This paper explores the widespread perception of insurers as bad payers, often accused of unjustly rejecting legitimate claims. We explore the mechanisms leading to this negative image by examining the strategic “nitpicking” behaviour of insurers. Such behaviour involves an insurer’s effort to find evidence that can help it cut the indemnities of honest claims. Our findings reveal that this nitpicking behaviour only arises in markets with asymmetric information, where policyholders are unable to observe insurers’ nitpicking strategies. Conversely, in markets with symmetric information, insurers lose the incentive to engage in nitpicking. Moreover, our study highlights that nitpicky behaviour leads to a reduction in welfare and Pareto-inefficiency. This is because nitpicking is essentially an overpriced gam- ble that charges lower premiums from policyholders at a no-loss state, but cuts actual indemnities received by policyholders at a loss state.

We develop a signaling game model of investment to explore the effects of ambiguity aversion on corporate equilibrium strategies, investment dynamics, and financing decisions in incomplete markets with asymmetric information. Our analysis shows that volatility ambiguity aversion has a similar but more pronounced effect than asymmetric information, leading to higher financing costs, lower investment probabilities, and a greater likelihood of non-participation in investment. Importantly, volatility ambiguity aversion exhibits an amplifier effect, magnifying financing costs, adverse selection costs, and distortion in investment choices under asymmetric information. This increased ambiguity aversion raises the chances of inefficient separating and pooling equilibria, resulting in notable welfare losses. These findings highlight the significant impact of ambiguity aversion on strategic decision-making and equilibrium outcomes in investment, particularly in settings marked by information asymmetry and incomplete markets.

We investigate the impact of government environmental credit ratings on bond credit spreads based on a sample of Chinese A-share listed companies from 2014 to 2022. Empirical results demonstrate that a favourable environmental credit rating significantly reduces bond credit spreads, highlighting the incentivising effect of environmental credit ratings. Mechanism testing reveals that a good environmental credit rating diminishes information asymmetry and enhances an enterprise’s resource acquisition capabilities, reducing bond credit spreads. Furthermore, subgroup analyses suggest the reduction effect is more pronounced in enterprises with low debt and tax credit ratings.

We investigate the impact of government environmental credit ratings on bond credit spreads based on a sample of Chinese A-share listed companies from 2014 to 2022. Empirical results demonstrate that a favourable environmental credit rating significantly reduces bond credit spreads, highlighting the incentivising effect of environmental credit ratings. Mechanism testing reveals that a good environmental credit rating diminishes information asymmetry and enhances an enterprise’s resource acquisition capabilities, reducing bond credit spreads. Furthermore, subgroup analyses suggest the reduction effect is more pronounced in enterprises with low debt and tax credit ratings.

Recent evidence shows an increase in sovereign debt from China to emerging and low-income developing countries. Chinese lending contracts have stringent confidentiality clauses that restrict the borrowers from reporting these contracts. The use of these type of clauses hide the true fiscal and financial conditions of a country. This paper analyzes the debt sustainability and welfare implications of such clauses in the context of a sovereign default model with asymmetric information. I find welfare loses associated with reporting these contracts for countries that have debt with China, and small welfare gains for countries that do not have these commitments. This implies that additional incentives are necessary to encourage countries to embrace transparency initiatives.

This paper explores the relationship between ESG rating disagreement and the stock price crash risk. Using 2011-2020 Chinese A-share listed companies in Shanghai and Shenzhen as research sample, the empirical test results show that ESG rating disagreement significantly increases the stock price crash risk. The mechanism tests find that ESG rating disagreement influences the stock price crash risk by undermining corporate information transparency and increasing the level of investor sentiment. The findings of this paper reveal the potential negative economic consequences of ESG rating disagreement and enrich the research on the influencing factors of stock price crash risk, which contribute to the prevention of possible financial risk and the sustainable development.

In this paper, using data for the period January 1995 to May 2009 for the Shanghai stock exchange (SHSE), we show that aggregate illiquidity is a priced risk factor. We develop the relationship between the illiquidity factor, asymmetric information, and market collapse. Our empirical results show that while the illiquidity factor is a source of asymmetric information on the SHSE, asymmetric information does not trigger a market collapse.

Using a sample of Chinese family firms from 2000 to 2007, we investigate whether the political connection of the family firms will help them to reduce the frictions they face in external financing in a relationship-based economy. We find that political connectedness of family firms could reduce their investment-cash flow sensitivity. More interestingly, this political connectedness effect exists only in financially constrained family firms. However, from governance dimension, we cannot find any significant variation of the political connection effect on the sensitivity of investment to cash flow. We argue that these evidences are consistent with the firm’s underinvestment arising from the asymmetric information problems, and are inconsistent with the firm’s overinvestment arising from the free-cash-flow problems.

Using a sample of Chinese family firms from 2000 to 2007, we investigate whether the political connection of the family firms will help them to reduce the frictions they face in external financing in a relationship-based economy. We find that political connectedness of family firms could reduce their investment-cash flow sensitivity. More interestingly, this political connectedness effect exists only in financially constrained family firms. However, from governance dimension, we cannot find any significant variation of the political connection effect on the sensitivity of investment to cash flow. We argue that these evidences are consistent with the firm’s underinvestment arising from the asymmetric information problems, and are inconsistent with the firm’s overinvestment arising from the free-cash-flow problems.

In this paper, we test the relationship between information asymmetry and acquisition premium in the mergers and acquisitions of the emerging market firms. Based on a sample of the domestic and cross-border acquisitions in twenty emerging countries between 1990 and 2007, we found a strong positive relationship between the acquisition premium paid to the target firms and the level of information asymmetry of the target firms. In addition, we found that higher level of information asymmetry leads to less cash payment and higher propensity of acquiring majority control (>50%) in the target firms. This evidence supports the theory that acquiring majority control is important in high asymmetric information environment. Thus, the higher the information asymmetry the higher is the premium paid by bidding firms in order to obtain majority control in the target firms. In addition, target firms with high information asymmetry have more valuable private information resources that are not accessible to the public investors. Acquiring firms may pay higher premium for such valuable information resources. The hypothesis is supported by the evidence of both the domestic and the cross-border acquisitions in the emerging markets.