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Rondetafelbijeenkomst NILG

Explore the pervasive agency and information problems in financial markets, focusing on goal incongruence, opportunistic tendencies, and information asymmetry. Discover how incentives, monitoring systems, and bonding act as governance instruments to address these challenges.

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Rondetafelbijeenkomst NILG

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  1. Rondetafelbijeenkomst NILG Paper Financiele Markten Discussant: Oscar Couwenberg

  2. Two major points • Rife with agency problems • Ubiquitousness of information problems • Agency theory: • Goal incongruence between two players, opportunistic tendencies and information asymmetry leads to suboptimal decisions • Main governance instruments are incentives, monitoring systems and bonding

  3. Agency problems in financial sector • Client – broker/investment advisor • Employee – Boss • Client – Financial institution • Financial institution - Supervisor • Board – Shareholders • Supervisor – Public/Politics

  4. Information problems: Financial expertise advisor Insider institution supervisor client general public outsider Lack of that

  5. Toxic mix • Adverse incentives on all levels, in all firms and in all relationships • Supervisors may mitigate some of them, financial transparancy helps but does not solve it either • Consumer protection leads to moral hazard and adverse selection, i.e. yields wrong incentives on the side of the consumer • Contractual spill over: it is not one single contract that generates specific, generic and systemic problems, but the interplay of these contracts together

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