A Theoretical Analysis of Financial Agglomeration in China Based on Information Asymmetry

Che Xinwei (), Bu Hui () and Liu John J. ()
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Che Xinwei: School of Business, Renmin University of China, Beijing100872, China
Bu Hui: School of Economics and Management, Beihang University, Beijing100191, China
Liu John J.: Centre for Transport, Trade and Financial Studies (CTTFS), College of Business, City University of Hong Kong, Hong Kong, China

Journal of Systems Science and Information, 2014, vol. 2, issue 2, 111-129

Abstract: The development of financial centers can illustrate continuous significance of geography. This paper regards financial services industry as a special kind of industry, and establishes a multi-region model to discuss the formation mechanism and equilibrium of finance agglomeration. Our findings suggest emergence of finance agglomeration depends on opportunity costs caused by information asymmetry, economies of scale, the share of financial services industry in economy and the amount of financial information. The results of numerical examples declare the same conclusions that effects of information asymmetry would push financials firms closer to an information source in order to find and interpret non-standardized information that a financial firm can use to make profit. And the agglomeration of real sector industry will enhance the agglomeration of finance. Finally, this paper puts forward a ratio, related with the opportunity costs, which could be regarded as a measure of whether the central area is an information center.

Keywords: financial centers; information asymmetry; agglomeration; equilibrium; multi-region model (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:bpj:jossai:v:2:y:2014:i:2:p:111-129:n:2

DOI: 10.1515/JSSI-2014-0111

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