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Social and Behavioral Sciences Commons

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Economics

Singapore Management University

2022

Asymmetric information

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Full-Text Articles in Social and Behavioral Sciences

Learning From Manipulable Signals, Mehmet Ekmekci, Leandrro Gorno, Lucas Maestri, Jian Sun, Dong Wei Dec 2022

Learning From Manipulable Signals, Mehmet Ekmekci, Leandrro Gorno, Lucas Maestri, Jian Sun, Dong Wei

Research Collection Lee Kong Chian School Of Business

We study a dynamic stopping game between a principal and an agent. The agent is privately informed about his type. The principal learns about the agent’s type from a noisy performance measure, which can be manipulated by the agent via a costly and hidden action. We fully characterize the unique Markov equilibrium of this game. We find that terminations/ market crashes are often preceded by a spike in (expected) performance. Our model also predicts that, due to endogenous signal manipulation, too much transparency can inhibit learning. As the players get arbitrarily patient, the principal elicits no useful information from the …


Political Connections, Informational Asymmetry, And The Efficient Resolution Of Financial Distress, Madhav S. Aney, Sanjay Banerji Sep 2022

Political Connections, Informational Asymmetry, And The Efficient Resolution Of Financial Distress, Madhav S. Aney, Sanjay Banerji

Research Collection School Of Economics

We show that securities issued by a distressed firm, often through exchange offers, providethe most efficient resolution of financial restructuring. Information asymmetry between thefirm-bank coalition and small bondholders gives rise to other forms of distress resolutionsuch as refinancing, public workout, and the inefficiency of liquidation. We find that politicallobbying by the firm-bank amplifies these inefficiencies and inhibits the development of privatemarket for distressed securities. Cross-country evidence is consistent with this and indicatesthat improved creditor rights, and information facilitating credit bureaus interact in reducingthe likelihood of inefficient distress resolution.