An Inquiry Into Corporate Investment Through Fiduciary Agent Under Asymmetric Information

Traditional economic and financial theories are based on the perfect market hypothesis. But in fact, the asymmetry of information is common in real economic life. The economic activities under the asymmetric information have more uncertainties. When Corporations exchange their financial resources with other legal entities, they often find themselves exposed to the danger of asymmetric information. Therefore they often use Game Theory to combat the risks. Investment through Fiduciary Agent (ITFA) is an important field of corporate finance. This practice is also carried out under the background of asymmetric information. The relationship between corporations-fiduciary financial firm and business owner-business manager is a typical principal-agent relationship. Each party's gaming practices under the background of asymmetric information have deep impact on the results of ITFA. As we know ITFA is a popular practice for businesses today, especially the companies that are listed in stock exchanges, the successes and the chaos it ensue are also widely known. The ITFA binds businesses, financial firms, stock markets and shareholders together, the risks in each of these chains are apt to transfer to all of the associated parties and therefore it could influence national economy profoundly. So to tap into the nature of this practice, to analyze its risks and to find appropriate measures to control these risks are very important for businesses to guarantee the safety, theprofit margin and the turnover for their funds, they are also beneficial for the development of the national financial and stock markets.We believe the risks of ITFA primarily come from two sources, one is the fiduciary financial firm and the other is the business manager. No matter where it actually comes from, there are always two types of influence of asymmetric information, the first one is "adverse selection" and the second one is "moral hazard". The financial risks they bring can be generalized as: cost risks, legal risks, credit risks, behavior risks, operation risks, revenue risks, and etc. Both the "adverse selection" and "moral hazard" affect the economy through the direct influence of the actual operations of ITFA.So in order to prevent or to reduce as much as possible the financial risks caused by asymmetric information, we hereby present some concrete measures after analyzing the theories of how to limit asymmetric information. These measures include further perfection of legal framework; building and ameliorating credit system; clarifying business ownership; optimizing corporate management as businesses are treated as legal entities; dealing asymmetric phenomena with asymmetric measures; setting optimized motivation and control scheme based on business reality and to try every efforts to make contracts to guarantee the interests of principal.