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Information and Communication Platform As a Complex Approach for Solving Information Asymmetry Problems Information and Communication Platform as a Complex Approach for Solving Information Asymmetry Problems Alla Ivashchenko1, Yuliia Sybirianska2 and Yevheniia Polischuk3 1Kyiv National Economic University named after Vadim Hetman, Corporate finance and controlling department, Kyiv, Ukraine 2Kyiv National Economic University named after Vadim Hetman, Finance department, Kyiv, Ukraine 3Kyiv National Economic University named after Vadim Hetman, Investment activity department, Kyiv, Ukraine ([email protected], [email protected], [email protected]) Abstract. This research is aimed to analyse existing information asym- metry problems between business market participants, to define different dependences caused by the lack of information in business and develop complex approach for solving information asymmetry problems. The au- thors identified information asymmetry characteristic features, its role and impact on business development. The article reveals the risks and consequences of using distorted data flows for different business pro- cesses within organizations. Effects of information asymmetry on busi- ness were proven through conducted research in order to analyze prob- lems of undertaking research activities of different educational institu- tions and underline features of doing business by SMEs. The authors de- veloped the Information and Communication platform model as a way for reduction the information asymmetry level offering a complex ap- proach for solving different types of information asymmetry problems. Keywords. Information asymmetry, information flows, information dis- semination, information asymmetry reduction, information and commu- nication platform. Key Terms. Data, ICTComponent, WebService, FormalMethod, BusinessProcess. 1 Introduction Risk and uncertainty are always considered as components of doing business at any market. Economic laws and models are mostly developed on the assumption that information should be equal, reliable and accessible for all market partici- pants. Herewith existing small informative inaccuracies have not to be paid attention. Besides, the lack of adequate information or its insufficiency among market participants might have a significant impact on the level of uncertainty in busi- ness environment and on the market efficiency on the whole. Shortage of information in Ukrainian entrepreneurial sector is aggravated by a range of factors as fragility of economy, exclusion of incomplete information service market and absence of collaboration and cooperation similarly between participants of market (including companies, government, financial institutions, investors, educational institutions and others) and between different types of markets. So, problems of information asymmetry removal between entrepreneurial sector, government, financial and educational institutions need to be solved to minimize the business risk level, to increase the level of funding for enterprises, small and medium sized in particular and to reduce the financial and infor- mation illiteracy among Ukrainian businessmen. 2 Related Work 2.1 Dialectical Essence of Information Asymmetry The founders of the asymmetric information theory were G.Akerlof [1], M. Spence [2] and J.Stiglitz [3], who received the Nobel Prize for the development of this theory in 2001. According to the theory a seller and a buyer have differ- ent knowledge about a product. B.Eichengreen argues that the asymmetric information environment could complicate the investor’s choice, because in the conditions of lack of reliable and accurate information it is difficult to determine when and how the asymmet- ric information can affect their business [4]. According to E. Blankespoor, G.Miller and H.White, a problem is com- pounded by the fact that when big companies are compared to small firms and private investors, the first ones have a greater ability to obtain the necessary information. In other words, market participants themselves are responsible for the asymmetric information dissemination [5]. A. Jobst underlines one more reason that exchanges among the various co- operating partners also include asymmetric information [6]. It leads to the risk of fraud or deception, especially if payment obligations and agreements differ from the results of rational expectations. The phenomenon of asymmetric information can be observed not only in the economic sphere. The policy of providing asymmetric information often uses technology of establishment a political myth as a specific symbolic environment [7]. To overcome this problem M. Spence believed that sellers have to give addi- tional information about the quality of their products [2]. Such information may be represented by logos, trademarks, guarantees of the company reputation, quality certificates, diplomas of various competitions and prestigious nomina- tions, recommendations, level of qualification and the frequency of dividend payments as a signal of firm prosperity. B. Black told that at the age of high technology the level of asymmetric in- formation is quite significant. Companies working in this sector in many cases have no long history and produce a very specific product whose quality is diffi- cult to assess by the laymen [8]. Venture capital firms, performing the detailed examination of the product and the firm, provide an indication to the market about its quality through investment activities. R. Pinydck and D. Rubinfeld in their works believed that a stock exchange is an effective way to deal with asymmetric information. According to their views this is the place where information is aligned, and system of market prices acts as a tool for balancing or a specified indicator [9]. P.Healy and K. Palepu considered auditing companies to be a means of combating asymmetric information [10]. Investors require the availability of independent auditor reports from companies, even if there is no specific demand from government regulators. The level of company solvency and its creditwor- thiness is raised through auditor participation in doing business for potential investors. Meanwhile, the research results demonstrate that in general auditors do not provide any new information about a company or its current state, but only confirm the existing information. So, as it can be seen, there are certain achievements and developments aimed at aligning information asymmetry. Our research methods are based on the theory of asymmetric information. Its tools are directed at improving the information flow facilitation through access to information about current finan- cial and credit instruments aimed at stimulating the innovation activities of en- terprises, particularly SMEs. 2.2 Theoretical Background of Information Asymmetry Asymmetric information, sometimes referred to as information failure, is pre- sent whenever one party to an economic transaction possesses greater knowledge of the material than the other party. Almost all economic transac- tions involve information asymmetries. [11] Financial markets exhibit asymmetric information by a financial transac- tion, one of the two parties involved will have more information than the other and the ability to make a more informed decision. Asymmetric information can lead to either moral hazard or adverse selection. Moral hazard occurs when a party will take a risk because that party will not feel the cost of the risk. Adverse selection is the undesired result when buyers and sellers have access to different information. Both moral hazard and adverse selection result in market failures. [12] The main characteristic features like types of information asymmetry, rea- sons for occurrence in business, possible consequences and ways for reduction are described in fig. 1. Reasons for occurrence in business sphere: Types: incompleteness of the information service market; 1. Deliberate asymmetry is created by counteragent uneven information distribution among businessmen; in order to generate additional income or to reduce financial losses. the information irrelevance; 2. Inadvertent asymmetry occurs in cases when the the failure to provide accurate (complete) information to market participants; purpose for collecting data differs from the purpose of difference at entity’s information capacities; usage these data. lack of financial resources for control and evaluation of the level of infor- mation unreliability. Reduce the level of effectiveness of enterprise activities INFORMATION ASYMMETRY among small and medium sized enterpris- es Reduce the level of effectiveness of economy at all Consequences for business: Principles, aimed at reduction of information asymmetry loss of competitive advantages; reduction of market segments; level: non-achievement of strategic objectives; escalation of business 1) information objectivity; threats; revenue shortfall; transaction costs increase; reducing 2) information accuracy; innovation activity motivation, cost increase to reduce the level 3) information completeness; of information asymmetry; increase in the probability of sub- 4) information reliability; optimal decision selection among alternative ones; option ex- 5) information relevance; pansion for partner’s opportunistic behavior; inefficient distri- 6) information usefulness; bution of resources. 7) value of information content. Fig. 1. Concept of information asymmetry identification role for business development (created by authors on the basis of [13, 14]) 3 Information Asymmetry: Risks and Consequences Aims of different groups of participants
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