El 21 de abril de 2015 la Fundación Ramón Areces acogió una conferencia del profesor John Holland, de la Universidad de Glasgow, quien analizó 'El mercado de la información y el papel de los intermediarios financieros'. Estuvo organizada en colaboración con la Cátedra UAM-Auditores Madrid de Información Financiera Corporativa.

1. Professor John B Holland, Adam Smith
Business School, University of Glasgow

2. Explaining the MFI – Summary
 Information and ‘information environment’ are central to economic processes
 in accounting and finance
 What is this? How explore? = Via an idea of the ‘Market for information’ = MFI

 The MFI is also a social and a knowledge phenomena =
 Who you know? Who has influence? What you know?  All effect information economic processes
 Significant information and economic problems in MFI arose post 1995,
 in part, from knowledge & social problems.
 ‘Dot.com’, Enron, Great financial crisis
 The problems and changes were key means to understand interactions between MFI structure, actions
and outcomes - as the problems rendered visible the previously invisible.

3. Aims of paper
Aim to explain ‘Market for Information’ = MFI - structure, function, change
 Through empirical insights and models from 25 years research
 = means to ‘map’ MFI
 Through problems – show dynamics
 & Through theoretical frame
 Above analysis used to develop policy prescriptions
 to deal with problems, crises & change in MFI
 and reveals opportunities for further theoretical development in MFI

4. 1. ‘Market for information’
Empirical insights
from 25 years of
field research & literature
and problems

5. Civil Society
‘Market for information’ - simple form = a ‘flat’ 2D empirical map
‘Finance and Investment society’
& the ‘Market for information’
Company
Top
Managers
Information
Intermediaries
Analysts,
Financial media
etc
Investors
Fund
Managers
Collective
impact
MFI states
Stock Market
states
Social &
Economic
Networks
connecting
Agents =3D

6. What is the ‘market for information’?
Empirical research over 25 years reveal
The ‘market for information’ is a private, hidden
but substantial mechanism in world of finance
=social and economic networks
connecting MFI agents such as
Top management of real firms & their markets
to analysts & fund managers (FMs) in investing
financial institutions
and to financial markets and their prices.

7. What is the ‘market for information’?
 Market for information = key source of information for MFI agents
 = Company management, fund managers &analysts & their decisions.
 Connected information tasks = Corporate disclosure, +analyst
information intermediation activities + FM investment decisions
 All three sources above have an impact on
 MFI states & individual MFI agent states such as
 Information set, knowledge, confidence, dominant narrative
 and via their decisions on
 Security market states such as prices, volatility and liquidity
 as well as on the information set reflected in weak form,
 and semi strong form market efficiency
 & the information gap between strong and semi strong form.

8.  Field studies on corporate disclosure in the market for information.
 Gibbins et al (1990) -Holland (1998a) -Holland (1998b-
 Holland (2005) , Holland (2009). Mayorga, (2013), Chen, Danbolt, and Holland (2014)
 Field studies on fund manager research and role in the market for information.
 Holland and Doran (1998), Holland (2006), Roberts et al (2006)
 Barker et al (2012) , Holland (et al 2012) ,Coleman (2014) Holland (2014)
 Field studies on sell side analyst research and disclosure in the market for information
 Barker 1998), Marston (2008), Holland et al (2014) -
 Haig et al (2014), Maise (2014)
 The field studies share many common features = same MFI research setting,
 = investigating how specialist MFI actors produce, use and exchange information
 =similar data types and qualitative research methods
 Thus provides the basis for comparison and integration into a model of the MFI
Field studies on corporate disclosure in the market for information.
Gibbins et al (1990) -Holland (1998a) -Holland (1998b-
Holland (2005) , Holland (2009). Mayorga, (2013), Chen, Danbolt, and Holland (2014)
Field studies on fund manager research and role in the market for information.
Holland and Doran (1998), Holland (2006), Roberts et al (2006)
Barker et al (2012) , Holland (et al 2012) ,Coleman (2014) Holland (2014)
Field studies on sell side analyst research and disclosure in the market for information
Barker (1998), Marston (2008), Holland et al (2014) -
Haig et al (2014), Maise (2014)
Field studies and literature reviews on the broader idea market for information
Barker (1998), Healy & Palepu (2001), Healy & Palepu (2003), Holland and Johanson (2003)

9. Table 1 – Empirical constructs for the MFI derived from the field studies – same research methods
 Special aims, purpose and function of information market firms (IMFs)
 and their special business models -‘Real’ companies – FMs -Analysts – others

 MFI Structure =formal and informal – IMF hierarchy & MFI networks/relations

 Actors – Company top management, FMs, analyst, financial media etc = IMFs

 MFI Domains or contexts = Economic, Knowledge/Learning, Social

 Time – short term – ongoing processes – Longer term processes- in MFI

 Purposeful MFI processes/interactions = Economic, Information, Knowledge/Learning, Social
 - see next slide
 Actors or agents
 Specialist information market firm
 MFI Structure = formal and informal - networks/relations = between teams and individuals
 These are private social networks – the wider investing public are outsiders
 MFI Domains or contexts = Economic, Knowledge & Learning, Social
 Time – short term – ongoing processes – Longer term processes- in MFI
 Purposeful MFI processes/interactions = Economic, Information, Knowledge/Learning, Social

10. Empirical narrative and problems in the MFI
 Special aims, purpose and function of information market firms (IMFs)
 and their special business models -‘Real’ companies – FMs -Analysts – others

 MFI Structure =formal and informal – IMF hierarchy & MFI networks/relations

 Actors – Company top management, FMs, analyst, financial media etc = IMFs

 MFI Domains or contexts = Economic, Knowledge/Learning, Social

 Time – short term – ongoing processes – Longer term processes- in MFI

 Purposeful MFI processes/interactions = Economic, Information, Knowledge/Learning, Social
 - see next slide
 Empirical narrative further developed from major MFI problems since the mid 1990s
 1997-2000 ‘Dot.com’ period (Holland 2002, 2003; Holland and Johanson (2003),
 the 1999-2002 Enron case (Healy et al 2003),
 and 2007—2008 Great financial crisis (Holland 2010).
 The same class of problems arose across these market events – change, booms, incentives
 Show connected and systematic nature of problems of specialist firms operating in the MFI
 The problems were key empirical means to understand interactions
 between MFI social structure, knowledge, actions (economic and social) and outcomes
 as the problems rendered visible the previously invisible.

11. 2. ‘Market for information’
Theoretical interpretation

12. Conceptual framework based on established and new literature approach
Empirical insights show MFI has social, knowledge, economic
aspects which correspond to
many facets of Stones (2005) ‘Strong structuration theory’
Hence use Stones (2005) 4 part frame – Strong Structuration Theory
1.External structure = market, relations , and firms in networks = ‘society’
2. Internal structure = knowledge of world & behaviour
3. Actions , behaviours and decisions by MFI firms & their agents in the MFI
4. Outcomes in MFI firms & agents, MFI, stock market
 - immediate, longer term

13. 1. EXTERNAL STRUCTURES
Conditions of action i.e. the structural context
in which action is contemplated and takes place
2. INTERNAL STRUCTURES (what agents know)
2a. General - taken for granted - knowledge (‘habitus’)
2b. Specific knowledge of the here-and-now –
3. ACTION
What people do in particular local situations
4. OUTCOMES
Intended and unintended impact on external
and internal structures,
which may be reproduced or changed
rong structuration theory: the quadripartite nature of structuration (Stones 2005)

14. External structure
= social structure
and power externally
= who you know
=who has influence

15. MFI EXTERNAL STRUCTURE - social structure
 Stones (2005) theory focuses attention on
 Social networks in the MFI – private and public
 Both - Elite and operational - as ‘position practices’
 Issues of power in the MFI – relative, dominant
 Elite >> Operational >> Investing public
 ‘Intellectual climate’ or shared knowledge in the MFI
 and provides ideas to explore problems with social structure in MFI

16. MFI EXTERNAL STRUCTURE - social structures
 Three major MFI ‘position practices’ exist in MFI social networks
Elite = Top Management, Boards of the largest MFI related firms,
Regulators, Finance academics etc
Operational = between ‘front office’ MFI agents – company managers,
analysts, FMs etc
Social connections and hierarchy in MFI (ranking, reputation, power),
and economic connections
 – link elite groups eg board members
Hierarchy in MFI firms link these top management & operational
networks.

17. ELITE - MFI Networks & position practices – exercise power over operational PP
- ‘who you know’ –agents act within social identities = agents reproduce identities via actions
Network of 3D Relations between
Chairmen, Chief Executives, of
Commercial firms, investment banks,
rating agencies, auditors, finance media
& other information firms in the field
of Finance and the MFI
Key member of elite
Network of 3D relations
Between regulators,
public servants & politicians
In the field of finance and MFI

18. Network of multiple 3D relations
between Finance directors, Analyst,
fund managers , financial media
in wider MFI context
= ‘communities of practice’
Finance director
of Company
Operational – MFI Networks & position practices
‘who you know’ – agents act within social identities - agents reproduce identities via actions
Hierarchy Network of
relations in Parent Firm
Eg amongst top
management Team ,
board , middle management,
and front office teams

19. Network of multiple 3D relations
between Finance directors, Analyst,
fund managers , financial media
in wider MFI context
= ‘communities of practice’
Sell side analyst
Operational – MFI Networks & position practices
- ‘who you know’ –agents act within social identities - agents reproduce identities via actions
Hierarchy Network
of relations
In Parent Investment Bank
Eg amongst other research
Teams and managers

20. MFI EXTERNAL STRUCTURE - social structures
Above provides multi dimension network view of MFI
- better than flat 2D empirical map
Power exists at elite - influence knowledge, actions at operational level
=private social networks – wider investing public are outsiders
MFI is like sex
= ‘occupies strange boundary between public and private’
( Spiegelhalter D, 2015, introduction)

21. EXTERNAL STRUCTURE - MFI hierarchy
 There was a hierarchy of power and social structure in MFI
 Social elites had more resources than operational agents
 and both had more resources than the wider investing public
 Elite agents used power, hierarchy, knowledge resources to construct
 external social structures & knowledge for operational MFI agents -accept what elite said
 Eg Investment bank management & analysts 2000; Rating agency management & rating
analysts 2006; Regulators (Greenspan?), financial firms and various booms
 Both elite and operational MFI agents did same thing to the wider investing public
 Investing public = as outsiders of private MFI networks –had to accept these conditions -
and faced many problems as a result

22. MFI EXTERNAL STRUCTURE – power?
 Power = key ingredient in external MFI structures
 Bordieu (1990)  power in agents & parent firms in MFI arises from factors
 =knowledge, information, financial capital, + specialist information related skills.
 + hierarchy position + firm and agent reputation and relationships in MFI.
 Power determine relative bargaining power of agents over
 the supply of, and exchange of information, and their ability to impose sanctions
 Elite versus Operational agents
 Power determines established knowledge
 Top management of companies, of fund managers, of investment banks do this?
 Operational =Company disclosure power vs analyst power vs fund manager power?

23. Power in MFI operational networks – Local –
 Power is exercised in a different manner in ‘local’ or operational sub-networks.
 Company top management have ‘information supply’ power over buy and sell side analysts.
 and have advertising expenditure power, & Banks TM have financing power over financial media
 FMs + buy side analysts have economic power (fees, trading commissions) over sell side analysts
 FMs have ‘governance’ and ‘ownership’ power over companies when demanding information.
 Sell side analysts have ‘technical’ power arising from their specialised knowledge of companies .
 Sell side analysts have ‘parent’ power arising from the prestige of their parent investment bank.
 Such relative distributions of operational power in the MFI structure effects
 the capabilities and actions of individual agents such as sell side analysts.

24. Power in MFI operational networks – Local –
 Distribution of power in MFI structure affected by size and concentration issues
 Not a problem if high visibility/transparency and effective accountability systems exist
 Concentration power is not normally a problem in finance – wholesale – caveat emptor
 Elite not a problem – if serve wider public purpose – and accountable
 Problem – if small elite in very large companies– control ideas – manipulate ideas for
own benefit – large vs small / weak
 Concentration can combine with problems created by elite control over ‘acceptable’
(established) knowledge used in ‘local’ networks
 eg Bank sell side analysts and FMs problems with bank models & information from bank
top management in 2007-08

25. MFI External structure - do concentrations exist ?
 The high concentration of power, size, resources in the financial system and MFI
 (see the Economist, August 18th
2012, and FT Jan 15th
2015)
 By Five largest Universal banks, three (was 5) largest Investment banks
 which contain analysts research functions, fund management functions
 And transact in many securities which rely on market for information
 Concentration - Large size, powerful MFI related firms – high power, control knowledge,
 and information, pricing power, high profit margins and
 –intensify negative behaviour in elite group – major winners in boom periods Crotty (2008)
 + Concentration large auditing firms, rating agencies, large asset management firms (Haldane, 2014)
 + Concentration power in large financial media firms–newspapers, journals, information suppliers
 All may operate in same world financial centres – close social & economic contact between elite

26. MFI External structure - problems in social structure
 Social and economic problems have included
= Privileged MFI firm/agent access & exchange of information
+Conflicts of interest (COI) in MFI social networks of relations, in
MFI firm & agent
& large scale manipulation / distortion of information in
MFI? & in stock prices?
Dot. Com boom 1997-2000? Enron 2001? & AA breakup 2002?
Banking and financial crisis 2007-09? Future?

27. MFI External structure - problems in social structure
Large/strong/elite benefit from – Smaller, weaker have
major losses from
We have to address social network and power issues in MFI
2015 debate about ‘break-up’ or ring fence largest banks?
For financial risk reason ?
What about information reason ?
Break up concentrated social structures?MFI a fair playing field?
Difficult? due to lobbying power -and political party financing
power - of financial capital

28. Internal structure – knowledge
=what you know

29. MFI Internal structure - Knowledge
 Stones (2005) theory focuses attention on
 General knowledge = Taken for granted knowledge in MFI -
 & Specific knowledge in MFI made up
 Academic knowledge – eg finance theory
 Expert knowledge
 and to explore problems with knowledge in the MFI

30. Internal structure – Knowledge? = general
 =General knowledge (general dispositional) (Stones, 2005) about MFI world
 =relatively unquestioned (and subconscious) ideas about
 financial capitalism, of money, wealth, elites and power in the world economy.
 = broad understanding of - shared assumptions about - the roles of:
 financial market exchange mechanisms; financial institutions;
 key financial information technologies such as the internet, data bases, and accounting
 broad categories of customer or client needs; financial services &products, financial centres;
 and their central roles in the narrative of finance capitalism- how finance ‘worked’.
 +Patterns of (public & private) behaviour and habits of speech expected - in real & virtual
locations
 Above = related to Bordieu’s idea of ‘habitus’
 Above = shared background knowledge which affect many MFI agent/team actions in MFI

31. Internal structure – Knowledge? = specific, expert
 =Specific knowledge about decisions and situations (Stones, 2005)
 Key knowledge for MFI agents involved expert knowledge of
 How company business models functioned in competitive markets
 =knowledge of company valuation models & security market pricing mechanisms
 =of analysts, fund managers and market processes
 =collective stories, shared knowledge about above, tacit/explicit, in teams & parent firms.
 = understanding of own business model
 =understanding of how other external MFI agents understood the world, what their
expectations of behaviour were, what sanctions existed
 Knowledge = competitive advantage & value source for MFI agents and their parent firms.

32. Internal structure – Knowledge? = specific, academic
 =Specific knowledge also = Established finance theory
 consistent with implicit assumptions of general knowledge above .
 operational agents acquire in formal education (university)
 reinforced by top management & firm culture.
 Used more as a broad philosophical support to explain
 financial markets, financial firms, the MFI and its information agents.
 It created agents predispositions or priors toward their MFI world.
 and shaped intellectual climate for finance practitioners, academics and politicians
 before the great financial crisis (GFC) of 2007-08 (Holland, 2010; King, 2014).

33. Internal structure – Knowledge?
 =Specific – expert - knowledge
 = competitive advantage & value source for MFI agents and their parent firms.
 General & specific knowledge functioned together
 as ‘knowledge for action’ & were not separable
 = influenced by shared ‘intellectual climate’ of the times

34. Knowledge problems in MFI?
Concentration large
firms
Power of Elite
Delayed learning
and development of
Expert knowledge
General Knowledge
Finance theory
+
Via MFI hierarchy
Via firm hierarchy

35. Knowledge Problems in MFI - historic – pre crisis
 External structure problems =Concentration & Elite power in MFI (Holland, 2002).
 Distorted knowledge, created blindness /overconfidence in knowledge (finance theory, expert).
 Elevated finance theory to the level of an ideology when seeking to ‘explain’ how the MFI and
associated financial markets worked.
 Created problems with MFI agent and firm expert knowledge, especially with agents internalised
knowledge of their external world, and with adaptations of their organisational forms.
 + + Idiosyncratic nature of intangibles in firms Catasus 2007 exacerbated above

36. Knowledge Problems in MFI - historic – pre crisis
 These factors, allied with MFI firm aims for increasing growth and profit aims (2003-2007),
 created disincentives to learn, despite the rapid rate of change.
 =Same unsolved knowledge problems - ‘dot.com’1997-2000 (Holland, 2002). Enron (Healy
2003)
 The combination of slow learning relative to fast change, knowledge as ideology, of out-of-date
expert knowledge, and of inflexible information production functions, poor learning incentives
 created major knowledge exposures in financial system (Holland, 2010) before GFC of 2007-09.
 Social structure & knowledge problems = create systematic behavioral problems in MFI
 Upton Sinclair (1994) noted: "It is difficult to get a man to understand something when
his salary depends on his not understanding it."

37. Knowledge Problems in MFI -- crisis
 Crisis of 2007-09 show how misbehaviour by key economic actors in MFI
 =elite social behaviour = greed etc – in private insider groups
 Played central role in distorting exchange/use of knowledge /information in MFI (Holland, 2010)
 Negative knowledge and adverse social factors intensified ‘social blindness’?
 = ‘Convenient and blind’ performativity?
 ‘Knowledge exposure’ problems in the MFI (Holland, 2010)
 and destabilised economic processes in the MFI.
 Led to negative actions and outcomes in financial transactions in financial markets
 leading to failure in company (bank) disclosure, analysts research, FM decisions, auditors, rating
agencies – hence in MFI
 We have to address knowledge as well as information issues in MFI

38. 3. Problems and3. Problems and
Solutions ?Solutions ?

39. Crisis Knowledge/social Problems in analysts and MFI
ProblemsProblems with knowledge & social factors in the MFIwith knowledge & social factors in the MFI
Have led toHave led to  problems with action and outcomesproblems with action and outcomes
in economic processes in the MFIin economic processes in the MFI
Both Ongoing (‘dot.com’ & Enron) & during 2007-09Both Ongoing (‘dot.com’ & Enron) & during 2007-09 CrisisCrisis
+ Mutual and reciprocal+ Mutual and reciprocal changechange
in economic, social and knowledge dimensions of the MFIin economic, social and knowledge dimensions of the MFI
Have contributed to problems – crisis exposed all theseHave contributed to problems – crisis exposed all these

40. Crisis Knowledge/social Problems in analysts and MFI
 Need to address social and knowledge problems in MFINeed to address social and knowledge problems in MFI
 as part of the solutionas part of the solution
 Need to exercise some control overNeed to exercise some control over combinedcombined
 economic, social and knowledgeeconomic, social and knowledge Change processes in MFIChange processes in MFI
 as part of the solutionas part of the solution

41. Crisis Knowledge/social Problems in analysts and MFI
 Need to change the world of knowledge about the MFINeed to change the world of knowledge about the MFI
 1. Need new empirical models of MFI firms & agents – new field1. Need new empirical models of MFI firms & agents – new field
 researchresearch

 2. Need new theory narrative2. Need new theory narrative

 3. Need to break up power of finance academia3. Need to break up power of finance academia
 4. Need to change MFI & large firms – break up concentration of4. Need to change MFI & large firms – break up concentration of
powerpower
 Latter two power issues – if solve – can aid new research – & use ofLatter two power issues – if solve – can aid new research – & use of

42. 1. Knowledge solutions in MFI - new empirical models
 This paper argues that improved understanding requires in areas of,
 Expert knowledge of MFI actors in the form of
 Empirical models of companies, research analysts, fund managers, financial media,
auditors and other MFI actors is required
 =Company business models - in its use in MFI - see Chen et al (2014) , IIRC 2013
 = Information Intermediation models - for each specialist IMF
 + Models of links & connections between these models & players
 = thus model whole MFI
 = a basis for an enhanced empirical narrative
 Can enrich information set for capital markets and enhance accountability
 = ‘intelligent accountability’ conditions (O’Neill, 2002).

43. 2. Knowledge solutions in MFI –new theory narrative
 Need improvements in theoretical narrative about these models and roles in the
market for information. = main focus of this analysis
 Theory Narrative = about social and economic roles
 Via joint Stones and finance theory for ongoing MFI processes
 - via joint Stones (2005) & Merton(1998)? – for MFI evolution and major change
 A constant state of ‘critical readiness’ may also reduce risks in MFI and financial
system
 = more critical and sceptical stance based on above about
 concentration of power in MFI networks and elite control of and abuse of knowledge
and information in the MFI

44. 3. Policy actions in MFI – break up academic power
 We need a new ‘magna carta’ to break up the power of ‘big barons’ in theWe need a new ‘magna carta’ to break up the power of ‘big barons’ in the
 World of academic financeWorld of academic finance
 (Whitley, 1986. Hopwood, 2009, Gendron and Smith-Lacroix ,2013, Keen, 2014).
 Who? Top US & EU universities and top journals and their control overWho? Top US & EU universities and top journals and their control over
 The appropriate theory base for understanding finance phenomenaThe appropriate theory base for understanding finance phenomena
 As Gendron and Smith-Lacroix(2013) argue that,
 ‘the core of finance research has largely failed to invest in the promotion of paradigmatic diversity,
and continues to resist the idea. Yet, the stakes involved are significant, since finance's lack of
diversity in research paradigms arguably translates into a body of knowledge that presents
important limitations when trying to make sense of important phenomena, not least of which are
infrequent but highly significant events unfolding in the political economy’
 Need to create open windows in finance theory = ‘house without windows’ Keasey, Hudson 2007
 EU fund research on finance - that looks at social + knowledge + economic issues
 Breaks current paradigm

45. 4. Policy actions in MFI – break up banks, etc
 We need a new ‘magna carta’ to break up the power of ‘big barons’ in the MFIWe need a new ‘magna carta’ to break up the power of ‘big barons’ in the MFI
 Need to break up concentration of power in social networks controllingNeed to break up concentration of power in social networks controlling
 information and knowledge in the MFIinformation and knowledge in the MFI
 ie break upie break up largelarge banks, accounting firms, auditors, rating agency, financial media etcbanks, accounting firms, auditors, rating agency, financial media etc
 -- for information reasons -for information reasons - not just risk reasons - TBTF or systemicnot just risk reasons - TBTF or systemic
 ‘Break-up’ or ring fence? This may prove difficult due to the - lobbying power -and political party
financing power of ‘concentrated’ financial capital = links into politics
 Break up can be done Eg US break up UB in 1931, SEC and analysts 2001, FR changes post
Enron & AA break up 2002
 UK price sensitive information legislation in 1993-94 + US ‘fair disclosure’ act in 2000
 Most recent action – just get rid of one ‘token’ elite member? AA? Lehmans?
 But concentration still exist

46. 4. Conclusions4. Conclusions

47. Conclusions
Information in finance and accounting = central
Explore Market for information – find many problems
= connected economic, knowledge & social problems
Develop Empirical narrative & new theoretical narrative to reflect
this
Argue for major change in knowledge - empirical, research,
and in concentration of power (large vs small/weak)
Why? Wider public interest to control these areas
= key means to rebuild public confidence in finance capitalism