Proceedings of 28th International Business Research Conference
8 - 9 September 2014, Novotel Barcelona City Hotel, Barcelona, Spain, ISBN: 978-1-922069-60-3
Digital Provide: from Information Asymmetry to ICT Impacts on
Bond Market Development. Lithuania Case
Ieva Astrauskaitė
The capital and ICT markets complementation and a lack of market drivers
for the fluent corporate debt market development in Lithuania, stimulates a
research in relationship with ICT parameters. With the purpose to test the
role of ICT on the growth of the Lithuanian bond market, Gompertz
technology diffusion model is adjusted. The empirical results highlight that
it is not enough of supportive evidence that the hypotheses about growing
ICT measures insignificance on country’s bond market development could
be neither approved nor rejected.
Key words: bond market, ICT, information asymmetry, Gompertz model.
JEL Codes: G14 and G31.
1. Introduction
With the wide penetration of information and telecommunication technologies (ICT), the
world is coming back to the informational issues which were stated in early ages, although
different approaches are taken. In 1980s, the most researches were based on the
incompleteness of the information and its sequences, models were constructed.
Meanwhile, nowadays, information security is emphasized in the meaning of the large
amounts and quick spread across the world.
The importance of the relevant and correct information was indicated in studies of Merton
(1987) who states that the acquisition of information and its dissemination to other
economic units are central activities in all areas of finance, and especially so in capital
markets. In particular, asset pricing models typically assume both that the diffusion of
every type of publicly available information takes place instantaneously among all
investors and that investors act on the information as soon as it is received. Gilles (1992)
in his economic review “Technological choice, financial market and economic
development” agreed on the importance of capital market and information by stating that
capital markets as making possible the spreading of risk through financial diversification in
contact with information. Without such markets, agents can limit risk only by choosing less
specialized and less productive technologies (technological diversification). Although the
author substituted the technologies and capital markets, nowadays, the complementation
is being observed and measured. Different studies and parameters rely on the growth of
technological sectors, and there is no exception in capital market.
Lack of market drivers for the fluent corporate debt market development in Lithuania,
stimulates a research in relationship with ICT parameters. The purpose of this paper is to
test of the role of ICT on the growth of the Lithuanian bond market.
The paper contains of four sections. While the first section gives a short description of
the topic, the second section briefly summarizes the literature on information asymmetry,
technological growth and its relationship. Section No 3 represents the methodology, which
was adjusted and implemented according to the main purpose of the paper. Section No 4
contributes to empirical findings and their interpretation. Conclusions are made.

Ieva Astrauskaitė, PhD candidate, Department of Finance, Faculty of Economics, Vilnius University,
Lithuania, E-mail: ieva.astrauskaite@ef.vu.lt
Proceedings of 28th International Business Research Conference
8 - 9 September 2014, Novotel Barcelona City Hotel, Barcelona, Spain, ISBN: 978-1-922069-60-3
2. Literature Review
To begin with the first information asymmetry manisfestations arised from the perfect
capital market description which was introduced by Modigliani and Miller (1958). Authors
emphasized the perfect capital market theory: holding a value of a firm to be independent
of its capital structure (debt/equity ratio) is accepted as an implication of equilibrium in
perfect capital markets. However, Stiglitz (1969) had re-examined the Modigliani-Miller
theorem by arguments that the cost of capital for a firm was independent of the debt-equity
ratio. The theorem does not depend on the existence of risk classes, on the
competiveness of the capital market, or on the agreement of individuals about the
probability distribution of outcomes. Although, he agreed that M-M could be valid if there
were limitations on individual borrowing. Furthermore, Stiglizt and Weiss (1981) did
construct the equilibrium model with the credit rationing and a lot of borrowers and banks
and defined effects derived by imperfect information:
1) The adverse selection effect (sorting particular borrowers); different borrowers
have different probabilities of repaying loan.
2) The incentive effect (affecting the actions of borrowers); when interest rate
changes the behavior of the borrowers changes as well.
In favor with these findings, Merton (1987) expressed his strong belief on financial models
based on frictionless markets and complete information that are often inadequate to
capture the complexity of rationality in action. He introduced model of capital market
equilibrium with incomplete information and came to conclusion that less well-known
stocks of firms with smaller investor bases tend to have relatively larger expected returns
than in the comparable complete-information model. Financial markets dominated by
rational agents may nevertheless produce anomalous behavior relative to the perfectmarket model. Institutional complexities and information costs may cause considerable
variations in the time scales over which different types of anomalies are expected to be
eliminated in the market place. Whether or not the specific information inefficiency posited
can be sustained in the long run, the model may nevertheless provide some intermediate
insights into the behavior of security prices. However, Merton (1987) also agreed on the
perfect-market model being a useful abstraction for financial analysis in the long run.
Further examinations about information asymmetry continued on the uncertainty related to
allocation of resources problems were made by Arrow (1962) He stated information as a
commodity, explaining that an entrepreneur would automatically acquire knowledge of
demand and production conditions in his field which was available to others only with
special effort. Arrow believed in information that will frequently have an economic value, in
the sense that anyone possessing the information can make greater profits than would
otherwise be the case. This belief is proved in nowadays by Wilhelm (2001) who indicated
that the institutions develop to protect property rights over information goods. This occurs
at both the level of information-intensive financial products and services and at the level of
the intermediaries that use these products and services to promote exchange of strategic
information. Later on Healy and Palepu (2001) in their research on information asymmetry,
corporate disclosure, and the capital markets indicate that a critical challenge for any
economy is the optimal allocation of savings to investment opportunities. There are usually
many new entrepreneurs and existing companies that would like to attract household
savings, which are typically widely distributed, to fund their business ideas. Matching
savings to business investment opportunities is complicated for better information that
firms usually possess comparing to savers about the value of business investment
Proceedings of 28th International Business Research Conference
8 - 9 September 2014, Novotel Barcelona City Hotel, Barcelona, Spain, ISBN: 978-1-922069-60-3
opportunities and incentives to overstate their value. Savers, therefore, face an
“information problem” when they make investments in business ventures. Authors agreed
on increased the value of reliable information in capital markets. Eggleston et al (2002)
emphasizes the basic premise is that information and communication are valuable
commodities. It can enhance the functioning of markets critical for the well-being of the
poor. As producers and consumers communicate through prices, in the developed world,
markets perform well because the prices of goods are known or can be found with minimal
effort. However, in developing nations, especially in rural areas, such signals flow
sluggishly, if at all. As a result, farmers often produce the wrong mixture of crops, often
using inefficient technologies, and consumers do not receive goods even though they are
willing to pay the market price. The result is inefficiency.
Searching for solution on information asymmetry, Wilhelm (2001) described financial
markets as markets for information. As such, they are directly influenced by advances in
information dissemination, storage, and processing associated with the commercial
development of the Internet. On the other hand, given the long-standing centrality of
information in financial markets, the consequences of the Internet for financial markets can
be understood as evolutionary rather than revolutionary. The same is true in the securities
markets, where the scope of human judgment is being leveraged and sometimes
displaced by electronic order-processing systems, electronic limit order books, and
electronic auctions.
Nowadays the main distributor of information is information and communication
technologies. Further studies examined their importance on capital market, firms’ values,
and productivity. Berndt and Morrison (1995) find some evidence that industries with a
higher proportion of high-tech capital have higher measures of economic performance,
although within industries increasing total physical capital stock does not appear to
improve economic performance. Welfens (2005) found out that high productivity growth in
ICT production and productivity effects from the use of ICT have raised economic growth
in most OECD countries and several NICs. The share of ICT in output growth doubled
from about 5% in the US and Germany in the early 1990s to 10% by the end of the
century. Moving to the firm level Santos et al (1993) determined whether investments in
information technology (IT) have an impact on firm performance. With a sample of 97 IT
investments from firms in finance and manufacturing industries authors found no excess
returns for either the full sample or for any one of the industry subsamples. However,
cross-sectional analysis revealed that the market reacts differently to announcements of
innovative IT investments than to follow up, or non-innovative investments in IT. Innovative
IT investments increase firm value, while non-innovative investments do not. Furthermore,
the market's reaction to announcements of innovative and non-innovative IT investments is
independent of industry classification. These results indicate that, on average, IT
investments are zero net present value (NPV) investments; they are worth as much as
they cost. Innovative IT investments, however, increase the value of the firm. Moreover,
Bharadway et al (1999) studies Tobin's q, a financial market-based measure of firm
performance and examine the association between IT investments and firm q values, after
controlling for a variety of industry factors and firm-specific variables. The results based on
data from 1988–1993 indicate that, in all of the five years, the inclusion of the IT
expenditure variable in the model increased the variance explained in q significantly. The
results also showed that, for all five years, IT investments had a significantly positive
association with Tobin's q value. Results are consistent with the notion that IT contributes
to a firm's future performance potential, which a forward-looking measure such as the q is
better able to capture.
Proceedings of 28th International Business Research Conference
8 - 9 September 2014, Novotel Barcelona City Hotel, Barcelona, Spain, ISBN: 978-1-922069-60-3
Further economic and ICT relationship was introduced by Eggleston et al (2002) who
defined the theory of information and market signals and the available evidence on the
relationship between market integration and economic development that suggested that
greater access to ICTs, starting with basic communications infrastructure, could
significantly improve the living standards of the world’s rural poor by enhancing the
functioning of relevant markets.
Income
gains
Effective markets
Information for economic
decisions
Information technology
Fig. 1: “Digital provide.” Source: Eggleston et al (2002)
Digital provide boosts incomes and ultimately leads to economic growth. ICTs have the
ability to disseminate information to isolated, information-deprived locales. Those receiving
this information will be able to participate in effective markets. In consequence there
should be income gains for participants. Over the long term, enhanced access to
information should enable producers to significantly improve their practices. Such
improvement lays the path to economic growth.
All theoretical findings come to conclusion of information asymmetry solution by ICT, thus
providing economic growth, micro level productivity, the niche markets performance
increase. The number of empirical studies supplements the theory either by identifying the
particular ICT growth indicators or concluding statements on country cases. Double kind
research directions are marked: 1) ICT growth for capital market development; 2) capital
market development for ICT growth. For example, Yartey (2006) research data from 76
countries shows that the credit and capital markets development is determined by ICT
development. The conclusion is that countries with underdeveloped financial markets will
sink in using ICT. On the other hand, Bhunia (2011) found out that the most ICT driven
factors were the increase of the number of securities brokers, the number of investors and
the better access to ICT. Ezirim et al (2009) states that growth in market capitalization is
affected by the level of interaction between stockbrokers and investors brought about by
ICT in the form of internet access, telephone (mainlines and mobile) as well as access to
the websites of stockbrokers. Growth in the total volume and value of shares traded is
significantly affected by communication technology (telephones). The number of securities
listed on the Stock Exchange as well as the growth in federal and state government bonds
does not appear to have any significant relationship with the adoption of information and
communication technology. Private debt stock appears to have been significantly affected
by information and communications technology especially in respect of increase in the
number of stockbrokers and access to ICT. Generally, Information Technology has
contributed to growth of the Nigerian Capital Market, with the effect mostly seen in the
availability of information to investors and the improvements in the trading patterns of the
Nigeria Stock Exchange.
To sum up, the evolution of theoretical research could be divided into information
asymmetry and the equilibrium models with it, resource allocating problems caused by
Proceedings of 28th International Business Research Conference
8 - 9 September 2014, Novotel Barcelona City Hotel, Barcelona, Spain, ISBN: 978-1-922069-60-3
information imperfections, informational and technological relationship as well as doubled
sided effects on productivity and growth measures, meanwhile tested empirically.
3. The Methodolody
The most popular model for the growth measurements is a model derived by British
mathematician B. Gompertz to develop actuarial tables. In the model’s origin Gompertz
was concerned in decreasing numbers (of suvivors). However, widely accepted and
applied model version with a changed sign for the rate parameter (k), changed the
equation into a model for increasing growth (Berger, 1980):
Y=exp(-b*exp(-kt)) (1)
Where t is a moment of time; b is a position parameter that positions the origin of the
transformed line onto the vertical axis at time t=0. Gompertz’s growth model the most
frequently was used by ecologists to explain biological phenomena.
However, because of strong relationship with logistic model, both models rate parameters
can be obtained by the slope values of simple linear regression. Therefore, empirical
model application was transformed by Chow in 1983 and called Gompertz technology
diffusion model:
log ηit -log ηit-1 = θi [log ηi* -log ηit -1] (2)
Where ηit is ICT use in country I in year t; ηi* is post diffusion equilibrium level; θi is the
speed of adjustment. Further model’s application’s development was proceeded by Yartey
(2006). Author adopted the origin of Gompertz model for examination of the relationship
between ICT as the dependent variable and the factors that impact change in the level of
ICT as the independent variables:
log Yi* = αi + βilog Xit + εit (3)
Where Y represents dependent variable chosen; X is constrained of ICT developments
measures; while αi, βi being a parameter values (coefficients), εit – standard deviation.
Recent empirical findings on ICT growth and stock market in India (Bhunia, 2011) as well
as in Nigeria (Ezirim et al, 2009) and vice versa, proves of financial development’s impact
on country ICT diffusion on a sample of 76 developed and developing countries (Yartey,
2006) had verified this equation. These were the reasons for the model adoption to test of
the role of ICT on the growth of the Lithuanian bond market, which is categorized in the
same group of development with India and Nigeria by Bank of International Settlements.
Coming back to the routes of the model, a linear regression equation was used in
logarithm of the dependent and independent variables. Due to the lack of the data
provided by the national office of Statistics and in compliance with the classical regression
rules, there were several regression equations calculated.
As the dependent variable was bond market development in Lithuania, further
representing variables were chosen: exchange capitalization in billion litas (Y1), number of
bond issues (Y2), total value of issued bond par in million litas (3), the attracted funds in
million litas (Y4). The independent variables followed per cent of 16-74 year old inhabitants
Proceedings of 28th International Business Research Conference
8 - 9 September 2014, Novotel Barcelona City Hotel, Barcelona, Spain, ISBN: 978-1-922069-60-3
that in the last 3 months were using the computer (X1), per cent of 16-74 year old
inhabitants that in the last 3 months were using the Internet (X2), number of mobile phone
subscribers per 100 of population (X3), number of public fixed telephone lines per 100 of
population (X4), broadband penetration per 100 population (X5), per cent of companies
that are using information technology: Internet access (X6), per cent of companies that are
using information technology: broadband Internet access (X7). These independent
parameters were separated into segmented groups for the regression with each
dependent variable.
Available data was at the common period of 2003 – 2012 (10 years).
The following hypothesis was arisen - H1: Growing ICT measures are not of significant
impact to country’s bond market development.
The calculated regressions were reviewed on the statistical significance by the t-test of
individual parameters and F-test of overall equation. Coefficient of determination (R2) was
interpreted. Backward algorithm was computed as well as heteroskedasticity and
autocorrelation assumptions were checked.
The research results are presented in the next Section.
4. Empirical Results
Summary statistics for the Lithuanian bond market development is provided in Table 1. As
one can notice, all potential indicators of the market growth have risen sharply comparing
minimum and maximum values during 10 years. While exchange capitalization had
doubled, the number of the bond issues had increased about 36 times in conjunction with
total value of the bonds par which already performs in the market that had risen about 15
times from the primary value. There is any lag in the dynamics of the attracted funds
variable which have changed markedly.
Table 1: Summary statistics on measures of Lithuanian bond market development.
(Source: created by the authors)
Variables
Exchange capitalization
Number of bond issues
Total value of issued bond par
The attracted funds
Mean
19,495
94,2
2004,8
1925,64
Standard
deviation
6,587
66,496
2053,495
2219,211
Minimum
value
12
6
466,9
196,4
Maximum
value
20
215
7132
7127
Number of
observations
10
10
10
10
In addition to previous measures and in completeness of statistical approach to the data,
summary statistics for the ICT development is provided in Table 2.
Proceedings of 28th International Business Research Conference
8 - 9 September 2014, Novotel Barcelona City Hotel, Barcelona, Spain, ISBN: 978-1-922069-60-3
Table 2: Summary statistics on measures of ICT development in Lithuania. (Source:
created by the authors)
Variables
Mean
51,73
Standard
deviation
11,074
Minimum
value
35,6
16-74 year old inhabitants that
in the last 3 months were using
the computer
16-74 year old inhabitants that
in the last 3 months were using
the Internet
Number of mobile phone
subscribers per 100 of
population
Number of public fixed
telephone lines per 100 of
population
Broadband penetration per 100
population
Companies that are using
information technology: internet
access
Companies that are using
information technology:
broadband internet access
Maximum
Number of
value
observations
66,5
10
47,63
14,578
24,4
66,2
10
139,19
35,302
61,8
168,2
10
24,02
0,798
22,2
24,9
10
18
11,624
1,9
35,4
10
92,065
5,180
84,37
99,7
10
47,358
36,523
0
99,3
10
The considerable changes are observed in the dynamics of broadband penetration which
has increased around 18 times from its initial value. Moreover, the number of mobile
phones subscribers has nearly tripled during the 10 years. Other market indicators vary
between doubling and tripling during the analysis period. However, the parameter of
companies that are using broadband internet access should be noted. Its start and
development cycle covers the last ten years (changes in values from 0 to 99,3 per cent).
The results from the model exploring the relationship between bond market developments
and ICT growth indicators are reported in Table 3. Each dependent variable had three
equations which parameters and t-test values are presented in the table.
Proceedings of 28th International Business Research Conference
8 - 9 September 2014, Novotel Barcelona City Hotel, Barcelona, Spain, ISBN: 978-1-922069-60-3
Table 3: GMM estimation on ICT and Lithuanian bond market developments
Dependent variable
Exchange capitalization
Intercept
16-74 year old
inhabitants that in the last
3 months were using the
computer
16-74 year old
inhabitants that in the last
3 months were using the
Internet
Number of mobile phone
subscribers per 100 of
population
Number of public fixed
telephone lines per 100
of population
6,70
(3)*
-1,46
(-0,37)
8,54
(1,79)
22,73
(3,51)
*
35,97
(3,34)
*
Total value of issued
bond par
13,2
(2,12)
20,77
(1,88)
52,89
(3,53)
*
The attracted funds
23,64
(0,86)
-8,32
(2,38)
*
-18,48
(2,48)
*
17,56
(-1,8)
28,98
(0,67)
5,28
(2,30)
14,93
(3,06)
*
11,99
(1,88)
17,03
(0,61)
Broadband penetration
per 100 population
2,96
36,71
(0,65)
2,77
(2,85)*
1,17
(0,72)
1,68
(0,61)
3,78
(0,27)
-1,54
(-0,47)
15,18
(2,79)
*
14,77
(1,59)
23,67
(0,5)
-0,92
(2,65)*
0,94
(1,61)
-0,04
(0,04)
-1,37
(0,27)
Companies that are using
information technology:
internet access
Companies that are using
information technology:
broadband internet
access
F—test of equation
significance
Autocorrelation test:
DW
18,52
(2,36)
*
Number of bond issues
3,32*
0,089
80,37
(0,87)
-8,99
(2,21)
-18,33
(3,26)
*
-26,1
(3,34)
*
40,43
(0,84)
0,29
(2,04)
1,28
(6,41)
*
1,04
(3,75)
*
1,06
(0,62)
2,44*
16,27*
0,22
24,62
39,81*
0,15
1,92
2,28
7,04*
0,38
0,29
0,42
0,21
Note: All regressions include time dummies. t values in parenthesis. * implies significant at
0,05 level.
Firstly, the analysis with the capitalization of stock exchange and such ICT development
indicators as use of internet and computers, subscription to mobile phones, broad band
penetration and others was performed. The results emphasize positive significance of the
mobile phone subscribers to the market capitalization. In particular, a percentage point
increase in the number of mobile phone subscribers increases stock exchange
capitalization by 2.77 percentage points. However, computer users and broadband
penetration are significantly although negatively associated with the bond market
development measured by market capitalization. In like manner, a percentage point
increase in number of inhabitants who uses computers decreases market capitalization by
8.32 percentage points. The sign should be considered as wrong despite its statistically
significant relationship with dependent variable. Negative broadband penetration
association with bond market development could emphasize the conclusion of lack of
technologies and related improvements in the market. Access to the internet as well as the
number of fixed phone lines have an insignificant negative relationship with diffusion of
bonds. While access to broadband and the use of internet are positively related to the
bond market development although insignificant. According to a F-test results, two thirds of
the model (two equations out of three) captures the process of bonds market diffusion.
Secondly, the indicator of bond market development (capitalization) is replaced with an
index of market activity (number of bond issues). The results show positive significance of
the internet use of inhabitants and broadband access to companies to number of the
bonds in the markets. For example, a percentage point increase in the number of
Proceedings of 28th International Business Research Conference
8 - 9 September 2014, Novotel Barcelona City Hotel, Barcelona, Spain, ISBN: 978-1-922069-60-3
inhabitants using internet increases the number of bond issues by 14.93 percentage point.
As well as a percentage point increase in the number of companies using broadband
increases the number of bond issues by 1.28 percentage point. It supposes an importance
of computerization of the investors rather than market participants. However, negative
statistical significance is measured between use of computer of inhabitants and company
internet access to the bond market development. Hereby, a percentage point increase in
the number of companies using internet decreases the number of bond issues by 18.33
percentage point. The estimator being rather controversial, the assumption of hidden or
exogenous factor is introduced in order to clarify the relationship on dependent and
independent variables. The mobile phone subscribers as well as broadband penetration
enter with insignificant poorly positive sign. According to the findings of a F-test
implementation, two models equations could be acknowledged being robust.
The analysis continued on the third model examination. For the bond market development
the total value of the issued bonds par variable was chosen while independent variables
describing the ICT growth remained. It resulted, that the number of companies using
broadband significantly negatively associated with diffusion of bond market. In particular, a
percentage increase in a number of companies using broadband increases the total value
of the bonds par issued by 1.04 percentage point. However, companies’ access to internet
is of negative statistical significance to bond market development. Thus, a percentage
increase in a number of companies using internet decreases the total value of the bonds
par issued by 26.1 percentage point. The equation is proved by F-test. The conclusion to
make is that aging technologies do not act in favor of bond market development. Other
variables remain the signs as in the previous model except the broadband penetration,
which seems to be associated with bond market development negatively. However, all
other indicators are insignificant in compliance with dependent variable as well as the
models have not been fitted to the data using least squares.
Unfortunately, the last indicator representing bond market development (the attracted
funds) resulted in insignificant and disapproved equations. There is no direct relationship
between funds attracted and measures of ICT growth in the country.
To sum up, the most unstable sign directions were observed in number of fixed phone
lines as well as broadband penetration, other indicators remaining of permanent direction.
In generally, the use of computers by inhabitants and companies’ access to the internet
were negatively associated with bond diffusion while use of internet and mobile phone,
and companies’ access to broadband had positive effects on bond market development.
On the other hand, small disagreement between t-test and F-test results issued an
assumption of autocorrelation and its verification. Therefore in the future investigations the
data sample had suggested to be enlarged or other indicators chosen. As a result, there is
no supportive evidence that the hypotheses stated in the Section 3 had been neither
approved nor rejected.
Concluding Remarks
The paper has examined the role of ICT on the growth of the Lithuanian bond market.
There were several important findings:
 The most active and statistically proved indicators representing impact of ICT
development to bond market diffusion are companies’ access to internet as well as
broadband. The highly negative significant sing of access to internet is examined
Proceedings of 28th International Business Research Conference
8 - 9 September 2014, Novotel Barcelona City Hotel, Barcelona, Spain, ISBN: 978-1-922069-60-3



while broadband access remains slightly positive. Both indicators saved their sign
direction during whole period of the analysis. Therefore, aging technologies do not
act in favor of bond market development.
Negative broadband penetration association with bond market development could
emphasize the conclusion of lack of technologies and related improvements in the
market.
While the effect of inhabitants using internet is larger than the companies’ access to
broadband, it supposes an importance of computerization for investors rather than
market participants (issuers).
There is no direct relationship between funds attracted and measures of ICT growth
in the country.
The conclusions of the paper highlight that it is not enough of supportive evidence that the
hypotheses about growing ICT measures insignificance on country’s bond market
development could be neither approved nor rejected.
For the future investigations the data sample had suggested to be enlarged or other
indicators chosen. Moreover, an opposite relationship between bond market and ICT
development could be examined.
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