Information Asymmetry Among Investors and Strategic Bidding in Peer-to-Peer Lending

Peer-to-peer (P2P) lending became a global phenomenon in recent years. Despite their prominence in the “FinTech” era, P2P platforms remain a risky investment because of the high default rate of unsecured personal loans funded on such platforms. In contrast, the rate of return can be much higher than that of other investments if P2P loans are repaid. Therefore, investors of P2P loans need information about borrowers’ ability to repay. An important channel is to learn from other investors who may have information advantages. We argue that, because collective effort from investors is required in P2P lending, it could be optimal for informed investors to bid early in projects with the purpose of signaling the quality. With a unique data set from Prosper.com, we find that informed investors are indeed more likely to bid in the early stage of a project with a low probability of being funded, whereas uninformed investors will follow. The “squatting” behavior (early bidding) of informed investors facilitates information spillover to uninformed investors, benefitting the investors and borrowers who otherwise may not raise sufficient funding. Our findings also have implications for P2P lending platforms on how to manage the information asymmetry and strategic behaviors of investors.

Consistency as a Means to Comparability: Theory and Evidence

This paper studies financial statement consistency — the purported means to comparability — from an information perspective. We model consistency as firms’ required propensity to apply common accounting methods to individual transactions and show that consistency creates information spillover through correlated measurements (“spillover channel”) while potentially reducing the informativeness of one’s own report (“standalone channel”). The model generates two central predictions. First, optimal consistency decreases with a transaction’s fundamental correlation as high correlation diminishes information gains via the spillover channel. Second, optimal consistency decreases with a transaction’s fundamental volatility as high volatility exacerbates information losses via the standalone channel. Empirical evidence supports both predictions. Overall, this paper contributes a framework for studying comparability and draws useful policy implications. This paper was accepted by Brian Bushee, accounting.

International Real Estate Review

Ambrose et al. (2007) find significant evidence of information spillover effects between index real estate investment trusts (REITs) and nonindex REITs in the US markets using the inclusion of REITs into the S&P general market indices in an event study. This study, however, examines the effects of REIT index inclusion events by using non-index real estate operating company (REOC) returns in the US and Singapore. The study finds that REOC returns are more correlated with the general market index returns after REIT index inclusion events, but the spillover effects are smaller for REOCs in Singapore. The spillover effects of the REIT inclusion events are larger on non-index REITs than non-index REOCs in the US. When examining REIT inclusion events in Singapore, we find evidence of increases in betas only in the REIT market, but the changes in REOC betas are insignificant. However, we find that the REIT index inclusions significantly reduce the systematic risks of REOCs that sponsor the index REITs.

Information Spillover Effects of Real Estate Markets: Evidence from Ten Metropolitan Cities in China

With the rapid development of information communication technology and the Internet, information spillover between cities in real estate markets is becoming more frequent. The influence of information spillover in real estate markets is becoming more and more prominent. However, the current research of information spillover between cities is still relatively insufficient. In view of this research gap, this paper builds a research framework on the information conduction effect in the real estate markets of 10 Chinese cities by using Baidu search data, text mining and principal component analysis and analyzes the information interaction and dynamic influence of the real estate markets in each city by using the vector autoregressive model empirically. The results show that the information interaction among the real estate markets in each city has a network pattern and there is a significant two-way information spillover effect in most cities. When the “information distance” becomes closer, the information interaction between the markets of the cities becomes closer and it is easier for cities to influence each other. The results help to explain the information spillover mechanism behind the house price spillover and to improve the ability to predict and analyze the information spillover process in real estate markets.

Information Spillover in Indian Agricultural Commodities Market

Role of agricultural sector in Indian economy is prominent, as being an agrarian economy and having the second highest population in the world. Thus, the efficiency of this sector is the foremost factor for development and growth of the economy. This article attempts to examine the price discovery relationship of future and spot prices of five agricultural commodities, namely cardamom, crude palm oil, cotton, mentha oil and kapas, during the period 2011–2019. Johansen’s co-integration test, vector error correction model (VECM) and Granger causality block exogeneity test were employed for the study. We found that price discovery process is established for agricultural commodities under consideration. Future prices act as a leader in achieving long-run equilibrium for all commodities except cardamom. Causality was significantly reported for all commodities, as bidirectional causality runs between the prices. The study suggests that Forward Market Commission should be empowered more to control and regulate the market, which will ensure the efficient market situations in these commodities’ market. Attempt was made to evaluate price discovery process in agricultural commodities market during post sub-prime crisis period, which was ignored by majority of researchers.

Organized Labor and Inventory Stockpiling

We document that managers stockpile excess inventory to mitigate the operational risk posed by labor unions and to maintain bargaining power in labor negotiations. Inventory levels are higher for union firms and are incrementally higher preceding the renegotiation of collective bargaining agreements with unions. Inventory stockpiling at union firms is more salient when capital market pressure for transparency or information spillover from peers constrains managers from using disclosure strategies. We further show that managers weigh the costs and benefits of inventory stockpiling, as holding excess inventory due to the presence of a union is negatively associated with future profitability but provides the benefits of avoiding a stockout and mitigating negative outcomes from a strike. Our findings highlight the importance of a major stakeholder, i.e., labor, in managers' investment decision-making.