Advanced Search
MyIDEAS: Login to save this paper or follow this series

Transparency, Empowerment, Disempowerment and Trust in an Investment Environment

Contents:

Author Info

  • Kiridaran Kanagaretnam
  • Stuart Mestelman
  • S. M. Khalid Nainar
  • Mohamed Shehata

Abstract

In a laboratory-controlled environment we provide experimental evidence on the effects of transparency (complete over incomplete information) and empowerment on trust (investment by a principal) and trustworthiness (reciprocal behavior of an agent). We implement a simple two-person investment game. We find that when principals are empowered by being able to punish agents who may not act in a way the principal believes is in the principal’s best interest, trust and investment increases over that which is realized in the absence of empowerment regardless of the degree of transparency. In transparent environments the effect of empowerment is about the same regardless of whether empowerment is introduced or removed. However, in opaque environments, the loss of empowerment has a substantially greater negative effect on trust than the positive effect associated with the introduction of empowerment. While this environment is substantially abstracted from the naturally occurring environment, these results suggest that practical public policies designed to increase transparency in financial transactions are likely to have positive effects on investment. Furthermore, public policies designed to empower principals, such as the Say-on-Pay practices, are likely to increase investment while the limitation of the empowerment of principals with respect to their agents (consistent with deregulation) will have a much more dramatic negative impact on trust (and ultimately, investment).

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://socserv.mcmaster.ca/econ/rsrch/papers/archive/2013-09.pdf
Download Restriction: no

Bibliographic Info

Paper provided by McMaster University in its series Department of Economics Working Papers with number 2013-09.

as in new window
Length: 35 pages
Date of creation: Jun 2013
Date of revision: Oct 2013
Handle: RePEc:mcm:deptwp:2013-09

Contact details of provider:
Postal: 1280 Main Street West, Hamilton, Ontario, L8S 4M4
Phone: (905) 525-9140 ext. 22765
Fax: (905) 521-8232
Email:
Web page: http://www.economics.mcmaster.ca/
More information through EDIRC

Related research

Keywords: Investment; Empowerment; Disempowerment; Veto; Trust; Reciprocity; Say-on-Pay;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Denis, Diane K., 2012. "Mandatory clawback provisions, information disclosure, and the regulation of securities markets," Journal of Accounting and Economics, Elsevier, Elsevier, vol. 54(2), pages 197-200.
  2. G. Coricelli & L.G. Morales & A. Mahlstedt, . "The investment game with asymmetric information," Papers on Strategic Interaction, Max Planck Institute of Economics, Strategic Interaction Group 2003-29, Max Planck Institute of Economics, Strategic Interaction Group.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:mcm:deptwp:2013-09. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.