Asymmetric Information Essay Example | Topics and Well Written Essays - 500 words

Asymmetric Information - Essay ExampleThe various forms of asymmetric info include adverse selection, cost monitoring and virtuous hazard. (Bebczuk, 2003).The financial market is mostly affected by any of these forms which in turn lead to problematic financial transactions.Asymmetric information leads to various problems come out of the closet of which the opportunistic behavior is the most risky situation. Opportunistic behavior is a situation in which executives and managers of a company tend to differentiate the information. The original information is conveyed in two different ways to the people working in the organization and to the outsiders. (Karuratna, 2000).This is done to improve their contacts and financial transactions through which they can maximise their utilization of funds. This in turn affects the investors as they are not provided with proper information. Since the information is misinterpreted by the managers it leads to the predicament called as the opportunis tic behavior. (Sharpe, 1990).The managers make use of this opportunity and their reported earnings get gradually increased. The opportunistic behavior shows desire of the managers and their urge to move on with the financial transactions. Managerial discretion may adjoin up to the already sustaining problems there by resulting in evil to the people involved in the contract. In addition to that, it eventually increases discretion among the managers which likewise leads to loss in the amount of shares. (Sun, 2008).The shareholders tend to invest more money in a particular company and managers take advantage of this situation.In a free-enterprise(a) financial market, opportunistic behavior poses greater risk to exporters as well as the party involved in transaction. The terms of contract are also not specified properly in the financial document. There are also two types of opportunistic behavior prevalent in financial markets. self-interest