Information Acquisition Efforts Research Articles

Insider trading and the algorithmic trading environment

AbstractWe examine how algorithmic trading (AT) changes the trading environment for corporate insiders, specifically in terms of motivation to trade and timing of trade. Using SEC Form 4 insider filings and AT computed from the limit order book, we find that AT affects insiders' decisions to buy or sell, depending on whether the trades are information driven, resulting in changes in trading returns. AT reduces returns associated with routine insider sales by 0.9% of a change in AT. However being sophisticated and informed traders, insiders are able to trade strategically, leaving their purchase returns unaffected by AT. The results also show that while AT reduces information acquisition efforts in the pre‐earnings announcement period, insider trades counteract this effect by releasing information to the market. Our findings reinforce the important role of insider trading in providing fundamental information and aiding price discovery, especially in an era of computerized financial markets.

The Effects of Information Acquisition Effort, Psychological Ownership, and Reporting Context on Opportunistic Managerial Reporting*

ABSTRACTWithin the context of managerial reporting, the tasks of acquiring and reporting information are logically connected. Although the accounting literature acknowledges their importance, it often treats these tasks as distinct processes. I investigate how the effort exerted to acquire information influences managers' reporting. Managers' information acquisition effort can induce psychological ownership that can lead to a sense of deservingness that increases opportunistic reporting or to a sense of responsibility that reduces opportunism. I predict that the reporting context determines the ultimate effect of information acquisition effort on reporting behavior. I test this prediction with a 2×2 budget reporting experiment. Managers are either endowed with information to report or required to exert effort to earn it, with the latter expected to generate more psychological ownership. In addition, I manipulate the saliency of honesty in the reporting context by framing reporting in terms of a business dilemma (less salient honesty) or an ethical dilemma (more salient honesty). I find that when honesty is less salient, managers build more slack into their report under earned information than endowed information. In contrast, more salient honesty alleviates the effect of earned information on slack. In a supplemental experiment, I find similar results when all managers are endowed with information to report but psychological ownership is manipulated via different firm messaging. These results have important implications for theory and practice. For example, in a less salient honesty context, technological investments that reduce managers' effort needed to acquire information can also help decrease opportunistic reporting.

Young Citizens’ Civic Engagement and Civic Attitudes: A Regression Discontinuity Analysis

Although reaching the voting age and getting enrolled in the voters’ list is an essential first step in the electoral process, existing studies have rarely investigated its effects on citizens’ socio-political experiences and civic attitudes. To fill this gap, we leverage a natural experiment in Japan, where citizens who turn eighteen years old and become eligible to vote in elections are automatically registered. For this inquiry, just after the 2016 House of Councillors election in Japan, we invited thousands of seventeen- and eighteen-year-old Japanese citizens to take an on-line survey. The results of our exact-date-of-birth regression discontinuity analysis suggest that becoming eligible to vote increases young citizens’ interaction with other voters and facilitates their information acquisition efforts before the election. Therefore, obtaining vote eligibility for an upcoming election is accompanied by some degree of increased civic engagement. However, it is not enough to change their civic attitudes, such as trust in government and a sense of efficacy in the democratic process. We argue that the intensity of civic engagement under the automatic registration system is weak due to the lack of citizens’ self-initiated actions for the registration itself.

Limited attention and portfolio choice: The impact of attention allocation on mutual fund performance

AbstractThis study proposes that the performance of mutual fund managers is linked to how efficiently they allocate attention across assets in their investment set. Motivated by existing models of optimal portfolio choice and rational inattention, we posit that the efficiency of attention allocation increases when a manager chooses larger (smaller) active positions in assets that need more (less) information acquisition effort to resolve uncertainty about future payoffs. We show that the efficiency of attention allocation has a significantly positive impact on future fund performance. Efficient attention allocation has a lesser impact on performance as the total demands on a manager's limited attention increase.

Information, Participation, and Passive Investing

I investigate the impact of fundamental information acquisition costs on price informativeness and passive investing. Within a REE model of multiple risky assets and a redundant market index, I define passive investing as the optimal decision to: 1) free-ride on the information acquisition efforts of active traders in the index asset, and 2) forgo all stock picking strategies. Falling information costs have the dual effect of lowering the cost of market timing, decreasing passive share, and lowering the cost of stock picking, increasing passive share. If the stock picking effect dominates the market timing effect, passive share increases in tandem with greater price informativeness. I exploit SEC's eXtensible Business Reporting Language mandate as a negative shock to information costs to provide suggestive evidence that falling information costs may be contributing to the rise in passive investing.

The real effects of proxy advisors on the firm

AbstractThis paper examines the influence of proxy advisors (PA) on firm voting outcomes, policies, and value. We measure PA influence with shareholders' historical propensity to follow PA recommendations. PA influence increases the impact of PA recommendations on proxy voting outcomes and firm policies. When shareholders have private incentives to engage in costly research in the absence of a proxy advisor, PA influence neither harms nor benefits shareholder value. However, at firms with dispersed shareholders PA influence can increase value. Our findings are consistent with theories of voting in which proxy advisors compete with private information acquisition efforts by large shareholders.

Does Voter Registration Foster Civic Attitudes? A Natural Experiment in Japan

Although reaching the voting age and getting enrolled in the voters' list is an essential first step in the electoral process, existing studies have rarely investigated its effects on citizens' socio-political experiences and civic attitudes. To fill this gap, we leverage a natural experiment in Japan, where citizens who turn eighteen years old and become eligible to vote in elections are automatically registered. For this inquiry, just after the 2016 House of Councillors election in Japan, we invited thousands of seventeen- and eighteen-year-old Japanese citizens to take an on-line survey. The results of our exact-date-of-birth regression discontinuity analysis suggest that becoming eligible to vote increases young citizens' interaction with other voters and facilitates their information acquisition efforts before the election. Therefore, obtaining vote eligibility for an upcoming election is accompanied by some degree of increased civic engagement. However, it is not enough to change their civic attitudes, such as trust in government and a sense of efficacy in the democratic process. We argue that the intensity of civic engagement under the automatic registration system is weak due to the lack of citizens' self-initiated actions for the registration itself.

Antecedents to export information generation: a cross-national study

Purpose – The purpose of this paper is to examine the factors that enhance export decision-makers’ generation of export information, using a non-linear approach and a multi-country context, and so provide export decision-makers with empirically based guidelines on how to maximize their information acquisition efforts. Design/methodology/approach – A broad perspective on export information generation is adopted, including marketing research, export assistance, and market intelligence. The model of antecedents to information generation is tested in three studies (USA, Austria, New Zealand, respectively) using structural equation modeling techniques. Multigroup and hierarchical analysis is performed to assess cross-national invariance of relevant measures, and quadratic effects. Findings – The findings show that the predictors of export information generation vary across the three countries studied, and that many of the relationships are non-linear. Research limitations/implications – This study contributes to the export marketing literature by developing the understanding of how exporters can develop greater knowledge of information sources on which to build export decisions, and the conditions necessary for enhanced export information acquisition activity. The findings highlight that future research should consider non-linear relationships and the examination of the outcomes of export information generation in a cross-national setting. Practical implications – The study findings advocate that practitioners (exporters and advisers) tailor their export information generation efforts to the different country needs. Originality/value – This research responds to a call for more theoretically based studies on antecedents to export information generation, concurrent with the use of more robust statistical methods.

Health Information Seeking and the World Wide Web: An Uncertainty Management Perspective

Uncertainty management theory was applied in the present study to offer one theoretical explanation for how individuals use the World Wide Web to acquire health information and to help better understand the implications of the Web for information seeking. The diversity of information sources available on the Web and potential to exert some control over the depth and breadth of one's information-acquisition effort is argued to facilitate uncertainty management. A total of 538 respondents completed a questionnaire about their uncertainty related to cancer prevention and information-seeking behavior. Consistent with study predictions, use of the Web for information seeking interacted with respondents' desired level of uncertainty to predict their actual level of uncertainty about cancer prevention. The results offer evidence that respondents who used the Web to search for cancer information were better able than were respondents who did not seek information to achieve a level of uncertainty commensurate with the level of uncertainty they desired.

Deliberation versus automaticity in decision making: Which presentation format features facilitate automatic decision making?

AbstractThe idea of automatic decision making approximating normatively optimal decisions without necessitating much cognitive effort is intriguing. Whereas recent findings support the notion that such fast, automatic processes explain empirical data well, little is known about the conditions under which such processes are selected rather than more deliberate stepwise strategies. We investigate the role of the format of information presentation, focusing explicitly on the ease of information acquisition and its influence on information integration processes. In a probabilistic inference task, the standard matrix employed in prior research was contrasted with a newly created map presentation format and additional variations of both presentation formats. Across three experiments, a robust presentation format effect emerged: Automatic decision making was more prevalent in the matrix (with high information accessibility), whereas sequential decision strategies prevailed when the presentation format demanded more information acquisition effort. Further scrutiny of the effect showed that it is not driven by the presentation format as such, but rather by the extent of information search induced by a format. Thus, if information is accessible with minimal need for information search, information integration is likely to proceed in a perception-like, holistic manner. In turn, a moderate demand for information search decreases the likelihood of behavior consistent with the assumptions of automatic decision making.

Education, Communication and Wellbeing: An Application to Sexual Satisfaction

SummaryStandard theories of household decision making assume that family members have complete information about preferences and are able to reach efficient outcomes. However, partners in intimate relationships may often need to coordinate their choices in the face of incomplete information. To reduce uncertainty there is an incentive for partners to acquire information through communication. In this study we investigate empirically the determinants of communication between partners and its consequences in the specific context of sexual satisfaction. In particular we show the importance of schooling for information acquisition effort. Although education indirectly improves sexual satisfaction through the communication mechanism, we also find direct adverse effects of schooling on sexual wellbeing. This is interpreted in terms of opportunity cost effect arising from the market returns to schooling that make it more difficult to coordinate work and love lives. The econometric estimates show that the positive communication effects of education vanish at longer relationship durations as couples learn about their preferences. While sexual satisfaction is positively correlated with life satisfaction, it is only when controlling for sexual wellbeing that schooling has a statistically signification association with overall life satisfaction.

Do Financial Analysts Add Value by Facilitating More Effective Monitoring of Firms’ Activities?

Researchers argue that analysts’ information acquisition efforts increase firm value by facilitating monitoring of firms’ activities and, thereby, reducing agency costs. However, prior research provides limited and inconclusive empirical evidence to support this argument. This article extends the literature by examining (a) the relationship between analyst following and the value of firms’ equity securities and (b) given a positive relationship, whether that relationship reflects effectively enhanced monitoring of firms’ activities as a result of analysts’ information acquisition efforts. The authors document a positive relationship between analyst following and firms’ asset values, and they find support for two hypotheses regarding the source of the increased asset values. First, the cash component drives the positive relationship between analyst following and asset values. The authors interpret this evidence to imply a stronger monitoring effect for assets that are subject to higher agency costs or information asymmetry. Second, consistent with analyst following constraining asset mismanagement or motivating more efficient asset use, operating performance and total cash payout increase with analyst following. Overall, the results suggest that financial analysts facilitate more effective monitoring of firms’ activities and, thereby, reduce agency costs and increase shareholder value.

Dynamic assessment of information acquisition effort during interactive search

We present a method to measure some aspects of cognitive effort by a user while reading during a search session. We measured reading eye movement properties and patterns of eye movement in a user study (n=32) of participants carrying out realistic journalism IR work tasks. The results show the cognitive effort measures correlate positively with the information task characteristics that, by hypothesis, contribute to task difficulty. They also correlate well with participant self-assessed task difficulty. Our methodology can be applied to eye tracking data in any (textual) information setting and used to give dynamic estimates of these aspects of cognitive processing during search.

Comovement in Investment

This paper examines the propensity of firms to comove in investment decisions. Although stock return comovement and herding among investors received considerable attention in existing work, little is known about correlated investment behavior of firms. After controlling for the similarity of firm characteristics, investments are expected to comove more when firms imitate other firms and rely on public information rather than on firm specific private information about investment opportunities. We consider the effects of agency conflicts on comovement and find evidence in support of managerial shirking of information acquisition effort. Weakly governed managers rely less on private information acquisition and comove more in their investment decisions. Our results also show that the effect is strongest for firms in industries with high information intensity and specialized assets. Further, comovement in investment is decreasing in shareholder rights and property rights protections and increasing in the degree of information asymmetry. The results are obtained after controlling for similarity in firm investment opportunities, correlation in cash flows, fraction of tangible assets, and industry concentration. Critically, we find that comovement in investment has a negative effect on firm and industry performance and productivity growth, after controlling for other factors.

Information Acquisition Activity and Damage Measures

We examine the effect of various damage measures on the buyer's information acquisition efforts when the buyer can learn a signal about the production cost after a contract. We find that contrary to standard results, liquidated damages induce neither efficient performance nor efficient reliance, if a buyer decides to learn the signal, and that they do not provide a buyer with the incentive to acquire information. Thus, if acquiring information is costly enough, liquidated damages yield the highest social welfare among various damage measures, but otherwise, no damages, providing the incentive to acquire information, may perform better.

Delegation to Encourage Communication of Problems

We consider a principal-agent model where the agent is hired to take an action on behalf of the principal. The agent can exert costly effort to learn the true state of the world. If he fails to discover the state, he can end an inquiry to the principal who then can exert (additional) costly effort to learn the state of the world. If the true state is unknown, the principal's preferred action may be different from the agent's. In other words, the principal and the agent have different preferences over Type I and Type II errors. Knowing this, the agent, when uninformed, may decide not to report a problem if the principal is unlikely to select a correct action. The principal, in anticipation of the possibility of no inquiry, can provide an incentive for the agent to send an inquiry by allowing the agent to ignore the principal's recommendation. We label this organizational arrangement delegation. Alternatively, the principal can choose centralization - an arrangement where the principal's recommendation, if issued, is always binding. We demonstrate that the principal may choose centralization for two reasons: (i) to exercise better control over the agent's actions when the agent finds it optimal to send an inquiry, and (ii) to dissuade the agent from sending an inquiry altogether when, by doing so, she provides a stronger incentive for the agent to exert high effort. Delegation emerges in equilibrium only if the costs of effort for both the principal and the agent are sufficiently high and occurs less often as the principal's and agent's preferences become better aligned. Further, the agent's information acquisition effort under delegation is always lower than under centralization.

The Implications of Dispersion in Analysts' Earnings Forecasts for Future ROE and Future Returns

Dispersion in analysts' forecasts is empirically evaluated by associating dispersion with a firm's future accounting rate of return‐on‐equity (ROE) and future returns. Forecast dispersion is significantly and negatively associated with future ROE, consistent with the notion that firm disclosures and analysts' information acquisition efforts increase as firm prospects improve. Forecast dispersion is negatively associated with future returns. This appears due to the implications of dispersion for future ROE, and suggests that the market does not immediately assimilate the information contained in forecast dispersion. Dispersion also conveys information about firm‐specific risk not captured by beta and firm size.

Entitlements, Rights, and Fairness: An Experimental Examination of Subjects' Concepts of Distributive Justice

THE research reported in this paper arose from a previous experimental study conducted by the authors.' That study involved bargains struck between two subjects who had opposing payoff functions and full information of one another's payoffs. By a flip of a coin one participant could choose a noncooperative outcome, unilaterally: the winner of the coin toss could simply choose an outcome which gave him $12 and left the other subject nothing, whether or not the loser agreed. However, if the two subjects cooperated, they could obtain from the experimenter $14, which could be split between the subjects in any mutually agreed-on manner. Cooperative game theory predicts that the subjects will cooperate and divide the rewards $13 to $1 (the Nash bargaining solution: an even division of the $2 gain from trade). Under no circumstances should the winner of the coin flip settle for less than $12, according to game