scholarly journals Reciprocity and Veto Power in Relation-Specific Investments: An Experimental Study

2020 ◽  
Vol 12 (10) ◽  
pp. 4027 ◽  
Author(s):  
Kaiming Zheng ◽  
Xiaoyuan Wang ◽  
Debing Ni ◽  
Yang Yang
Keyword(s):  
Information Disclosure ◽  
Social Preference ◽  
Investment Decisions ◽  
Veto Power ◽  
Organizational Sustainability ◽  
Specific Investment ◽  
Related Information ◽  
Specific Investments ◽  
Ex Post ◽  
Sustainability Theory

Relation-specific investments are usually associated with great risk. Investors, afraid of being held up, are likely to invest too little, endangering both financial and organizational sustainability. Theory suggests that relation-specific investment decisions are mainly affected by potential ex-post bargaining, while experimental evidence shows social-preference-driven thinking affects both investors’ and investees’ behavior. We decompose an experimental hold-up game to identify the effect of reciprocity and the effect of veto power on investees’ transfers. In addition, we investigate the effects of corresponding information disclosures on investors’ performance as possible behavioral remedies to the hold-up problem. We find strong evidence of the effect of reciprocity and reciprocity-related information significantly lower investors’ suboptimal investment. Investors underestimate the effect of reciprocity without related information disclosure. In contrast, we find little evidence of the effect of ex-post veto power on investment decisions. Our results imply that reciprocity-related information disclosure is helpful in promoting both financial and organizational sustainability.

Incentive for innovation and the optimal allocation of patents

2017 ◽  
Vol 42 (4) ◽  
pp. 692-707 ◽  
Author(s):  
Kojun Hamada
Keyword(s):  
Property Rights ◽  
Ownership Structure ◽  
Optimal Allocation ◽  
Ownership Structures ◽  
Specific Investment ◽  
Specific Investments ◽  
Ex Post ◽  
Ex Ante ◽  
Joint Ownership

This article theoretically investigates how different ownership structures of patents affect ex ante and ex post incentives for innovation by applying a property rights approach. We explore a model in which two research laboratories invest in R&D to obtain an innovative patent, and after successfully obtaining the patent they determine an ownership structure for the patent. The two parties consider how the determined patent ownership would affect their noncontractible relation-specific investments for commercialisation. We demonstrate that joint ownership of a patent between two parties is optimal. More concretely, if a selfish (altruistic) relation-specific investment is more important than an altruistic (selfish) investment, a joint ownership with no (bilateral) veto is optimal to maximise the joint value. Moreover, when both parties do not commit themselves to joint ownership in advance, they have greater incentive to invest in R&D than committing, even if they understand that joint ownership is desirable ex post.

Heuristic biases in investment decision-making and perceived market efficiency

2018 ◽  
Vol 10 (1) ◽  
pp. 85-110 ◽  
Author(s):  
Syed Zulfiqar Ali Shah ◽  
Maqsood Ahmad ◽  
Faisal Mahmood
Keyword(s):  
Financial Markets ◽  
Market Efficiency ◽  
Negative Impact ◽  
Investment Decisions ◽  
Sampling Technique ◽  
Investment Strategy ◽  
Individual Investors ◽  
Content Type ◽  
Specific Investment ◽  
The Relationship

Purpose This paper aims to clarify the mechanism by which heuristics influences the investment decisions of individual investors, actively trading on the Pakistan Stock Exchange (PSX), and the perceived efficiency of the market. Most studies focus on well-developed financial markets and very little is known about investors’ behaviour in less developed financial markets or emerging markets. The present study contributes to filling this gap in the literature. Design/methodology/approach Investors’ heuristic biases have been measured using a questionnaire, containing numerous items, including indicators of speculators, investment decisions and perceived market efficiency variables. The sample consists of 143 investors trading on the PSX. A convenient, purposively sampling technique was used for data collection. To examine the relationship between heuristic biases, investment decisions and perceived market efficiency, hypotheses were tested by using correlation and regression analysis. Findings The paper provides empirical insights into the relationship of heuristic biases, investment decisions and perceived market efficiency. The results suggest that heuristic biases (overconfidence, representativeness, availability and anchoring) have a markedly negative impact on investment decisions made by individual investors actively trading on the PSX and on perceived market efficiency. Research limitations/implications The primary limitation of the empirical review is the tiny size of the sample. A larger sample would have given more trustworthy results and could have empowered a more extensive scope of investigation. Practical implications The paper encourages investors to avoid relying on heuristics or their feelings when making investments. It provides awareness and understanding of heuristic biases in investment management, which could be very useful for decision makers and professionals in financial institutions, such as portfolio managers and traders in commercial banks, investment banks and mutual funds. This paper helps investors to select better investment tools and avoid repeating expensive errors, which occur due to heuristic biases. They can improve their performance by recognizing their biases and errors of judgment, to which we are all prone, resulting in a more efficient market. So, it is necessary to focus on a specific investment strategy to control “mental mistakes” by investors, due to heuristic biases. Originality/value The current study is the first of its kind, focusing on the link between heuristics, individual investment decisions and perceived market efficiency within the specific context of Pakistan.

A seller perspective on economic and non-economic satisfaction as precursors to formalisation, specific investments and dependence in business relationships

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Nils M. Høgevold ◽  
Gøran Svensson ◽  
Mercy Mpinganjira
Keyword(s):  
Structural Equation ◽  
Positive Influence ◽  
Point Of View ◽  
Exchange Relationships ◽  
Content Type ◽  
Specific Investment ◽  
Specific Investments ◽  
Economic Satisfaction ◽  
Business Exchange ◽  
Business To Business

PurposeSeen from the seller's point of view, this study examines economic and non-economic satisfaction as distinct conceptual variables, and tests how the constructs relate to each other and to the business transactional cost variables of formalisation, specific investments and dependence.Design/methodology/approachData was collected from 213 key informants from Norwegian companies involved in business-to-business marketing. Structural equation modelling was used to test the posited hypotheses.FindingsThe findings show that sellers' economic satisfaction exerts a positive influence on non-economic satisfaction and on formalisation, while its posited influence on specific investments was not found to be significant. Formalisation was, however, not significantly influenced by seller non-economic satisfaction. Specific investment was positively influenced by seller non-economic satisfaction. The influence of formalisation on specific investments and dependence was significant. Specific investments were also found to be positively influenced by dependence.Research limitations/implicationsThe study reveals the importance of assessing both economic and non-economic satisfaction in trying to understand sellers' behaviour in business-to-business markets.Practical implicationsThe findings show the need for managers to ensure economic satisfaction, as its affects non-economic satisfaction.Originality/valueThis study contributes to a better understanding of satisfaction in business-to-business exchange relationships and its relationship with transactional cost constructs based on a seller's perspective.

Relationship-Specificity, Contract Enforceability, and Income Smoothing

2013 ◽  
Vol 88 (5) ◽  
pp. 1629-1656 ◽  
Author(s):  
Yiwei Dou ◽  
Ole-Kristian Hope ◽  
Wayne B. Thomas
Keyword(s):  
Incomplete Contracts ◽  
Optimal Investment ◽  
Income Smoothing ◽  
Additional Risk ◽  
Specific Investment ◽  
Specific Investments ◽  
Contractual Obligations ◽  
The Cost ◽  
The Relationship

ABSTRACT: Contracting parties, such as the firm and its supplier, have cost-reducing incentives to make investments that support the unique transactions between them. However, to the extent that one party may renege on its contractual obligations, the other party incurring the cost of the relationship-specific investment bears additional risk and is less willing to invest such that sub-optimal investment occurs. In countries where enforceability of explicit contracts is particularly weak, parties have incentives to signal their willingness to fulfill implicit claims and maintain long-term relationships. We predict that firms engage in income smoothing to send such a signal to their suppliers. Consistent with these expectations, we find that firms that both reside in countries with weak contract enforceability and operate in industries with a greater need for relationship-specific investments tend to smooth reported income more. We further decompose income smoothing into “informational” and “garbled” components and find that results are driven by the informational component of income smoothing. Our results support the important role that accruals play in providing information in the presence of incomplete contracts. JEL Classifications: F14, K12, L14, M41, M43

scholarly journals Partner Uncertainty and the Dynamic Boundary of the Firm

2017 ◽  
Vol 9 (4) ◽  
pp. 277-302 ◽  
Author(s):  
Thomas Hellmann ◽  
Veikko Thiele
Keyword(s):  
Asset Specificity ◽  
The Other ◽  
Trade Off ◽  
Specific Investments ◽  
Dynamic Boundary ◽  
Ex Post ◽  
Ex Ante

We develop a new theory of the dynamic boundary of the firm where asset owners may want to change partners ex post. We identify a fundamental trade-off between (i) a “displacement externality” under non-integration, where a partner leaves a relationship even though his benefit is worth less than the loss to the displaced partner, and (ii) a “retention externality” under integration, where a partner inefficiently retains the other. With more asset specificity, displacement externalities matter more and retention externalities less, so that integration becomes more attractive. Wealth can resolve ex post inefficient partner arrangements, but may weaken ex ante incentives for specific investments. (JEL D21, D23, D25, D62, D86, G31)

scholarly journals Symmetrical Information Disclosure for Investors’ Investment Decisions

2018 ◽  
Vol 7 (3.30) ◽  
pp. 397
Author(s):  
Norraidah Abu Hasan ◽  
Noor Azuddin Yakob ◽  
. .
Keyword(s):  
Agency Theory ◽  
Financial Market ◽  
Information Disclosure ◽  
Investment Decisions ◽  
Theoretical Background ◽  
Future Performance

Information disclosure is crucial in the financial market that allow investors to understand the current and future performance of companies and help them in their investment decisions. This paper aim to examine the importance of information disclosure to safeguard the investor investment. This paper will refine the theoretical background of agency theory associated with the information disclosure. The findings of this paper provide a new dimension of symmetrical information disclosure with the aim to sustain a firm in the financial market and enhance investors’ confidence.  

Contract complexity and trust in construction project subcontracting

2020 ◽  
Vol 27 (9) ◽  
pp. 2477-2500 ◽  
Author(s):  
Shui Bo Zhang ◽  
Junying Chen ◽  
Yafan Fu
Keyword(s):  
Regression Model ◽  
Construction Industry ◽  
Performance Outcomes ◽  
Black Box ◽  
Mediating Effect ◽  
Content Type ◽  
Specific Investment ◽  
Specific Investments ◽  
Bilateral Transaction ◽  
The Relationship

PurposeThe purpose of this paper is to unpack the “black box” of the relationship between contract and inter-organizational trust, both theoretically and empirically. Two mediators, namely perceived safeguard and restriction, are identified to build up two seemingly contrary possible paths between contract and trust from current literature. Both paths are tested in the context of Chinese construction industry due to our access to sample.Design/methodology/approachA survey of 295 contractor-subcontractor relationships from Chinese construction industry was conducted. A three-step multiple regression model was employed to test the mediating effect of perceived safeguard and restriction. Then, a hierarchical regression model was used to test the possible moderating effect of bilateral transaction-specific investment.FindingsThe empirical results support the mediating effect of perceived safeguard between contract and trust in the construction subcontracting industry. Bilateral transaction-specific investments enhance the positive effect of contract on safeguard perception.Originality/valueTheoretically, this study contributes to governance literature by opening up the “black box” of the relationship between contract and trust. It provides a better understanding of how and when contract complexity impacts trust, instead of simply focusing on whether contract and trust act as complements or substitutes. Practically, this study provides guidelines for construction firms to decide the degree of contract complexity under various degrees of bilateral transaction-specific investments to enhance the other party’s trust, so as to improve performance outcomes.

International Perspectives on Electricity Market Monitoring and Market Power Mitigation

2007 ◽  
Vol 6 (3) ◽  
Author(s):  
José A. García ◽  
James D. Reitzes
Keyword(s):  
Market Power ◽  
Electricity Markets ◽  
Electricity Market ◽  
Information Disclosure ◽  
Design Features ◽  
Disclosure Requirements ◽  
Market Monitoring ◽  
International Perspectives ◽  
Ex Post ◽  
Bilateral Trading

We review the different market monitoring and market-power mitigation policies that arise in world electricity markets. Regulators for electricity markets apparently respond to differences in underlying market structure and design features when choosing between ex-ante (that is, rule-based) behavioral restrictions as opposed to ex-post enforcement (that is, investigations and sanctions) as the principal means for deterring abuses of market power. Particular design features that influence market-monitoring policies are whether the market is one-part (energy only) versus two-part (energy and capacity), and whether there is centralized or bilateral trading. Information-disclosure requirements also are a key element of market monitoring.

Dictating the Risk: Experimental Evidence on Giving in Risky Environments: Reply

2016 ◽  
Vol 106 (3) ◽  
pp. 840-842 ◽  
Author(s):  
J. Michelle Brock ◽  
Andreas Lange ◽  
Erkut Y. Ozbay
Keyword(s):  
Experimental Evidence ◽  
Social Preference ◽  
Social Preferences ◽  
Preference Model ◽  
Ex Post ◽  
Ex Ante ◽  
Fairness Concerns

In Brock, Lange, and Ozbay (2013), we experimentally investigate social preferences under risk. One of our conclusions is that a social preference model incorporating both ex ante and ex post fairness concerns may best describe behavior. Krawczyk and Le Lec (2016 ) argue that ex ante comparisons alone may account for our data. We address their points in this reply. (JEL C72, D63, D64, D81)

Mandatory and voluntary information disclosure and the effects on financial analysts

2015 ◽  
Vol 9 (3) ◽  
pp. 425-440 ◽  
Author(s):  
Shengnian Wang ◽  
Liang Han ◽  
Weiting Gao
Keyword(s):  
Information Disclosure ◽  
Fixed Effects ◽  
Panel Data Analysis ◽  
Empirical Evaluation ◽  
Financial Analysts ◽  
Earnings Forecasts ◽  
Content Type ◽  
Public Firms ◽  
Earnings Surprise ◽  
Ex Post

Purpose – This paper aims to make a comparison, different from existing literature solely focusing on voluntary earnings forecasts and ex post earnings surprise, between the effects of mandatory earnings surprise warnings and voluntary information disclosure issued by management teams on financial analysts in terms of the number of followings and the accuracy of earnings forecasts. Design/methodology/approach – This paper uses panel data analysis with fixed effects on data collected from Chinese public firms between 2006 and 2010. It uses an exogenous regulation enforcement to minimise the endogeneity problem. Findings – This paper finds that financial analysts are less likely to follow firms which mandatorily issue earnings surprise warnings ex ante than those voluntarily issue earnings forecasts. Moreover, ex post, they issue less accurate and more dispersed forecasts on former firms. The results support Brown et al.’s (2009) finding in the USA and suggest that the earnings surprise warnings affect information asymmetries. Practical implications – This paper justifies the mandatory earnings surprise warnings policy issued by Chinese Securities Regulatory Commission in 2006. Originality/value – Mandatory earnings surprise is a unique practical regulation for publicly listed firms in China. This paper, for the first time, provides empirical evaluation on the effectiveness of a mandatory information disclosure policy in China. Consistent with existing literature on information disclosure by public firms in other countries, this paper finds that, in China, voluntary information disclosure captures more private information than mandatory information disclosure on corporate earnings ability.

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