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Languages : en
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In this dissertation, we investigate three different questions that are related to information asymmetry and principal-agent problems. The first question is whether principal-agent conflicts lead executives to influence the design of their own employment contracts to exploit the shareholders; the second is the question whether conflicts of interest hamper the effectiveness of affiliated analysts in detecting and curbing earnings management; and the third is whether small investors are at an informational disadvantage. The three studies provide evidence on the existence of information asymmetry and principal-agent problems in various contexts. In particular, we find that the benchmarking process of executive compensation observed is a remedy of the agency costs incurred; that analysts from independent research firms monitor firms they cover more effectively than analysts affiliated with investment banks; and, strikingly, that small investors actually may have better information regarding firms financials even when compared to professional equity analysts. Together, these studies provide new insights into the cornerstone problems of the finance literature.
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Languages : en
Pages :
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Book Description
In this dissertation, we investigate three different questions that are related to information asymmetry and principal-agent problems. The first question is whether principal-agent conflicts lead executives to influence the design of their own employment contracts to exploit the shareholders; the second is the question whether conflicts of interest hamper the effectiveness of affiliated analysts in detecting and curbing earnings management; and the third is whether small investors are at an informational disadvantage. The three studies provide evidence on the existence of information asymmetry and principal-agent problems in various contexts. In particular, we find that the benchmarking process of executive compensation observed is a remedy of the agency costs incurred; that analysts from independent research firms monitor firms they cover more effectively than analysts affiliated with investment banks; and, strikingly, that small investors actually may have better information regarding firms financials even when compared to professional equity analysts. Together, these studies provide new insights into the cornerstone problems of the finance literature.
Author:
Publisher:
ISBN:
Category :
Languages : en
Pages :
Get Book Here
Book Description
In this dissertation, we investigate three different questions that are related to information asymmetry and principal-agent problems. The first question is whether principal-agent conflicts lead executives to influence the design of their own employment contracts to exploit the shareholders; the second is the question whether conflicts of interest hamper the effectiveness of affiliated analysts in detecting and curbing earnings management; and the third is whether small investors are at an informational disadvantage. The three studies provide evidence on the existence of information asymmetry and principal-agent problems in various contexts. In particular, we find that the benchmarking process of executive compensation observed is a remedy of the agency costs incurred; that analysts from independent research firms monitor firms they cover more effectively than analysts affiliated with investment banks; and, strikingly, that small investors actually may have better information regarding firms financials even when compared to professional equity analysts. Together, these studies provide new insights into the cornerstone problems of the finance literature.
Author: Sudipto Dasgupta
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Category : Government competition
Languages : en
Pages : 252
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Author: Liang Zou
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ISBN:
Category : Economics
Languages : en
Pages : 186
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Author: Alice Peng-Ju Su
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Category :
Languages : en
Pages : 87
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This dissertation is primarily on the contractual design to account for various source of information asymmetry in a principal-agent(s) relationship. In the first chapter, I study the optimal provision of team incentives with the feasibility for the agents to coordinate private actions through repeated interaction with imperfect public monitoring. As the agents' imperfect monitoring of private actions is inferred from the stochastically correlated measurements, correlation of measurement noise, besides its risk sharing role in the conventional multiple-agent moral hazard problem, is crucial to the accuracy of each agent's inference on the other's private action. The principal's choice of performance pay to provide incentive via inducing competition or coordination among the agents thus exhibits the tradeoff between risk sharing and mutual inference between the agents. I characterize the optimal form of performance pay with respect to the correlation of measurement noise and find that it is not monotonic as suggested by the literature. In the second chapter, I study the optimal incentive provision in a principal-agent relationship with costly information acquisition by the agent. When it is feasible for the principal to induce or to deter perfect information acquisition, adverse selection or moral hazard arises in response to the principal's decision, as if she is able to design a contract not only to cope with an existing incentive problem, but also to implement the existence of an incentive problem. The optimal contract to implement adverse selection by inducing information acquisition, comparing to the second best menu, exhibits a larger rent difference between an agent in an efficient state and whom in an inefficient state. The optimal contract to implement moral hazard by deterring information acquisition, comparing to the second best debt contract, prescribes a lower debt and an equity share of output residual. With imperfect information acquisition or private knowledge of information acquiring cost, the contract offered to an uninformed agent is qualitatively robust, and that to the informed exhibits countervailing incentives. I relax the assumption of complete contracting and study truthful information revelation in an incomplete contracting environment in the third chapter. Truthful revelation of asymmetric information through shared ownership (partnership) is incorporated into the Property Right Theory of the firms. Shared ownership is optimal as an information transmission device, when it is incentive compatible within the relationship as well as when the relationship breaks, at the expense of the ex-ante incentive to invest in the relationship-specific asset as the hold-up concern is not efficiently mitigated. Higher (lower) level of integration is optimal with a lower marginal value of asset if the information rent effect is stronger (weaker) than the hold-up effect.
Author: Shaopeng Li
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Category :
Languages : en
Pages : 157
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The research question on problems that involves information asymmetry has been drawing more and more attention since the past decades, and in particular, two of the pioneers Bengt Holmström and Oliver Hart) in this field won the Nobel Prize of Economics in 2016. With the emergence of information economics, accounting researchers started focusing on the information asymmetry problems, with a particular interest and emphasis on moral hazard problems, within the firm. In this essay, we intend to fill the blank in this area by investigating some specific information asymmetry problems in managerial accounting under the presence of both moral hazard and adverse selection, or moral hazard and post-contract information asymmetry, respectively. The first study analyzes the expected value of information about an agent's type in the presence of moral hazard and adverse selection. The value of the information decreases in the variability of output and the agent's risk aversion, two factors that are typically associated with the severity of the moral hazard problem. However, the value of the information about agent type first increases but ultimately decreases in the severity of adverse selection. The second study draws attention to the tradeoffs associated with relying on pre-contracting ability measures in the design of executive compensation schemes. We show that the more sensitive of the ability signal to ability the more weight should be placed optimally, and the more precise of the ability signal the more weight should be placed optimally, in accordance with the informativeness principal. We further prove that under a broad class of distributions a linear aggregation of multiple pieces of pre-contracting information is sufficient for contracting purposes without loss of generality. The third study investigates three mechanisms of organizational control: outcome control (contracting on the outcome), effort control (contracting on the signal of action), and clan control (employing an agent whose preferences are partially aligned with the principal's goal through a socialization process). In doing so, we expand the standard agency framework by introducing the concept of other-regarding preference and clan control to provide new insights into organizational control design.
Author: Zhelei Li
Publisher: Open Dissertation Press
ISBN: 9781360996530
Category : Business & Economics
Languages : en
Pages : 160
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This dissertation, "Three Essays on Equity Analysts' Agent Role and Investor Inattention" by Zhelei, Li, 李哲磊, was obtained from The University of Hong Kong (Pokfulam, Hong Kong) and is being sold pursuant to Creative Commons: Attribution 3.0 Hong Kong License. The content of this dissertation has not been altered in any way. We have altered the formatting in order to facilitate the ease of printing and reading of the dissertation. All rights not granted by the above license are retained by the author. Abstract: This thesis includes two essays on equity analysts' agent role and one essay on investors' inattention to good news. From a broader economic perspective, equity analysts are essentially agents acting on behalf of multiple principals including their employers, investors and issuers (Fisch & Sale, 2003). Classic agency theory predicts that analysts selectively provide coverage and report their expectations. In the first essay, I examine empirically if incremental investment value can be uncovered from analysts' choices between silence and speech, measured as the level of analyst reporting not explained by size or turnover. I find that "silence" negatively, and "speech" positively predicts future stock returns. More importantly, as "speech is silver, silence is golden," the observed price shift is mainly driven by silence, providing evidence that analysts' inaction can impede price discovery process. This is consistent with the claims that analysts' expectations are based on valid information, that analyst self-selection is pervasive due to the principal-agent conflicts, and that the loss of information with analyst silence has resulted in some mis-valuation which can be viewed as a form of classic agency cost. The second essay tests if analysts are systematically less forthcoming in reporting bad earnings news when the principal-agent conflicts are exacerbated. I find that analysts' downward consensus earnings forecast revisions are less informative than their upward revisions; that less is more when analysts report bad news - extreme downward revisions contain little incremental information beyond momentum compared with moderate downward revisions; and that the differential richness of information in good and bad news revisions is more pronounced among bigger, more heavily covered stocks and stocks with higher institutional holdings, namely, stocks that are typically more prone to the analyst agency problem. Thus the loss of information in bad news revisions and extreme bad news revisions' lagging behind price action can be viewed as another form of agency cost. In the third essay, I investigate how negativity bias in information processing affects the positive-negative-asymmetry in the stock price continuation phenomenon. Psychology literature document that negative stimuli elicit more attention and negative information is generally processed more thoroughly and is weighed more heavily in impression formation, memory, learning and decision making than positive information (Baumeister, Bratslavsky, Finkenauer, & Vohs, 2001; Rozin & Royzman, 2001). Insofar as people are cognitive misers, all else being equal, investors tend to pay less attention to good news than to bad news. Using earnings announcement as the information shock, I document evidences that investors incorporate bad earnings news to fuller extent than they do with good earnings news. Furthermore, given that psychological biases are typically increased when there is more uncertainty (Hirshleifer, 2001) and ambiguity or uncertainty is often associated with higher risk and the possibility of hostile manipulation, I also find more pronounced asymmetry in post announcement drift when information uncertainty is greater. DOI: 10.5353/th_b5066225 Subjects: Investment analysis Stocks - Psychological aspects
Author: Delong Meng
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Languages : en
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This thesis consists of three essays on the economics of information. We study economic situations that involve information asymmetry. For example in an informal insurance market the borrower has private information about her income that the lender cannot observe. In a social learning context different agents possess different signals about the state of the world. In a principal-agent problem the agent could privately observe a productivity shock that is unknown to the principal. We study these situations using tools from mechanism design. In Chapter 1 we study repeated communication between a long-run sender and a long-run receiver. In each period the sender observes the state of the world -- which is i.i.d. across time -- and reports the state to the receiver. The receiver takes an action based on the history of the sender's reports and public randomization signals. The receiver fully commits to her action at each point in history, and the sender commits to nothing. We allow arbitrary state space, action space, and preferences. We characterize the set of possible payoffs for the sender and the receiver when both are infinitely patient -- i.e., as the discount factor goes to one. We also study the payoff set when the discount factor is less than (but close to) one. In particular we bound the rate of convergence to points on the frontier of the limit payoff set; the rate of convergence differs radically for discrete and continuous models, and we provide a unified view of the rate of convergence results based on the shape of the frontier of the limit payoff set. We discuss three applications of our results. First for dynamic CEO compensation we characterize the firm's revenue from the optimal contract as the interest rate goes to zero. Second we show that dynamic delegation -- a common problem in agencies -- is equivalent to our model. Third we study a reputation problem where the sender's preference is unknown, and we give a lower bound for the receiver's expected payoff as the discount factor goes to one. In Chapter 2 we study a social learning model in which people choose who to talk to and strategically exchange information. Agents start with heterogeneous priors about an unknown state of the world. First each agent chooses a partner. Then everyone observes a private i.i.d. signal and sends a message to her partner. Finally everyone takes an action based on her prior, her private signal, and her partner's message. Our main finding is that when the signal space and action space are binary, assortative matching arises in equilibrium, but it is generally inefficient for social welfare and information aggregation. In addition we construct counter-examples (non-assortative matching) in the case of multiple signals or multiple actions. In Chapter 3 (joint with Gabriel Carroll) we study a principal-agent problem where the agent has private information about her productivity shock. Our goal is to investigate the idea that linear contracts are reliable because they give the same incentives for effort at every point along the contract. We ask whether this reliability leads to a microfoundation for linear contracts, when the principal is profit-maximizing. We consider a principal-agent model with risk neutrality and limited liability, in which the agent observes the realization of a mean-zero shock to output before choosing how much effort to exert. We show that such a model can indeed provide a foundation for reliable contracts, and illustrate what elements are required. In particular, we must assume that the principal knows a lower bound, but not an upper bound, on the shocks.
Author: Daehong Min
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Languages : en
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My dissertation focuses on information design problem and regulation. In the first chapter, I study how a ban on price discrimination affects firms' investment decisions and social welfare in an intermediate good market. When price discrimination is allowed, an upstream firm can extract all profits of downstream firms by using discriminatory pricing. Thus downstream firms will not invest knowing that all benefits from the investment will be captured by the upstream firm. If instead price discrimination is banned, the upstream firm is forced to yield some benefits from investment to a more efficient downstream firm. I show that this can result in a strict improvement of social welfare. Researchers may be tempted to manipulate the reporting of experimental data. This is likely to affect which experiments are conducted, how the reported results are interpreted and welfare. The second chapter addresses this question in a setting where a sender has limited ability to commit to the choice of information structure, or experiment, and a receiver observes both the chosen experiment and the reported results. This gives rise to a novel mode of communication: a mixture of cheap talk (no commitment or full manipulation) and Bayesian persuasion (full commitment or no manipulation). I show that there is a clear Pareto-ranking among three different modes of communication: both the sender and the receiver are strictly better off as the communication environment changes from cheap talk through communication with partial commitment to Bayesian persuasion. This strict welfare ranking holds for any level of conflict of interests between the sender and the receiver. In the last chapter I study a principal-agent problem in which the principal is an information user and the agent is an information provider. The agent can conduct an experiment that reveals information about the unknown true state. The agent has private information about which experiments are feasible, his type. While the principal can observe both the experiment conducted by the agent and the experimental results, she cannot observe the type of the agent. First I note that there are some cases in which the principal can achieve the first-best outcome despite the information asymmetry. When the first-best outcome is not achievable, there are two kinds of optimal decision mechanisms: (1) one which assigns the best experiment to each type with the distortion in the ex post optimal decisions and (2) the other which achieves the ex post optimal decisions by not assigning the best experiments. I provide sufficient conditions that determine which decision rule is optimal.
Author: Yu Wu
Publisher:
ISBN:
Category :
Languages : en
Pages : 134
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This dissertation is composed by three essays that explore the relationship between good IT governance and effective information security services. Governance steers and verifies performance of fiduciary duties, through the implementation of proper governance mechanisms. With a focus on information security, this essay presents three categories of governance mechanisms--process-based, structural, and relational. When properly instituted, they work together to ensure that IT understands business requirements for information security and strives to fulfill them. An explanation is offered about the efficacy of those mechanisms, based on an agency theory perspective that views IT as an agent for business. The two underlying causes for agency problems are goal incongruence and information asymmetry between the agent and the principal. Governance mechanisms help to reduce both goal incongruence and information asymmetry. Hence, they lead to desired outcomes. A theoretical framework is presented and empirical tested.
