Michael Ebert, Professor of Accounting at Paderborn University, is principal investigator of the TRR 266 project A06 „Context-Based Disclosure Incentives“. Together with Dirk Simons he investigates how context-dependent incentives affect firms’ disclosure behavior and how the resulting disclosure impacts transparency and subsequent stakeholder decisions.
Research: no absolute truths
I still remember my economics and accounting lectures in university well. I had excellent lecturers who were crucial for my decision to pursue a career in research. The thing I found most intriguing was that science does not deal in absolute truths. Rather, it is about accepting that we don’t know how the world works and then formulating, testing and, more often than not, rejecting hypotheses aimed at getting us closer to an understanding of the true nature of the world. This is a central tenet of critical rationalism, advanced by Karl Popper. It is an understanding of science that has strongly influenced me and is an important basis for my research today.
A model is nothing less than the attempt to establish a hypothesis as logically and well-structured as possible.
Model theory: fascination with abstraction
For me this understanding of science is particularly apparent, and transparent for recipients, in model theory. A model is nothing less than the attempt to establish a hypothesis as logically and well-structured as possible. It depends on the assumptions made, the methods chosen, and the underlying goals of knowledge, which are all up for discussion of course. In model-theoretical works, each individual assumption is directly visible to the recipients. One reason why I have focused on theoretical research: It requires a high level of abstraction and is all about describing first-order causal relationships, which can then be tackled by empiricists. It is a challenging process that I’m incredibly enjoying.
Together we can systematically work on a superior topic of great social relevance and from many different angles.
TRR 266: seeing research through different eyes
What I love about the TRR 266 is that I also have the chance to exchange ideas with empiricists or researchers from the field of taxation and develop joint research ideas. The TRR 266 brings researchers together who may have never met otherwise because, for example, meeting opportunities are rare. Theorists and empiricists often do not attend the same events, nor do tax and accounting researchers. The TRR 266 gets them together. This way new ideas emerge – as does a deeper understanding of one’s own discipline. You see your own research through the eyes of other researchers – and much more directly than through journal articles or the like. Together we can systematically work on a superior topic of great social relevance and from many different angles. The corona pandemic shows how important this is. To estimate consequences and to decide on effective measures you need more than the epidemiological perspective. Educational researchers, sociologists and researchers from different fields must also be consulted to address the crisis holistically. Similarly, but on a smaller scale, is the transparency research in economics that we are doing in the TRR 266.
Transparency research helps us understand how we can bring trust or a level of certainty to fully anonymized transactions.
Transparency research: trust in anonymized transactions
One of the reasons transparency research is so important, is because it helps us understand how to deal with the increasing anonymization of transactions. This process began with the first wave of globalization in the 18th and 19th century. It continues to this day and its pace has increased. In the Middle Ages, people mainly traded with people they knew personally. Transactions were mostly literally a handshake deal – trust was an important basis. Today, we mostly trade with anonymous business partners on the other side of the world – such as Amazon or eBay. This anonymity brings a lot of uncertainty into transactions. We therefore need to find mechanisms to deal with this uncertainty. One mechanism, for example, is to create transparency through information in order to preclude negative experiences or outcomes. For large firms it is vital to know: who am I actually dealing with? And how can I protect my stakes in the transaction? Transparency research helps us understand how we can bring trust or a level of certainty to fully anonymized transactions.
We explore how firms can use information disclosure to ensure that stakeholders coordinate on a preferred equilibrium.
Optimal disclosure decisions for coordination problems
In our TRR 266 project A06, we want to model specific economic situations and derive optimal disclosure decisions from them. For example, we examine how firms or other organizations would need to design their disclosure rules if their main concern is a potential stakeholder miscoordination. The financial crisis from 2008 and onwards provides a neat example of such miscoordination. Then, even banks that were financially sound collapsed. The reason was that many individual lenders – without explicitly coordinating their actions – pulled their money out of the banks at the same time. In our research paper, “Information design in coordination games with risk dominant equilibrium selection”, we explore how firms can use information disclosure to ensure that stakeholders coordinate on a preferred equilibrium, i.e. one that leads to the desired outcome. How should firms prepare and disseminate the information they publish? And what information is relevant in the first place?
We are currently investigating how information disclosure about the NGO’s work and funding status influences expectations and consequently affects donor behavior.
A model for NGOs
We are currently building on this work; we model specific coordination problems in the context of NGOs as they compete for donations. People decide to donate when, for example, they believe they can make a difference. This, however, depends on the total number of donors. After all, the amount of money donated determines whether an NGO can implement its projects and thus make a difference at all. If the potential donors cannot coordinate the donations explicitly, they must base their decision on their own expectations regarding the NGO and the number of potential donors. We are currently investigating how information disclosure about the NGO’s work and funding status influences expectations and consequently affects donor behavior. Our goal is to describe an optimal information system for this particular coordination problem. We are currently in the process of establishing an empirical basis for our model. Among other things, we are collecting data that will help us understand what data NGOs are publishing. By the end of the year, we will probably have a sufficiently large amount of data from which we can derive important insights for our model. Of course, we very much hope that other researchers will test the finished model empirically in order to generate more insights into actual disclosure behavior by NGOs.