6]. Are there still other options for managing patients with, or at risk of, developing hyperkalaemia? Again, PubMed was not helpful, but an Internet website was informative (http://clinicaltrials.gov/ct2/show/NCT01737697?term=hyperkalemia&rank=4). I learned that a safety and efficacy study is currently recruiting subjects to test the efficacy of zirconium silicate in patients with mild-to-moderate hyperkalaemia. Thus, RLY5016 could be faced with competition. Spironolactone was first introduced over 50 years ago [7]. We will be faced with the prospects of paying much more for a compound to protect from the side effects than we will for the compound that prolongs the lives of heart failure patients.

The Real Costs of Disclosure

This paper shows that improving financial efficiency may reduce real efficiency. While the former depends on the total amount of information available, the latter depends on the relative amounts of hard and soft information. Disclosing more hard information (e.g. earnings) increases total information, raising financial efficiency and reducing the cost of capital. However, it induces the manager to prioritize hard information over soft by cutting intangible investment to boost earnings, lowering real efficiency. The optimal level of financial efficiency is non-monotonic in investment opportunities. Even if low financial efficiency is desirable to induce investment, the manager may be unable to commit to it. Optimal government policy may involve upper, not lower, bounds on financial efficiency.

THE INFORMATION CONTENT OF MANAGEMENT EARNINGS FORECASTS: AN ANALYSIS OF HARD VERSUS SOFT INFORMATION

AbstractWe examine the announcement effects of hard (quantitative) and soft (qualitative) information contained in management earnings forecasts. Consistent with previous studies, we confirm a positive relation between the earnings surprise component of the announcement and the magnitude of the abnormal return. In contrast to previous studies, we examine the effect of soft information on abnormal returns while controlling for hard information. Our results show that soft information generally explains more of the announcement effect of earnings forecasts than does hard information. Overall, our findings contribute to the growing literature that examines the economic significance of qualitative information.

Numerical Simulation of Polarity Characteristics of Vector Elastic Wave of Advanced Detection in the Roadway

The high-order staggering grid Finite-Difference (FD) scheme based on first-order velocity-stress elastic wave equation has been deduced. The calculation method of PML boundary condition and stability condition established in this study can be used for numerical simulation of advanced detection of elastic wave in roadway, with the obtaining of high-precision seismogram. Then we systematically analyze the polarity of vector wave field in post-source observation system. The results indicate that the relationship between the vector wave field and the polarity of direct wave is related to reflection coefficient on the interface, while the polarity relationship between horizontal and vertical components of vector wave field is related to vertical position of the interface. During data processing for advanced detection of elastic waves, the sign of the reflection coefficient on the interface ahead can be determined based on the polarity relationship between reflected wave and direct wave from the seismograms; the soft and hard rock and other geological information on both sides of the interface is thus be determined. In addition, the direction of source wave depends on polarity relationship between horizontal and vertical components of reflected wave and is used to achieve the separation of up going and down going waves.

Soft decode-and-forward cooperative communication with distributed space-time coding

In existing soft decode-and-forward (SDF) cooperative communication systems, the source node is idling in the second time phase while the relay transmits the soft information. In fact, the source can transmit the hard information that cooperates with the relay's soft information using distributed space-time block codes (DSTBC). In this paper, we theoretically derive the detection performance in the second time phase by either using or not using the DSTBC based on the assumption that the soft information can be approximated by Gaussian distribution. This result also enables the optimal power allocation between the source and the relay in the second time phase. Finally, we show via simulation that the advantage of using DSTBC in the second time phase leads to the overall performance improvement of the coded cooperative system.

Lending decision making in banks: A critical incident study of loan officers

Using the critical incident technique, we investigated how 88 loan officers at four Swedish banks perceived their decision making in evaluations of commercial loan applications. First, we found that our sample of loan officers primarily used deliberation and less intuition when making decisions. Second, that the loan officers had greater difficulty in making decisions that involved soft information (e.g., client relationships) than decisions that involved hard information (e.g., financial information). Third, most decision making situations involved existing rather than new clients and low rather than high risk levels. Finally, we found a potential effect of organizational factors such as lending practices on lending decisions. Our findings have general implications for research on decision making processes. For the banking industry, this research identifies and elucidates the difficulties loan officers face in decision making of commercial loans.

‘SOFT’ VERSUS ‘HARD’ NEWS ON MICROBLOGGING NETWORKS

This article examines the variability of produsage (the hybridization of production and consumption) within popular social media by introducing semantic network analysis of information communication on Twitter. Utilizing user data (n[2,254,806]), the study examines the dynamics of produsage (a) as a function of user activity and (b) whether produsage levels vary based on either ‘soft’ or ‘hard’ news information. The findings extend upon past socio-ethnographic studies of social media produsage and demonstrate that produsage is significantly low for low-activity users (the majority) but increases dramatically with user activity becoming the dominant communication modality for users with 5,000–25,000 status messages. The volume of soft news information is over double that of hard news information, while produsage networks vary only slightly based on the type of content distributed with ‘hard’ news information tending toward production bias and ‘soft’ news information toward consumption bias.

Information Shockwave

We examine the role of investors' beliefs in determining the post earnings announcement drift (PEAD). Specifically, we propose a technique to estimate the belief parameters of the informed and uninformed investors, based on which we define the uninformed investors' information acceptance ratio (IAR). We demonstrate that IAR is a key factor determining the length of PEAD. IAR also explains the post announcement returns and the risk increases. Furthermore, we show that the earnings announcements contain both the hard and soft information. The hard information reduces uncertainty, whereas the soft information enhances uncertainty. And the latter effect dominates the former.

Primary User Detection for Cognitive Radio Networks Having Multi-Antennas at Their Base-Stations

Spectrum sensing is a key enabling functionality in a cognitive radio (CR) network. The fusion problem of cooperative spectrum sensing, for a cognitive radio network equipped with multi-antennas at its base-station, is considered in this paper. The base-station equipped with multi-antennas act as a fusion center which can attain not only the soft information (average power) by its multi-antennas but also the soft or hard information from other cognitive radio users (CR users). We first discuss the soft fusion scheme in which soft information from CR users is sent to the base-station, and exhibit the necessity of deeper cooperation. Due to the limitation of control channel bandwidth, CR users have to send hard information to the base-station. To this end, we propose a hybrid fusion scheme in which both soft and hard information can be fused in the base-station. Furthermore, we present an optimal cooperative spectrum sensing scheme where the global detection probability can be maximized according to the Neyman-Pearson criterion. Extensive simulation results validate that, by using the hybrid fusion scheme, significant improvement on sensing performance can be achieved. 

Understanding Social Impact Bonds and Their Alternatives: An Experimental Investigation

Abstract Policymakers worldwide have proposed a new contract – the ‘social impact bond’ (SIB) – which they claim can allay the underperformance afflicting not-for-profits, by tying the private returns of (social) investors to the success of social programs. We investigate experimentally how SIBs perform in a first-best world, where investors are rational and able to obtain hard information on not-for-profits’ performance. Using a principal-agent multitasking framework, we compare SIBs to inputs-based contracts (IBs) and performance-based contracts (PBs). IBs are based on a piece-rate mechanism, PBs on a non-binding bonus mechanism, and SIBs on a mechanism that, due to the presence of an investor, offers full enforceability. Although SIBs can perfectly enforce good behaviour, they also require the principal (i.e., government) to relinquish control over the agent’s (i.e., not-for-profit’s) payoff to a self-regarding investor, which prevents the principal and agent from being reciprocal. In spite of these drawbacks, in our experiment SIBs outperformed IBs and PBs. We therefore conclude that, at least in our laboratory test-bed, SIBs can allay the underperformance of not-for-profits.

International Expansion, Diversification and Regulated Firm Nonmarket Strategy

Previous studies have shown that regulated firms diversify for reasons that are different than for unregulated firms. We explore some of these differences by providing a theoretical model that starts by considering the firm–regulator relationship as an incomplete information issue, in which a regulated incumbent has knowledge that the regulator does not have, but the firm cannot convey hard information about this knowledge. The incumbent faces both market and nonmarket competition from a new entrant. In that context, we show that when the firm faces tough nonmarket competition domestically, going abroad can create a mechanism that makes information transmission to the regulator more credible. International expansion can thus be a way to solve domestic nonmarket issues in addition to being a catalyst for growth. Copyright © 2012 John Wiley & Sons, Ltd.

Tracking the trends in manufacturing technology management

This paper explores the practical developments in manufacturing technology management over the last 22 years and links these to some of the subject trends of previous articles in the Journal of Manufacturing Technology Management. Themes and relevant articles have been identified from the Emerald advanced search facility and linked with developments in hard technologies, information technology and production organization. There are numerous examples of where trends in the real world of manufacturing technology management are reflected in changes to the orientation of JMTM articles, but there are still many articles following more well-worn paths of previous academic research. Over time, practitioners can find useful connections between published research and their own emerging areas of concern. The paper is based on original bibliographic research, supplement by extensive editorial and practical experience.

Inefficient Investment, Information Asymmetry, and Competition for Managers

AbstractWe investigate the possible inefficiency of investment when the manager has better information than the principal. We assume that projects can be grouped into two categories based on their information characteristics of soft and hard information. We consider a case in which the manager faces competition for appointment at the end of term. We consider several cases in which the competitor's ability is known, or proxied by the performance of other managers, or is uncertain. We find that hard information projects are preferred to soft information projects and that the efficiency in project selection critically depends on the competitor's ability. Interestingly, information asymmetry may be socially beneficial, because it can provide the manager with incentives to select high‐quality hard‐information projects. Welfare improvement can be made by a budget change that is in the opposite direction to the optimum. Several empirical implications of the theory are discussed.

The pricing of soft and hard information: economic lessons from screenplay sales

This paper uses a unique data set on screenplay sales to learn how the information content of a sales pitch affects sale prices. This is one of the few studies that analyze “soft information” outside the banking industry. We find that “soft information” proxies, such as the descriptive complexity of a pitch, depress prices, in particular for less experienced writers, supporting the common industry view that high concept (short and simple) screenplays sell better. “Hard information” (measurable experience) variables are priced as well. We also find that large studios shun “soft information”, whereas small companies handle it better, as predicted by most theories. In the last part of the paper, we find that, surprisingly, buyers seem to be able to forecast the eventual success of a project based upon the purchased script, paying more for screenplays which will eventually culminate in more successful movies. In other words, perhaps “somebody knows something”.

On the Relevance of Soft Information in Credit Rating: The Case of a Social Bank Financing Small Businesses

Based on a unique hand-collected database of 389 loans obtained from a French social bank dealing with small businesses, this paper compares two predictive models of future default events: the first relies on soft information (SI model), the second on hard information (HI model). The results indicate that the SI model outperforms the HI model in terms of forecast quality and goodness of fit. In so doing, this paper provides further empirical evidence that, when they serve small businesses, small or decentralized banks have a greater ability to collect and act on soft information. This empirical conclusion conveys practical implication for social banks’ internal credit rating procedures, especially in their calibration of capital requirements.

The impact of private and family firms’ relational strength on financing performance in clusters

Based on information asymmetry and embeddedness theory, this paper explores how relational strength reduces the information asymmetry between banks and firms and creates a positive relational spillover for the firms in the network to help private and family firms get good financing performance. We empirically verify relational strength enhances financing performance of private and family firms through horizontal information (in terms of horizontal hard information and horizontal soft information). Further, we conduct focused interviews to support empirical results that horizontal information mediates the relationship between relational strength and financing performance. Theoretical and managerial implications are discussed.

A novel cooperative spectrum sensing scheme based on virtual soft information fusion

In cognitive radio (CR), the performance of hard information fusion (HIF) strategy for cooperative sensing will deteriorate when cooperative CR user are not uniformly reliable. To deal with this problem, this paper proposed a novel virtual soft information fusion (VSIF) strategy which uses expectation for primary users (PU) presence probability to replace the local sensing decision of each user in the information fusion. Compared with the HIF-based scheme, VSIF-based sensing scheme keeps the advantages of low data transmission in HIF-based scheme, and modifies the way of information fusion at the fusion center to achieve better performance when the user sensing reliability is non-uniform. Simulation shows VSIF strategy has significant superiority on the missing detection probability over HIF in the scenarios of non-uniform user reliability.