A Theory of ICOs: Diversification, Agency, and Information Asymmetry

2021 ◽  
Author(s):  
Jiri Chod ◽  
Evgeny Lyandres
Keyword(s):  
Information Asymmetry ◽  
Risk Sharing ◽  
Agency Problem ◽  
Agency Problems ◽  
Production Costs ◽  
Equity Financing ◽  
Entrepreneurial Ventures ◽  
Marginal Production ◽  
Intrinsic Characteristic

This paper develops a theory of financing of entrepreneurial ventures via crypto tokens, which is not limited to platform-based ventures. We compare token financing with traditional equity financing, focusing on agency problems and information asymmetry frictions associated with the two financing methods, as well as on risk sharing between entrepreneurs and investors. Token financing introduces an agency problem not present under equity financing (underproduction), while mitigating an agency problem often associated with equity financing (entrepreneurial effort underprovision). Our theory abstracts from all institutional and potentially transient differences between tokens and equity and is based on a single intrinsic characteristic of tokens: they represent claims to a venture’s output. We show that tokens are likely to dominate equity for ventures developing goods or services that involve low marginal production costs, those for which entrepreneurial effort is crucial, and/or those with relatively low payoff volatility. In addition, tokens can have an advantage over equity in signaling venture quality to outside investors. This paper was accepted by Kay Giesecke, finance.

AGENCY PROBLEM DALAM PENERAPAN PEMBIAYAAN AKAD MUDHARABAH PADA PERBANKAN SYARIAH

ALQALAM ◽  
2016 ◽  
Vol 33 (1) ◽  
pp. 46
Author(s):  
Aswadi Lubis
Keyword(s):  
High Risk ◽  
Asymmetric Information ◽  
Human Resources ◽  
Moral Hazard ◽  
Adverse Selection ◽  
Agency Problem ◽  
Agency Problems ◽  
Islamic Banking ◽  
The Public

The purpose of writing this article is to describe the agency problems that arise in the application of the financing with mudharabah on Islamic banking. In this article the author describes the use of the theory of financing, asymetri information, agency problems inside of financing. The conclusion of this article is that the financing is asymmetric information problems will arise, both adverse selection and moral hazard. The high risk of prospective managers (mudharib) for their moral hazard and lack of readiness of human resources in Islamic banking is among the factors that make the composition of the distribution of funds to the public more in the form of financing. The limitations that can be done to optimize this financing is among other things; owners of capital supervision (monitoring) and the customers themselves place restrictions on its actions (bonding).

Supply Chain Coordination for E-Commerce: Risk Penalty vs. Flat Rate

2021 ◽  
Author(s):  
Ju Myung Song ◽  
Yao Zhao
Keyword(s):  
Supply Chain ◽  
Information Asymmetry ◽  
Risk Sharing ◽  
Supply Chain Coordination ◽  
Wholesale Price ◽  
Problem Definition ◽  
Third Party ◽  
Common Belief ◽  
Shipping Industry ◽  
Flat Rate

Problem definition: We study the coordination of an E-commerce supply chain between online sellers and third party shippers to meet random demand surges, induced by, for instance, online shopping holidays. Academic/practical relevance: Motivated by the challenge of meeting the unpredictable demand surges in E-commerce, we study shipping contracts and supply chain coordination between online sellers and third party shippers in a novel model taking into account the unique features of the shipping industry. Methodology: We compare two shipping contracts: the risk penalty (proposed by UPS) and the flat rate (used by FedEx), and analyze their impact on the seller, the shipper, and the supply chain. Results: Under information symmetry, the sophisticated risk penalty contract is no better than the simple flat rate contract for the shipper, against common belief. Although both the risk penalty and the flat rate can coordinate the supply chain, the risk penalty does so only if the shipper makes zero profit, but the flat rate can provide a positive profit for both. These results represent a new form of double marginalization and risk-sharing, in sharp contrast to the well-known literature on the classic supplier-retailer supply chain, where risk-sharing contracts (similar to the risk penalty) can bring benefits to all parties, but the single wholesale price contract (similar to the flat rate) can achieve supply chain coordination only when the supplier makes zero profit. We also find that only the online seller, but not the shipper, has the motivation to vertically integrate the seller-shipper supply chain. Under information asymmetry, however, the risk penalty brings more benefit to the shipper than the flat rate, but hurts the seller and the supply chain. Managerial implications: Our results imply that information plays an important role in the shipper’s choices of shipping contracts. Under information symmetry, the risk penalty is unnecessarily complex because the simple flat rate is as good as the risk penalty for the shipper; moreover, it is better for the seller-shipper coordination. However, under information asymmetry, the shipper faces additional shipping risk that can be offset by the extra flexibility of the risk penalty. Our study also explains and supports the recent practice of online sellers (e.g., Amazon.com and JD.com), but not shippers, to vertically integrate the supply chain by consistently expanding their shipping capabilities.

MediMedia International, Ltd.

2017 ◽  
pp. 1-26
Author(s):  
Robert F. Bruner
Keyword(s):  
Agency Problems ◽  
Publishing Company ◽  
Equity Financing ◽  
Leveraged Buyout

In February 1991, the managers of this multinational specialty publishing company proposed to take the company private in a leveraged buyout (LBO). In addition to the ordinarily interesting features of the typical LBO, this transaction was the first to be denominated in ECUs and one of the few in which the managers provided all the equity financing. The tasks for the student are to value the company and evaluate the attractiveness of the transaction from the standpoints of seller, senior lender, mezzanine lender, and equity investor/manager. The case can be used to (1) exercise students' skills in valuing a highly leveraged company, (2) illustrate how deal structuring can mitigate potential agency problems, and (3) explore the problems and possible solutions associated with financing a global firm.

Corporate governance mechanisms and corporate investments: evidence from India

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Samridhi Suman ◽  
Shveta Singh
Keyword(s):  
Corporate Governance ◽  
Dynamic Model ◽  
Capital Expenditure ◽  
Agency Problem ◽  
Agency Problems ◽  
Static Model ◽  
Capital Expenditures ◽  
Content Type ◽  
Empire Building ◽  
The Impact

PurposeThe purpose of this paper is to empirically investigate the influence of corporate governance variables relating to the board of directors, audit and ownership on the agency problems that inflict a firm's investments in capital and research and development (R&D) expenditures. This study posits that the R&D investments are inflicted by the agency problem of “quiet life” whereas “empire-building” agency problem affects capital expenditure decisions.Design/methodology/ approachThis study analyses the investment behaviour of non-financial and non-utility firms listed on NIFTY 200 from FY 2009 to FY 2018 using a static and dynamic model.FindingsThe results from the static model suggest that ownership concentration mitigates the agency problem of the “quiet life” that affects R&D expenditures. However, no corporate governance attribute has a significant impact on R&D investments under the assumption of the dynamic model. In respect of capital expenditures, the analysis of static model yields that audits by large auditor firms and usage of non-audit services ameliorate the agency problem of “empire-building”. The results from the dynamic model show that independent boards worsen it. They also continue to provide empirical evidence in favour of large auditors.Originality/valueThis paper contributes to the literature on the corporate governance-investment association by simultaneously examining the impact of multiple corporate governance attributes on the agency problems of “quiet life” and “empire-building” that affect R&D and capital expenditures, respectively, in a static and dynamic context for a sample of Indian firms.

scholarly journals Pecking order, earnings management and capital structure

Accounting ◽  
2021 ◽  
Vol 7 (6) ◽  
pp. 1389-1394 ◽  
Author(s):  
Novi Swandari Budiarso ◽  
Winston Pontoh
Keyword(s):  
Capital Structure ◽  
Earnings Management ◽  
Stock Exchange ◽  
Agency Problem ◽  
Agency Problems ◽  
Order Theory ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Corporate Capital Structure ◽  
Debt Capacity

Most of studies imply that firms decrease or increase their debt capacity in context of pecking order theory or agency problems. On this point, the setting of this study is based on two main problems related to capital structure: the first is determining the source of funds for financing investments, and the second is solving the conflict between shareholders and managers, or the agency problem. The objective of this study is to provide evidence about how firms establish their capital structure in relation to pecking order theory and the agency problem by controlling earnings management in the context of Indonesian firms. This study conducts logistic regression on 28 firms in the consumer goods industry listed on the Indonesia Stock Exchange from 2010 to 2017.This study finds that pecking order theory determines the capital structure of most Indonesian firms with high debt. The results imply that agency problems are unable to explain corporate capital structure and earnings management is not effective for motivating Indonesian firms to establish corporate governance.

Risk shifting elimination and risk sharing exposure in equity-based financing – a theoretical exposition

2018 ◽  
Vol 44 (10) ◽  
pp. 1210-1226
Author(s):  
Siti Raihana Hamzah ◽  
Norizarina Ishak ◽  
Ahmad Fadly Nurullah Rasedee
Keyword(s):  
Financial Crisis ◽  
Financial Stability ◽  
Risk Sharing ◽  
Global Financial Crisis ◽  
Risk Shifting ◽  
Global Awareness ◽  
Debt Contracts ◽  
Equity Financing ◽  
Content Type ◽  
The Global Financial Crisis

Purpose The purpose of this paper is to examine incentives for risk shifting in debt- and equity-based contracts based on the critiques of the similarities between sukuk and bonds. Design/methodology/approach This paper uses a theoretical and mathematical model to investigate whether incentives for risk taking exist in: debt contracts; and equity contracts. Findings Based on this theoretical model, it argues that risk shifting behaviour exists in debt contracts only because debt naturally gives rise to risk shifting behaviour when the transaction takes place. In contrast, equity contracts, by their very nature, involve sharing transactional risk and returns and are thus thought to make risk shifting behaviour undesirable. Nonetheless, previous researchers have found that equity-based financing also might carry risk shifting incentives. Even so, this paper argues that the amount of capital provided and the underlying assets must be considered, especially in the event of default. Through mathematical modelling, this element of equity financing can make risk shifting unattractive, thus making equity financing more distinct than debt financing. Research limitations/implications Global awareness of the dangers of debt should be increased as a means of reducing the amount of debt outstanding globally. Although some regulators suggest that sukuk replaces debt, they must also be aware that imitative sukuk poses the same threat to efforts to avoid debt. In short, efforts to ensure future financial stability cannot address only debts or bonds but must also address those types of sukuk that mirrors bonds in their operation. In the wake of the global financial crisis, amid the frantic search for ways of protecting against future financial shocks, this analysis aims to help create future stability by encouraging market players to avoid debt-based activities and promoting equity-based instruments. Practical implications This paper’s findings are relevant for countries that feature more than one type of financial market (e.g. Islamic and conventional) because risk shifting behaviour can degrade economic and financial stability. Originality/value This paper differs from the previous literature in two important ways, viewing risk shifting behaviour not only in relation to debt or bonds but also when set against debt-based sukuk, which has been subjected to similar criticism. Indeed, to the extent that debts and bonds encourage risk shifting behaviour and threaten the entire financial system, so, too, can imitation sukuk or debt-based sukuk. Second, this paper is unique in exploring the ability of equity features to curb equityholders’ incentive to engage in risk shifting behaviour. Such an examination is necessary for the wake of the global financial crisis, for researchers and economists now agree that risk shifting must be controlled.

scholarly journals The Effect and Impact of Signals on Investing Decisions in Reward-Based Crowdfunding: A Comparative Study of China and the United Kingdom

2020 ◽  
Vol 13 (12) ◽  
pp. 325
Author(s):  
Sardar Muhammad Usman ◽  
Farasat Ali Shah Bukhari ◽  
Huiwei You ◽  
Daniel Badulescu ◽  
Darie Gavrilut
Keyword(s):  
Information Asymmetry ◽  
Goal Setting ◽  
Risk Sharing ◽  
Project Success ◽  
Secondary Data ◽  
Least Square ◽  
Ordinary Least Square ◽  
The United Kingdom ◽  
The Uk ◽  
The Impact

When traditional financial institutions faced difficulties in the task of assisting micro, small and medium-sized enterprises (MSMEs) with capital allocations, crowdfunding can upsurge as an innovative and vibrant vehicle that can support and assist the activity of such MSME’s, by financing their activity and instrumenting the process of risk-sharing. Simultaneously with its enormous growth and popularity, crowdfunding is faced by several key challenges, one of biggest such challenges referring to the problem of information asymmetry that can exist between fundraisers and potential backers. Based on the signaling theory, a research taxonomy has been developed for a comparative analysis between China and the UK. This has been accomplished by retrieving secondary data from the following crowdfunding platforms: Dreamore (Chinese platform) and Crowdfunder (UK platform). The objective of the study is to investigate both the effect and the impact that signals (goal setting, project comments and updates) have upon mitigating the problem of information asymmetry, in order to make the project successful. We have thus deployed an Ordinary Least Square (OLS) regression and validated the models through a robustness check. The findings reveal that signals actively mitigate the problem of information asymmetry in both countries, but this varies in the sense that higher goal setting has a more positive/impactful relationship with project success in the UK than it does in China. Project comments are more positively associated with project success in China as compared to the UK, whereas project updates are more negatively related to project success in China as compared to the UK. These findings demonstrate the importance that signals have upon successful crowdfunding activities/campaigns, highlighting the theoretical and practical influence and relevance for potential fundraisers in the two aforementioned economies.

The Effect of Auditor Characteristics on the Value of Diversification

2017 ◽  
Vol 37 (1) ◽  
pp. 115-137 ◽  
Author(s):  
Shu-Miao Lai ◽  
Chih-Liang Liu
Keyword(s):  
Information Asymmetry ◽  
Financial Reporting ◽  
Agency Problems ◽  
Market Value ◽  
Disclosure Quality ◽  
Diversification Discount ◽  
Industry Specialization ◽  
Diversified Firms ◽  
Auditor Characteristics

SUMMARY This paper examines how auditor characteristics (size, tenure, and industry specialization) affect the valuation of diversification. As expected, we find that diversified firms have lower market value than single-segment firms, and the diversification discount is smaller when firms employ Big N auditors and auditors with longer tenure. We also find that the diversification discount is larger when companies hire auditors with industry specialization and speculate that an industry focus may limit auditors' ability to detect misreporting in diversified firms. Also, diversified firms have higher financial reporting and disclosure quality when they employ Big N auditors and auditors with longer tenure, but lower financial reporting and disclosure quality when they employ industry specialist auditors. Overall, our findings suggest that auditor characteristics matter to investors in diversified firms because they contribute to the quality of financial reporting and disclosure, which can mitigate agency problems and the information asymmetry associated with diversification.

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