Conflicts of interest,information provision,and competition in the financial services industry

In some markets sellers have better information than buyers over which products best serve a buyer's needs. Depending on the market structure, this may lead to conflicts of interest in the provision of information by sellers. This paper studies this issue in the market for financial services. The analysis presents a new model of competition between banks, where price competition influences the ensuing incentives for truthful information revelation. We also compare conflicts of interest in two different firm structures, specialized banking and one-stop banking.     

The anatomy of buyer–seller dynamics in decentralized markets

In this paper I investigate the nexus between buyer–seller dynamics, financial frictions and market efficiency in decentralized markets. To do so, I introduce financial frictions in a dynamic market with heterogeneous traders. Heterogeneously constrained buyers sequentially enter the market to acquire units of a generic good from heterogeneously endowed sellers. I characterize two closely related classes of equilibria, respectively called homogeneous equilibrium with no entry (HEWNE) and homogeneous equilibrium with entry (HEWE). Both equilibria prescribe a market where only the efficiently endowed type of seller exists in the limit. However, the two equilibria diverge in the specification of agents’ behavior subsequent to trade. In HEWNE, sellers and buyers exit the market upon successful trading. In HEWE, like in supply chains, in every period certain types of buyers replace exiting sellers, thus becoming potential sellers for subsequent waves of buyers. First, I identify the critical role of frictions in steering the complex evolution of market heterogeneity for both classes of equilibria. Secondly, I operationalize the combined study of HEWNE and HEWE to obtain sharp predictions on market efficiency for a range of empirically-relevant situations in which buyer–seller dynamics are decoupled, for example when entry of new sellers is delayed or stopped. Third, I test the theoretical findings against a simulated artificial market.     

Trade Credit Terms: Asymmetric Information and Price Discrimination Evidence From Three Continents

Abstract:   Trade credit terms offer firms contractual solutions to informational asymmetries between buyers and sellers. The credit period permits buyers to reduce uncertainty concerning product quality prior to payment, while the seller can reduce uncertainty concerning buyer payment intentions by prescribing payment before/on delivery or through two‐part payment terms and other mechanisms. Variation in trade credit terms also offers firms price discriminating opportunities. This study, drawing on the responses of 700 large firms in the US, UK and Australia, explores trade credit terms through the twin objectives of reducing information asymmetries and discriminatory pricing. Support is found for both theories.     

Inflation and Welfare in Retail Markets: Prior Production and Imperfectly Directed Search

This paper considers the effect of monetary policy and inflation on retail markets: goods are dated and produced prior to being retailed; buyers direct their search on price and general quality; buyers’ match‐specific tastes are private information. Sellers set the same price for all buyers, some of whom do not value the good highly enough to buy it. The market economy is typically inefficient as a social planner would have the good consumed. Under free entry of sellers, the Friedman rule is optimal policy. When the upper bound on the number of participating sellers binds, moderate levels of inflation can be welfare improving.     

REINTERPRETATION OF THE SHAREHOLDER GAINS IN SELLOFF TRANSACTIONS

This paper examines the overall wealth effects of selloffs. When sellers and buyers are examined separately, abnormal returns are found around the announcement days. However, a combination of matched-pair buyers and sellers in value-weighted portfolios wipes out these gains. In a sample of 182 selloff portfolios, 93 of them experience positive returns while the remaining 89 cases face negative price reactions. These results cast doubt on the conclusion that selloff activity is generally synergistic. In addition, a large size difference is found between buyers and sellers. Large buyers win more often than small buyers. Small sellers win more often than large sellers. Our results show that when examining selloffs for synergy equally-weighted results can be biased.     

An analysis of website evolution in the pensions sector

Considerable commentary exists on the potential of the internet for transforming the financial services industry but there is limited longitudinal research into changing website configuration. Studies have investigated online banking ignoring more complex financial services such as pensions. This paper proposes a model of financial services website evolution and applies it to a longitudinal content analysis of 30 pension provider websites, spanning eight years of web development from 1996 to 2003. The study finds that pension websites have evolved over time with apparent links between phases of development and external drivers. The findings indicate that websites support new business transactions rather than existing account management and provide more information on company strength and market position than detail on product and services. Marketing opportunities are present for improved online information provision, business-to-business communication and customer servicing.     

Asymmetric information and the death of ABS CDOs

A key feature of the 2007 financial crisis is that for many securities trading had ceased; where trading did occur, market prices were well below intrinsic values, especially for ABS CDOs. One explanation is that information had been asymmetric, with sellers having better information than buyers. We first show the information advantages sellers had over buyers in both the issuance of CDOs and, through vertical integration, performance of the CDO collateral that could well have disrupted trading after the onset of the crisis. Using a “workhorse” model for pricing securities under asymmetric information and a novel dataset, we show how adverse selection could explain why the bulk of these securities either traded at significant discounts or did not trade at all.     

E-business opportunities in financial services

Over many years, technological developments have enabled financial services products to be sold and administered via remote distribution channels. E-business is the latest channel whose potential is being explored by both traditional financial services players and new entrants alike. But, in their haste to ‘go online’, are organisations, new and old, falling into the ‘technology trap’ and ignoring the fundamentals underpinning financial services retailing and, perhaps, undermining some of their ‘segment-of-one’ strategies? This paper concludes that the key to successful e-financial services retailing is to take the nuances, attributes, techniques and skills that have accompanied financial services products in the physical world and reinvent them in an e-environment. Only by following this approach will e-business avoid being labelled as a solution looking for a problem. UK high street banks are continuing to extend the choice of channel through which customers can manage their money, eg e-banking. But it is suggested that channels such as e-banking potentially reduce the level of personal contact between bank and customer to the extent that a ‘virtual’ relationship develops. This paper concludes that, given the tendency towards ‘virtualisation’, it is inconceivable that bank–customer relationships will become any more intimate in the future. Indeed, a greater degree of personalisation in customer communication may be the very best that banks are able to offer.     

Leverage,governance and wealth effects of asset purchasers

We examine a sample of 670 firms that announce asset purchases. We hypothesize that buyer announcement returns should be higher in the presence of better monitoring and better governance. Consistent with the monitoring hypothesis, we find that buyers with higher private debt make purchase decisions that increase shareholder value. Consistent with the governance hypothesis, we find that returns are higher for buyers that have lower antitakeover provisions in place. Consistent with the managerial discretion hypothesis, buyer announcement-period returns increase with buyer leverage. Consistent with the liquidity hypothesis, we find that announcement-period returns decrease with the seller's Z-score, suggesting that buyers benefit from the lower liquidity of assets sold by sellers with lower debt capacity and higher financial distress. We also find that buyer announcement-period returns are directly related to their operating performance in the post-purchase year.     

Pricing forward contracts in power markets by the certainty equivalence principle: Explaining the sign of the market risk premium

In this paper we provide a framework that explains how the market risk premium, defined as the difference between forward prices and spot forecasts, depends on the risk preferences of market players and the interaction between buyers and sellers. In commodities markets this premium is an important indicator of the behavior of buyers and sellers and their views on the market spanning between short-term and long-term horizons. We show that under certain assumptions it is possible to derive explicit solutions that link levels of risk aversion and market power with market prices of risk and the market risk premium. We apply our model to the German electricity market and show that the market risk premium exhibits a term structure which can be explained by the combination of two factors. Firstly, the levels of risk aversion of buyers and sellers, and secondly, how the market power of producers, relative to that of buyers, affects forward prices with different delivery periods.     

E-banking in transition economies: The case of Romania

Internet banking is one of the newest Internet technology applications, which promises multiple benefits both for the financial institutions and for clients. In the last five years a large number of banks have launched websites, offering online banking services. While the implementation and functioning of these digital systems seem to be relatively smooth in the developed economies, the situation may be different in countries with economies in transition. The present paper investigates and analyses the specific conditions of an economy in transition (Romania), and the appropriate strategies for the implementation and use of e-banking services.     

Distortions in Real Estate Transactions with Out-of-State Participants

Using the MLS and the land registration data from Indiana, this paper identifies and explains price distortions associated with out-of-state sellers and buyers in the housing market. We find that out-of-state buyers pay 20.4% higher prices than local buyers, and the premium is fully explained by the former purchasing larger homes than the latter. On the other hand, out-of-state sellers receive a 21.2% price discount, among which 9.3% is attributable to differences in transactional characteristics, 3.2% is explained by increased motivation and weak bargaining power of out-of-state sellers, and 1.5% is due to differences in agent characteristics and behaviours. The remaining 7.2% discount varies systematically with the informational disadvantage of out-of-state sellers, and with the market condition. Our results are robust to model misspecification.     

The Effect of Voluntary Sell-off Announcements on Shareholder Wealth

Sell-off activities arise when a firm sells part of its assets (e.g., a segment, a division, etc.) but continues to exist in essentially the same form. This study investigates the effect of voluntary sell-offs on stock returns. From a sample of over 1000 sell-off events (first public announcements), the evidence shows that both sellers and buyers earn significant positive excess returns from these transactions. The excess returns earned by buyers are smaller than those earned by sellers. There is also evidence that sell-off announcements are preceded by a period of significant negative returns for the sellers which suggests that the sellers, on average, performed poorly prior to their sell-off activities.     

Optimal Portfolio Choices, House Risk Hedging and the Pricing of Forward House Transactions

This paper develops a utility indifference model for evaluating various prices associated with forward transactions in the housing market, based on the equivalent principle of expected wealth utility derived from the forward and spot real estate markets. Our model results show that forward transactions in the housing market are probably not due to house sellers?? and buyers?? heterogeneity, but to their demand for hedging against house price risk. When the imperfections of real estate markets and the risk preferences of market participants are taken into consideration, we are able to show that the idiosyncratic risk premium, which mainly depends on the participants?? risk preferences and the correlation between the traded asset and the real estate, is a remarkable determinant of house sellers?? and buyers?? forward reservation prices. In addition, we also find that the market clearing forward price usually will not converge toward the expected risk-neutral forward price. The sellers?? or buyers?? risk aversion degrees and market powers are also identified to play crucial roles in determining the clearing forward price.     

Beyond Sandler: Risk tolerance and the UK investment deficit

The Sandler report of 2002 found a £27bn shortfall in the UK nation's savings. The report highlights the industry changes necessary for citizens to increase investment for their future and thus reduce this deficit. The mass of this investment activity will take place through high street financial services organisations. Sandler suggests changes in industry-wide structure and practice which will lead to macro changes in generic consumer behaviour. This paper suggests that the marketing departments in financial services organisations can go beyond this and harness ‘risk tolerance’ as a segmentation variable to alter behaviour on a more targeted, micro level. It is suggested that this practice could have an even more profound effect than that envisaged by Sandler. In support of this postulate, this paper presents the results of a research programme into segmentation by risk tolerance within a UK retail financial services organisation.     

Search Costs,Behavioral Biases,and Information Intermediary Effects

In many markets, buyers, sellers, and their agents have differential information about the quality of heterogeneous assets. We study negotiated transaction prices in the commercial real estate market, which is characterized by heterogeneous assets, illiquidity, and highly segmented local markets, all of which increase the importance of asymmetric information in negotiated pricing outcomes. Using 114,588 industrial, multi-family and office sale transactions that occurred during 1997–2011, we document that distant commercial real estate buyers pay, on average, premiums of 4 % to 15 % relative to local buyers, controlling for individual property characteristics as well as time fixed-effects. We also examine the extent to which the sources of these observed premiums are a product of higher search costs/information asymmetry problems associated with distance (search cost channel) or a result of reference-dependence preference/anchoring based on the price levels in the investors’ local market (behavioral biases channel). Our results suggest the observed price premiums are explained by distant investors who face higher search costs and are at an information disadvantage compared to investors located in closer proximity to the property. In contrast, anchoring plays a more muted role in explaining observed premiums. The use of an intermediary (broker) increases, on average, the acquisition prices of buyers and decreases the disposition prices of sellers by 3 % to 8 %. This result is consistent with the incentive real estate agents have to convince sellers to dispose of their properties too quickly and to convince buyers to search less and therefore pay higher prices.     

The payments revolution: The growth of person-to-person and ‘Generation Y’ payments services

This paper explores the development of person-to-person payments services, the impact this will have on further payments disintermediation across the financial services industry, and outlines possible opportunities and threats for UK financial services providers. The paper focuses on the P2P payments services and providers — including the leading banks — in the USA; the onset of online and P2P payments services in the UK; and the development of dedicated payments services for children and teenagers.     

商品市场的金融化与油价泡沫

在过去几年中,商品市场发生了巨大的变化。衍生品交易量大幅度超过了实物的产量,而在衍生品市场中,金融机构已经取代了传统的商品买家和卖家,成为了市场的主动性力量。商品市场这种＂金融化＂现象改变了商品价格的形成机制。以油价为例,实证分析表明,自2003年以来油价的暴涨,其系统性的推动因素就在于石油衍生品市场金融机构过于活跃、甚至是投机性质的交易行为。     

Buying reputation as a signal of quality: Evidence from an online marketplace

Seller reputation, generated by buyer feedback, is critical to fostering trust in online marketplaces. Marketplaces or sellers may choose to compensate buyers for providing feedback. Signaling theory predicts that only sellers of high-quality products will reward buyers for truthful feedback, especially when a product lacks any feedback and when the seller is not established. We confirm these hypotheses using Taobao's reward-for-feedback mechanism. High-quality products, especially without established feedback, are chosen for feedback rewards, which cause sales to increase by 36%. Marketplaces and consumers can therefore benefit from allowing sellers to buy feedback and signal their high-quality products in the process.     

The use of the Internet for corporate reporting in the Mercosur (Southern common market): The Argentina case

This study examines disclosure practices on the websites of companies listed on the Buenos Aires Stock Exchange. We perform content analysis to provide evidence on Internet reporting practices by 84 publicly traded firms. We also identify the characteristics of firms that communicate financial and non-financial information on the Internet. We find that companies in the financial and insurance, services and mining industries disclose more financial and non-financial information on their websites than companies in other industries. The average concentration of ownership is 68%, with 27% of the companies being controlled by foreign groups. Those companies with higher concentration disclose more financial and non financial information than companies with less concentration. Companies in the financial and insurance and service industries, utilize their websites for commercial purposes to facilitate access to customers to their accounts and also to sell services. This e-commerce usage of websites is less developed in other industries. About 71% of companies in the financial and insurance industry are included in the Merval25 index and are audited by Big 4. These companies are both larger in size and less profitable than companies in other industries. We find that profitability and leverage do not have significant effect on corporate Internet reporting practices and that growth has negative effect on corporate Internet reporting practices. We also find that companies in the mining sector provide significantly more disclosure about social responsibility indicating a desire to improve the public image of harming the environment. The results documented, herein, extend the literature on voluntary disclosure of financial and non-financial information using the Internet in emerging markets.