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Whom to Educate? Financial Fraud and Investor Awareness
- Source :
- SSRN Electronic Journal.
- Publication Year :
- 2017
- Publisher :
- Elsevier BV, 2017.
-
Abstract
- We study a retail financial market with naive investors who are unaware of possible financial fraud. In our model, firms strategically choose whether to offer normal or fraudulent products to possibly unaware investors. Having new firms in the market makes offering normal products less profitable and thus discourages firms from behaving honestly. In a leader-follower environment, an honest firm may sell a normal product to sophisticated investors, while a dishonest firm targets only naive investors. By disclosing information about financial fraud, the honest firm can steal market share from the dishonest firm, but doing so may induce the dishonest firm to deviate and compete for the normal-product market, which limits the honest firm's incentive to disclose information. Policy instruments, such as increasing legal punishment, implementing public education programs, and lowering the interest rate ceiling, may also trigger the honest firm to strategically shroud information. As a consequence, these policies cannot ensure an improvement in investor welfare.
- Subjects :
- Finance
ComputingMilieux_THECOMPUTINGPROFESSION
Punishment
business.industry
media_common.quotation_subject
Financial market
Financial ratio
ComputingMilieux_LEGALASPECTSOFCOMPUTING
Interest rate
Product (business)
Incentive
ComputingMilieux_COMPUTERSANDSOCIETY
Market share
business
Welfare
media_common
Subjects
Details
- ISSN :
- 15565068
- Database :
- OpenAIRE
- Journal :
- SSRN Electronic Journal
- Accession number :
- edsair.doi...........b564602a888da17f57fa7802de5a58d9