Information Advantage Research Articles

Does institutional investors’ information advantage influence the ESG performance of China’s new energy vehicle industry? Evidence from listed companies in industrial chain

ABSTRACT ESG management of China’s new energy vehicle (NEV) industry is vital to advancing sustainable development goals (SDGs). However, NEV industrial chain faces ESG challenges, including carbon emissions, quality control, and legal compliance, which undermine corporate sustainability, and hinder institutional investors from achieving long-term benefits and client ESG demands. Currently, information advantage in the co-holding network determines how much information resources institutional investors can provide to optimize corporate ESG strategies. Therefore, we explore the impact of institutional investors’ information advantage on the ESG performance of NEV industry using listed companies in industrial chain. In China, institutional investors holding below 5% shares dominate, and they can advance ESG agenda through social media. Considering this, co-holding networks with thresholds below 5% are constructed to adequately identify information exchange, with network centralities measuring information advantage. Results show that 1% increase in institutional investors’ information advantage improves ESG performance by 0.163%. Positive moderating effects of green innovation and digital transformation are more significant in large-scale companies, while those of financing and information disclosure are more significant in small-scale ones. All these moderating effects are more significant in upstream. These findings develop policies for companies of various scales in industrial chain to promote SDGs.

Director Departure and Noncompliance With Securities Laws

ABSTRACTResearch Question/IssueThis study investigates director departures surrounding the actual commencement of noncompliance events when public perception of the wrongdoing is less likely to exist.Research Findings/InsightsUsing a manually constructed nonaccounting noncompliance dataset of the Securities and Exchange Commission’s enforcement actions and hand‐collected information on directors’ status and characteristics, this study finds that firms not complying with securities laws experienced significantly higher unexpected director departures than control firms during the period in which the noncompliance began. Outside directors, in particular, tend to leave in the pre‐noncompliance period but not in the post‐noncompliance phase. The findings are robust across propensity score–matched tests, conditional logistic regression, and when controlling for CEO turnover. Further exploration of the characteristics of departing directors provides insights into the dynamics of the internal governance mechanism. It shows that directors with a background in an area of specialized expertise tend to leave noncompliant firms. The evidence also suggests that power struggles between departing directors and managers in noncompliant firms might contribute to director departure.Theoretical/Academic ImplicationsThis study extends the literature aimed at unraveling internal governance mechanisms around firms’ negative events. Since there are several important points along the timeline of a negative event, providing evidence on director behavior around these points can offer deeper insights into internal governance mechanisms.Practitioner/Policy ImplicationsThis study provides unique evidence that there is an abnormal departure rate of directors before the commencement of firms’ wrongdoings. This departure is consistent with explanations that directors with an information advantage from a special background are likely to foresee that problems or power struggles between directors and managers are likely to induce the departure of a director who is in a relatively weak position. The findings offer insights for policy makers, suggesting that regulators may need to reflect upon the shortcomings of the current governance system and how to hold management accountable, rather than putting heavy emphasis on developing doctrines for directors’ duties.

Accounting Reporting Complexity as a Source of Insider Information Advantage: Evidence From Insider Trades

ABSTRACTAccounting reporting complexity (ARC) represents the overall difficulty in preparing and consuming the financial statements and is of growing concern to regulators and capital market stakeholders. Although financial statements serve to mitigate information asymmetry between preparers and users, complexity can hinder their effectiveness. We contribute to the evidence on this issue by examining insider trading profits conditional on ARC. Consistent with ARC producing an information advantage to insiders, we document higher returns to executives on the trades executed in the 60 days after the report filing as ARC increases. The most financially sophisticated and informed insiders, the CEO and CFO, appear to adjust their trading activity accordingly. Furthermore, high ARC firms have a weaker correlation between current and future earnings, a weaker earnings response coefficient, and a longer return drift. Collectively, the results document a novel and material cost of ARC. ARC impairs the informativeness of financial reports to market participants, exacerbating the information gap between insiders and other stakeholders. Insiders can use this to their advantage, as they face few trading constraints during the post‐filing period.

Decision-making of Enterprise Greenwashing Behavior Under The Background of Carbon Tariff

Research background: As the EU deals with carbon leakage through carbon tariffs, export enterprises of some countries that do not meet the carbon emission standards face the problem of increasing export costs, so these enterprises have the tendency of "green washing". Therefore, how enterprises make decisions to deal with carbon tariffs and avoid the impact of changes in the terms of trade has become a hot topic. Based on the cost constraints of enterprises in developing countries, the information asymmetry between upstream and downstream enterprises, and the external environment constraints such as government and enterprise regulation and subsidy strategies, enterprises will make different decisions, including "brown enterprise" behavior that only considers economic benefits and "green enterprise" behavior that considers both economic benefits and environmental benefits. The research approach in this paper is based on game-theoretic analysis and adopts the supply chain game model proposed by Pretis (2022) [1]and Dong (2023[2]). This paper mainly discusses the different situations of maximizing the profit of individual enterprise and the profit of the whole supply chain through the game of the manufacturer's cost information advantage and the retailer's market information advantage. Finally, let business and government work together to get business to cancel the green washing practices that have been adopted. Conclusion: Based on the hypothesis that the EU is imposing carbon tariffs on developing countries, the greenwashing behavior of manufacturers and retailers is related to the green investment return rate of enterprises, the cost and rate of return of blockchain technology, and government subsidies.

How smart is smart money? Evidence from mutual funds' exposure on corporate misconduct

AbstractWe examine how mutual funds' trading and performance respond to corporate misconduct. We exploit a combined dataset of corporate misconduct and holding information of mutual funds and find that mutual funds tend to not only sell but also buy more stocks of corporations with misconduct. Moreover, the exposure to misconduct stocks is negatively related to mutual funds' future performance. The top quintile portfolio of funds with the highest level of misconduct exposure underperforms the bottom quintile by 1.57% to 1.97% on an annualized basis. This performance gap is wider when it is easier for fund managers to gain information advantages.

Quantum Majorization in Market Crash Prediction

We introduce the Quantum Alarm System, a novel framework that combines the informational advantages of quantum majorization applied to tail pseudo-correlation matrices with the learning capabilities of a reinforced urn process, to predict financial turmoil and market crashes. This integration allows for a more nuanced analysis of the dependence structure in financial markets, particularly focusing on extreme events reflected in the tails of the distribution. Our model is tested using the daily log-returns of the 30 constituents of the Dow Jones Industrial Average, spanning from 2 January 1992 to 30 August 2024. The results are encouraging: in the validation set, the 12-month ahead probability of correct alarm is between 73% and 80%, while maintaining a low false alarm rate. Thanks to the application of quantum majorization, the alarm system effectively captures non-traditional and emerging risk sources, such as the financial impact of the COVID-19 pandemic—an area where traditional models often fall short.

The Relationship between Investment Horizons and Signals of Insider Trading in Takeover

Abstract Insider trading in target companies prior to mergers and acquisitions (M&A) can be regarded as an important information about the future profitability of the company. Suk and Wang (2021) find that net purchases by insiders in target companies are positively correlated with abnormal returns at the time of the M&A announcement, M&A synergy, bid premiums, and the probability of M&A completion. Fu et al. (2020) document that long-term investment horizon shareholders can impede insider trading because they can obstruct insiders from using their informational advantages through direct supervision. In this paper, we find that the positive impact of net insider purchases in target companies on abnormal returns at the time of the M&A announcement is stronger in companies with shorter shareholder investment horizons. However, there is no evidence to support that net insider purchases in target companies have a stronger positive impact on M&A synergy in companies with shorter shareholder investment horizons. Furthermore, there is no evidence to indicate that net insider purchases in target companies have an impact on bid premiums, nor that this impact is stronger in companies with shorter shareholder investment horizons. Moreover, we find that the positive impact of net insider purchases in target companies on the probability of M&A completion is stronger in companies with shorter shareholder investment horizons. JEL classification numbers: G11, G14, G34. Keywords: Insider trading, Shareholder investment horizon, Insider investment horizon, Acquisition.

Gatekeeping With Privacy: The Facebook Case, Apple’s ATT Framework and Google’s Privacy Sandbox

Digital ecosystem operators can obtain an unmatchable information advantage with respect to the preferences of platform users by implementing privacy-related regulation and relying on the attractiveness of their core platform services. Implementing privacy-related regulation may violate competition law if it is done in an exclusionary or exploitative manner, but not simply because following the rules increases entry barriers and the dependency of other online service providers. Where dominant digital ecosystem operators reap advantages in competition from simply following privacy-related rules in line with the prevailing market standards (in contrast to either deviating from market standards or transgressing privacy rules), the competition issue is one of market structure, not one of anticompetitive behaviour.

Former Executives as Supervisors: Conflicts of Interest and Accounting Discretion

Due to their information advantages, former executives are routinely appointed to supervisory roles within the same firm. This practice of transitioning is often criticized based on concerns about former executives’ lack of independence and potential conflicts of interest. As supervisors, one of their main tasks is to oversee the financial reporting process and to challenge management’s assumptions and the projections that shape reporting outcomes. This study examines the effects of transitioning managers on accounting discretion in the context of goodwill impairments. Based on a hand-collected sample of such transition events, we find a decreased propensity and lower magnitude of goodwill impairments following transitions. This effect is robust when controlling for the underlying economic situation of the firms. Further analyses reveal that the effect is muted for transitions of more experienced executives, for transitions into more independent boards, and for transitions after longer cooling-off periods. Overall, our findings suggest that former executives who become supervisors tend to impact the way accounting discretion is exercised. Thereby, we add to the assessment of an important governance phenomenon and relate to regulatory debates around mandatory cooling-off periods and the impairment-only approach for goodwill accounting.

Pretending Ignorance Is Bliss: Competing Insurers with Heterogeneous Informational Advantages

Abstract The availability of big data and analytics expertise provides insurers with informational advantages over policyholders in estimating risk. We study competition between heterogeneously informed insurers, showing that their information may or may not be revealed in equilibrium. We find that all equilibria are profitable and that noninformative equilibria entail risk pooling and possibly efficiency. In informative equilibria, the signaling problem interacts with the screening problem that arises endogenously from insurers' revelation of information, implying underinsurance. Our main insights are robust to changes in insurers' information precision and market concentration and to the presence of two-sided asymmetric information and withdrawable contracts. (JEL D43, D82, G22)

The big data thinking in furniture innovative design under the environment configuration of modern Chinese houses

ABSTRACT ‘Big data’ is a popular word, and its application in various industries has gradually become widespread. In the furniture industry, the application effect of big data in the market is increasingly prominent, and the great value brought by big data to furniture enterprises is also more and more apparent. How to use big data to obtain the information advantage brought by big data is also a significant problem furniture enterprises face. This paper introduces the application and application methods of big data in new furniture design. It discusses how furniture design can effectively use big data to seize market opportunities and achieve new business development. This paper examines how to apply more extensive data thinking in furniture design, model development, and subsequent design to improve product innovation design and provide a practical reference for the new development of furniture design. At the same time, we explored innovative furniture design in combination with reality. Using big data can effectively enhance the pertinence of furniture design and optimise user experience.

Time‐Varying US Government Spending Anticipation in Real Time

ABSTRACTDue to legislation and implementation lags, forward‐looking economic agents anticipate changes in fiscal policy variables before they actually occur. The literature shows that this foresight poses a challenge to the econometric analysis of fiscal policies. While most of the literature uses fully revised data to investigate the degree of fiscal foresight, we use forecasts from the Survey of Professional Forecasters (SPF), the Greenbook/Tealbook from the Federal Reserve, and the Real‐Time Data Set for Macroeconomists. Furthermore, we distinguish between federal as well as state and local consumption & investment expenditures. We find that real‐time data matter. Using the first release, the SPF nowcast was able to predict 43% of the out‐of‐sample fluctuation in federal government spending growth (only 24% using the most recent release). Moreover, the SPF was able to predict 60% and 52% of the cumulated growth in federal and state & local government spending growth over a 1‐year horizon. We use the Diebold–Mariano tests and model confidence sets to investigate whether SPF forecasts significantly outperform the Greenbook projections and forecasts from purely backward‐looking time series models. Compared to the SPF and Greenbook projections, the time series models perform inferior at most forecast horizons. In addition, so‐called information advantage regressions reveal that most forecasts could be improved by using the information of the SPF. Using rolling windows, we document remarkable time‐variation in the degree of fiscal foresight of the SPF and its information advantage against (augmented) autoregressive models and the Greenbook. Particularly during the 1980s and 2000s, we find a strong degree of anticipation for government spending at the federal level by the SPF and the central bank.

Party selectors, voters, and the choice of productive representatives under different types of list proportional representation

Do party selectors or voters choose more productive politicians? Selectors may promote quality candidates and have an informational advantage over voters, but quality need not be the key criterion for nominations, and voters may be sufficiently informed to correct inferior decisions. We empirically examine whether the type of principal responsible for the selection affects individual parliamentary work (attendance, bills, amendments, questions, speeches). Flexible-list proportional representation systems are both interesting and analytically useful in this context, since seats within parties are first allocated to candidates reaching a certain number of personal votes, while any remaining seats are awarded based on the pre-electoral list rank. This allows us to compare three types of elected candidates: selector-chosen, voter-chosen, and doubly-chosen representatives. Analysing data from the Czech Republic in the period between 2002 and 2021, we find that voters have a stronger preference for candidates with high formal education than selectors. We do not find differences in parliamentary behaviour between selector-chosen and voter-chosen types. The results speak against a potential trade-off between giving voters more influence on within-party seat allocation and the quality of chosen representatives.

Are Fiscal Transfers and Bail-Outs the Perpetrators? A Study on Moral Hazard Problem in Indian Federal Finance

The informational advantage of the sub-national governments in conjunction with central government’s involvement in bail-outs and financial assistance sometimes leads to negative incentives by relaxing the budget constraint. This produces moral hazard in terms of compromised fiscal behaviour; lower revenue effort, extravagance in expenditure, higher deficits and increased borrowings. At the same time, central assistance to low-performing states demotivates fiscally efficient states. The Indian fiscal federal structure and the fiscal transfer system are often criticized for prompting inefficiency and moral hazard in sub-national fiscal performance. Considering the issue of fiscal inefficiency in the Indian states, this study seeks to explore the fiscal mechanism of revenue effort, deficit, borrowing, capital outlay and revenue expenditure using a panel dataset of 28 states for the period 2000–2019. Accounting for the geographical and other disadvantages of the states, the findings of the panel-regression analysis confirm fiscal distress and the existence of soft-budget constraint and moral hazard in the Indian states. JEL Classification: H, H2, H21, H3, H7

Protecting Lucid Waters and Lush Mountains of Hometown: Local-Born Mayors and Pollution Reduction

ABSTRACT Pollution prevention and control have garnered significant attention globally. Existing literature indicates that local officials play an important role in pollution abatement in China. We used unique firm-level data to investigate the impact of local-born mayors on pollution emissions. The results showed that local-born mayors could bring approximately a 4.41% reduction in pollution emissions; the pollution reduction is more pronounced in high-polluting cities, mayors with weaker promotion incentives, state-owned firms, and small firms. The potential mechanisms are encouraging high-polluting firms to install waste gas facilities and reducing government subsidies. Finally, we provided suggestive evidence supporting the information advantage and reputation effect of local-born mayors.

Does state affiliation create information advantage to financial analysts

PurposeRecent studies have documented the significant influence of investment bank relationships on the forecast accuracy of affiliated analysts. However, the literature primarily focuses on investment bank-firm relationships, such as whether the investment bank has underwriter or lending relationships with firms. Little attention has been paid to the impact of investment bank-state relationships. To fill this gap in the literature, this paper investigates whether investment bank-state relationships create an information advantage for affiliated analysts.Design/methodology/approachWe empirically test the information advantage of state-affiliated analysts using a large sample of analyst forecasts from China spanning the period 2008 to 2020. Specifically, we investigate whether state-affiliated analysts issue more accurate and timely forecasts around macro events. To address endogeneity concerns, we examine instances where analysts move between state-affiliated and non-affiliated banks, as well as changes in the controlling structure of investment banks.FindingsWe find that state-affiliated analysts demonstrate greater accuracy in forecasts driven by macro events, indicating their information advantage. This effect is more pronounced under conditions of heightened economic policy uncertainty and closer ties between investment banks and the state. After transitioning to a non-state-affiliated investment bank, analysts no longer maintain the ability to make superior macro-event-driven forecasts. Conversely, when the investment bank's affiliation changes from non-state to state, financial analysts gain an information advantage following the establishment of new state affiliation. Additionally, state-affiliated analysts tend to issue more assertive forecasts in response to macro events, which are subsequently echoed by their peers. Furthermore, this information advantage is recognized by investors, enhancing stock price informativeness.Originality/valueFirstly, we contribute to the literature on the economic implications of state ownership in financial intermediaries. Secondly, we enrich the existing literature on financial analysts by acknowledging the pivotal role of investment bank relationships in shaping analysts' behaviors. Lastly, unlike existing literature that treats forecasts driven by macroeconomic events and those influenced by firm-specific events as a homogeneous category, this study contributes to the literature by innovatively categorizing analyst forecasts into two distinct types.

ESG SCORES, EARNINGS MANAGEMENT AND FINANCIAL PERFORMANCE: EVIDENCE FROM POLAND

The paper's main aim is to investigate the relationship between the ESG activities scores and profitability metrics of 33 public companies listed on the Warsaw Stock Exchange. By utilizing the Refinitiv methodology, we answer whether a company's environmental, social and governance performance perspectives positively affect the ROA, ROE and ROC ratios or whether there is a negative relationship. A secondary objective of the research is to investigate the relationship between profitability and the magnitude of aggregate-based earnings management in the tested sample. The moderating effect of earnings manipulation on the links between ESG performance and a company's profitability metrics is a research gap that has not been well-studied to date.This research demonstrates contradictory results: a positive relationship between the social dimension of ESG activities and the financial performance of companies was observed regarding ROE and ROC ratios. The negative impact of the environmental pillar rank on the ROA ratio was captured only in selected regression analyses. The governance pillar score did not statistically affect the tested profitability metrics. On the other hand, we gathered evidence that public companies with a high range of non-financial disclosures tend to alter earnings via accruals, and discretionary accruals statistically affect the ROA, ROE and ROC ratios. This finding contrasts previous research claiming that the earnings management phenomenon is a typical agency problem and that the policy of non-mandatory disclosures following the ESG assumptions could constrain the asymmetry of information and managerial information advantages.

Physicians Treating Physicians: Relational and Informational Advantages in Treatment and Survival

Physicians Treating Physicians: Relational and Informational Advantages in Treatment and Survival

Monitoring and Loan Pricing: Do Microfinance Institutions Extract Rents from Entrepreneurs?

Microfinance institutions (MFIs) have been criticized for charging high interest rates on loans. Building on multiple-principal agency theory, we argue that when an MFI acquires proprietary information about its clients through monitoring, it gains an information advantage over other lenders enabling it to extract rents by charging higher interest rates. Using data from 712 MFIs across 62 countries from 2010 to 2018, we find this to be the case. Furthermore, we find that MFIs that make more relationship-based loans, operate in less competitive markets, and those driven by for-profit commercial banking logic are more likely to extract even greater rents.

Insider trading in discrete time Kyle games

AbstractWe present a new discrete time version of Kyle’s (Econometrica 53(6):1315–1335, 1985) classic model of insider trading, formulated as a generalised extensive form game. The model has three kinds of traders: an insider, random noise traders, and a market maker. The insider aims to exploit her informational advantage and maximise expected profits while the market maker observes the total order flow and sets prices accordingly. First, we show how the multi-period model with finitely many pure strategies can be reduced to a (static) social system in the sense of Debreu (Proc Natl Acad Sci 38(10):886–893, 1952) and prove the existence of a sequential Kyle equilibrium, following Kreps and Wilson (Econometrica 50(4):863–894, 1982). This works for any probability distribution with finite support of the noise trader’s demand and the true value, and for any finite information flow of the insider. In contrast to Kyle (1985) with normal distributions, equilibria exist in general only in mixed strategies and not in pure strategies. In the single-period model we establish bounds for the insider’s strategy in equilibrium. Finally, we prove the existence of an equilibrium for the game with a continuum of actions, by considering an approximating sequence of games with finitely many actions. Because of the lack of compactness of the set of measurable price functions, standard infinite-dimensional fixed point theorems are not applicable.