Rules that restrict information required in negotiated private transactions have spurred a vast increase in the scope of anonymous financial markets, particularly in the US. The subtle costs of the information restricting rules raise questions about the social value of “completing” anonymous markets that would not naturally survive and did not historically exist.
{"title":"Symmetric Ignorance: The Cost of Anonymous Lemons","authors":"A. Bhide","doi":"10.2139/ssrn.3439105","DOIUrl":"https://doi.org/10.2139/ssrn.3439105","url":null,"abstract":"Rules that restrict information required in negotiated private transactions have spurred a vast increase in the scope of anonymous financial markets, particularly in the US. The subtle costs of the information restricting rules raise questions about the social value of “completing” anonymous markets that would not naturally survive and did not historically exist.","PeriodicalId":263020,"journal":{"name":"ERPN: Information Asymmetry (Sub-Topic)","volume":"104 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-08-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124825518","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We show how decentralized individual investments can efficiently allocate capital to innovating firms via equity crowdfunding. We develop a model where consumers have privately known consumption preferences and may act as investors. Consumers identify worthwhile investments based on their own preferences and invest in firms whose product they like. In the presence of aggregate demand uncertainty, an efficient capital allocation is achieved if all groups of consumers have enough liquidity to invest. If some groups of consumers cannot invest, capital flows reflect preferences of liquid investors but not future demand. Comparing with traditional financing forms, crowdfunding in the absence of liquidity constraints can be superior unless traditional financiers are fully competitive and perfectly informed.
{"title":"Crowdfunding, Efficiency, and Inequality","authors":"Hans Peter Gruener, Christoph Siemroth","doi":"10.2139/ssrn.2886401","DOIUrl":"https://doi.org/10.2139/ssrn.2886401","url":null,"abstract":"\u0000 We show how decentralized individual investments can efficiently allocate capital to innovating firms via equity crowdfunding. We develop a model where consumers have privately known consumption preferences and may act as investors. Consumers identify worthwhile investments based on their own preferences and invest in firms whose product they like. In the presence of aggregate demand uncertainty, an efficient capital allocation is achieved if all groups of consumers have enough liquidity to invest. If some groups of consumers cannot invest, capital flows reflect preferences of liquid investors but not future demand. Comparing with traditional financing forms, crowdfunding in the absence of liquidity constraints can be superior unless traditional financiers are fully competitive and perfectly informed.","PeriodicalId":263020,"journal":{"name":"ERPN: Information Asymmetry (Sub-Topic)","volume":"18 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-02-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127533585","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper uses a new data source, online social lending (a.k.a. peer-to-peer lending), to help answer the question of what impact borrower-lender information asymmetries have on adverse selection, moral hazard and the hold-up problem. The hold-up problem refers to when lenders with private positive information do not pass long the savings associated with lower borrower risk to the borrower. The results indicate that the hold-up problem is more severe with private lenders than public lenders, and that personal relationships can mitigate the moral hazard problem. This data source has characteristics such as group membership that allow analysis of the public (outsider) versus private (insider) debt choice without some of the endogeneity issues that are present when using other data sources. Each loan contains detailed bidding information from both public and private investors. Thus, a clean distinction can be drawn between public and private debt without the potential problem of unobserved borrower risk characteristics.
{"title":"Group Membership, Relationship Banking and Loan Default Risk: The Case of Online Social Lending","authors":"Craig R. Everett","doi":"10.2139/ssrn.1114428","DOIUrl":"https://doi.org/10.2139/ssrn.1114428","url":null,"abstract":"This paper uses a new data source, online social lending (a.k.a. peer-to-peer lending), to help answer the question of what impact borrower-lender information asymmetries have on adverse selection, moral hazard and the hold-up problem. The hold-up problem refers to when lenders with private positive information do not pass long the savings associated with lower borrower risk to the borrower. The results indicate that the hold-up problem is more severe with private lenders than public lenders, and that personal relationships can mitigate the moral hazard problem. This data source has characteristics such as group membership that allow analysis of the public (outsider) versus private (insider) debt choice without some of the endogeneity issues that are present when using other data sources. Each loan contains detailed bidding information from both public and private investors. Thus, a clean distinction can be drawn between public and private debt without the potential problem of unobserved borrower risk characteristics.","PeriodicalId":263020,"journal":{"name":"ERPN: Information Asymmetry (Sub-Topic)","volume":"15 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134369857","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Following some recent empirical papers we focus on the key feature of "Pecking-order theory" (POT) - the existence and the extent of asymmetric information between firms' insiders and outsiders. We analyze the debt-equity choice for financing a two-stage investment and consider different informational structures. When private information is short-term, equilibria are consistent with POT. When private information is long-term and the extent of asymmetric information regarding firms values is small enough while that regarding the earnings profile over time is large enough, equilibria may exist where high quality firms issue equity which are not consistent with POT. This clarifies the role of asymmetric information in explaining equity issues and provides new tools for researchers testing POT.
{"title":"Multi-Stage Investment, Long-Term Asymmetric Information and Pecking Order Revisited","authors":"A. Miglo","doi":"10.2139/ssrn.1363480","DOIUrl":"https://doi.org/10.2139/ssrn.1363480","url":null,"abstract":"Following some recent empirical papers we focus on the key feature of \"Pecking-order theory\" (POT) - the existence and the extent of asymmetric information between firms' insiders and outsiders. We analyze the debt-equity choice for financing a two-stage investment and consider different informational structures. When private information is short-term, equilibria are consistent with POT. When private information is long-term and the extent of asymmetric information regarding firms values is small enough while that regarding the earnings profile over time is large enough, equilibria may exist where high quality firms issue equity which are not consistent with POT. This clarifies the role of asymmetric information in explaining equity issues and provides new tools for researchers testing POT.","PeriodicalId":263020,"journal":{"name":"ERPN: Information Asymmetry (Sub-Topic)","volume":"19 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-06-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125585605","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper extends a model of repeated partnerships by Radner et al. (1986) allowing heterogeneous partners to choose their sharing rule. A sharing rule is optimal if the repeated game under the sharing rule has a public strategy equilibrium whose payoff sum is not improved by any public strategy equilibrium under any sharing rule. Two key factors for the analysis are the efficiency loss from allowing only the more productive partner to work and the efficiency loss in any cooperative equilibrium from imperfect observability. If the latter loss is smaller than the former, a threshold discount factor exists below which an asymmetric sharing rule inducing only one partner to work every period is optimal. At the threshold, an optimal sharing rule uniquely exists that is also optimal for any greater discount factor. The latter sharing rule reduces to the equal sharing rule for identical partners. The optimal equilibrium payoff sum as a function of the discount factor is a step function whose jump occurs at the threshold discount factor.
本文扩展了Radner et al.(1986)的重复伙伴关系模型，允许异质伙伴选择其共享规则。如果共享规则下的重复博弈存在一个公共策略均衡，且该公共策略均衡的收益总和不因任何共享规则下的任何公共策略均衡而提高，则共享规则是最优的。分析的两个关键因素是只允许生产率更高的伙伴工作的效率损失和不完全可观察性导致的任何合作均衡的效率损失。如果后者的损失小于前者，则存在一个阈值折现因子，低于该阈值折现因子，则每个周期只有一个伙伴工作的非对称共享规则是最优的。在阈值处，存在唯一的最优共享规则，该规则对于任何更大的折扣因子也是最优的。后者的共享规则简化为相同伙伴的相等共享规则。最优均衡收益和作为折现因子的函数是一个跃变函数，跃变发生在折现因子的阈值处。
{"title":"Optimal Sharing Rules in Repeated Partnerships","authors":"Hajime Kobayashi, Katsunori Ohta, Tadashi Sekiguchi","doi":"10.2139/ssrn.1278344","DOIUrl":"https://doi.org/10.2139/ssrn.1278344","url":null,"abstract":"This paper extends a model of repeated partnerships by Radner et al. (1986) allowing heterogeneous partners to choose their sharing rule. A sharing rule is optimal if the repeated game under the sharing rule has a public strategy equilibrium whose payoff sum is not improved by any public strategy equilibrium under any sharing rule. Two key factors for the analysis are the efficiency loss from allowing only the more productive partner to work and the efficiency loss in any cooperative equilibrium from imperfect observability. If the latter loss is smaller than the former, a threshold discount factor exists below which an asymmetric sharing rule inducing only one partner to work every period is optimal. At the threshold, an optimal sharing rule uniquely exists that is also optimal for any greater discount factor. The latter sharing rule reduces to the equal sharing rule for identical partners. The optimal equilibrium payoff sum as a function of the discount factor is a step function whose jump occurs at the threshold discount factor.","PeriodicalId":263020,"journal":{"name":"ERPN: Information Asymmetry (Sub-Topic)","volume":"2 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-03-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121018143","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The existing literature argues that diversified firms may be undervalued due to the information asymmetry between a firm's management and the market. Splitting the firm's divisions into multiple business components is thought to facilitate the market valuation of each component more accurately. We investigate the information hypothesis from corporate spinoffs from 1981 through 2004. We use the post-spinoff data to reconstruct the diversified firm, assess the improvement in value at the combined firm level, and relate the value improvement to the change in the level of information asymmetry. We find that, prior to the spinoff, the sample firms have significantly higher levels of information asymmetry than their industry- and size-matched peers and that the level of information asymmetry decreases to a certain extent following the spinoff. We also find that the sample firms are valued at a substantial discount before the spinoff and that the valuation discount is eliminated after the completion of the spinoff. The matching firms, however, do not trade at a significant discount either pre- or post-spinoff. This is consistent with the view that only undervalued firms divest. More importantly, we find that the change in excess value around the spinoff is significantly and negatively related to the change in the level of information asymmetry. We conclude that information asymmetry is at least partly responsible for the diversification discount.
{"title":"Asymmetric Information and Conglomerate Discount: Evidence from Spinoffs","authors":"C. Charoenwong, David K. Ding, Jing Pan","doi":"10.2139/ssrn.1103724","DOIUrl":"https://doi.org/10.2139/ssrn.1103724","url":null,"abstract":"The existing literature argues that diversified firms may be undervalued due to the information asymmetry between a firm's management and the market. Splitting the firm's divisions into multiple business components is thought to facilitate the market valuation of each component more accurately. We investigate the information hypothesis from corporate spinoffs from 1981 through 2004. We use the post-spinoff data to reconstruct the diversified firm, assess the improvement in value at the combined firm level, and relate the value improvement to the change in the level of information asymmetry. We find that, prior to the spinoff, the sample firms have significantly higher levels of information asymmetry than their industry- and size-matched peers and that the level of information asymmetry decreases to a certain extent following the spinoff. We also find that the sample firms are valued at a substantial discount before the spinoff and that the valuation discount is eliminated after the completion of the spinoff. The matching firms, however, do not trade at a significant discount either pre- or post-spinoff. This is consistent with the view that only undervalued firms divest. More importantly, we find that the change in excess value around the spinoff is significantly and negatively related to the change in the level of information asymmetry. We conclude that information asymmetry is at least partly responsible for the diversification discount.","PeriodicalId":263020,"journal":{"name":"ERPN: Information Asymmetry (Sub-Topic)","volume":"14 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-03-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116248953","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We develop a non-tax rationale for leasing in a double-sided asymmetric information setting, and analyze how various contractual provisions in leasing contracts arise in equilibrium. In our model, a manufacturer of capital goods has private information about their quality; entrepreneurs (users of these capital goods) come to learn this quality only over a period of time. Each unit of the capital goods requires a certain level of maintenance in each period. Entrepreneurs differ in their cost of providing this maintenance; this maintenance cost is information private to each entrepreneur. Leasing emerges as an equilibrium solution to this double-sided adverse selection problem. Various contractual provisions in leasing contracts (e.g., short-term versus long-term leases with non-cancellation provisions, option to buy at lease termination, and service leases) also emerge as equilibrium solutions under alternative settings. Leases with metering provisions emerge in equilibrium when, in addition to maintenance cost, entrepreneurs differ in other dimensions such as their intensity of using the capital good, and their degree of risk aversion. Our model has implications for the lease versus sell decision, the situations under which various leasing contract provisions are appropriate, and for the relative magnitudes of sales prices and the leasing costs for leases with different contractual provisions.
{"title":"Equilibrium Leasing Contracts Under Double-Sided Asymmetric Information","authors":"Thomas J. Chemmanur, An Yan","doi":"10.2139/ssrn.223731","DOIUrl":"https://doi.org/10.2139/ssrn.223731","url":null,"abstract":"We develop a non-tax rationale for leasing in a double-sided asymmetric information setting, and analyze how various contractual provisions in leasing contracts arise in equilibrium. In our model, a manufacturer of capital goods has private information about their quality; entrepreneurs (users of these capital goods) come to learn this quality only over a period of time. Each unit of the capital goods requires a certain level of maintenance in each period. Entrepreneurs differ in their cost of providing this maintenance; this maintenance cost is information private to each entrepreneur. Leasing emerges as an equilibrium solution to this double-sided adverse selection problem. Various contractual provisions in leasing contracts (e.g., short-term versus long-term leases with non-cancellation provisions, option to buy at lease termination, and service leases) also emerge as equilibrium solutions under alternative settings. Leases with metering provisions emerge in equilibrium when, in addition to maintenance cost, entrepreneurs differ in other dimensions such as their intensity of using the capital good, and their degree of risk aversion. Our model has implications for the lease versus sell decision, the situations under which various leasing contract provisions are appropriate, and for the relative magnitudes of sales prices and the leasing costs for leases with different contractual provisions.","PeriodicalId":263020,"journal":{"name":"ERPN: Information Asymmetry (Sub-Topic)","volume":"39 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2000-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125097927","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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