Moral hazard and information sharing: a model of financial information gathering agencies

Article Abstract:

A theory of information gathering agencies in an environment of informational asymmetries and moral hazard is proposed in which the formation of information gathering agencies, or groups of screening agents, is justified on two grounds in an environment in which true firm values are certified by screening agents whose payoffs depend on noisy 'ex post' monitors of information quality. First, screening agents are allowed to diversify their risky payoffs; and second, information sharing is allowed. The first of the two is insufficient in and of itself despite the risk aversion of screening agents and the stochastic independence of the monitors used as compensation for them.

Research, Financial services industry, Financial services, Information services, Financial institutions, Information services industry, Information management

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The mode of acquisition in takeovers: taxes and asymmetric information

Article Abstract:

We develop a model in which the mode of acquisition conveys information concerning the value of bidder. The model incorporates the possibility that offers containing both cash and stock can be made in a setting consistent with the U.S. tax code. We demonstrate that bidders with unfavorable private information about their equity value choose offers containing some stock to avoid the capital gains tax consequences of cash offers. We present evidence consistent with the model. (Reprinted by permission of the publisher.)

Acquisitions and mergers, Capital gains tax, Tender offers (Securities), Tender offers

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Information Effects on the Bid-Ask Spread

Article Abstract:

The determination of an optimal bid-ask spread by market makers is examined. The behavior of liquidity oriented traders and informed traders are compared. The model shows that the bid-ask spread increases with price volatility, higher price level and lower volume. The informed dealer is better off.

International trade, Securities

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