Information For Efficient Decision Making: Big Data, Blockchain And Relevance

715 Pages·2020·22.521 MB·English

by  K. R. Balachandran

b2530 International Strategic Relations and China’s National Security: World at the Crossroads
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World Scientific
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Library of Congress Cataloging-in-Publication Data
Names: Balachandran, K. R., editor.
Title: Information for efficient decision making : big data, blockchain and relevance /
Kashi R Balachandran, New York University Leonard N Stern School of Business, USA.
Description: Singapore ; Hackensack, NJ : World Scientific, [2020] |
Includes bibliographical references and index.
Identifiers: LCCN 2020026479 | ISBN 9789811220463 (hardcover) |
ISBN 9789811220470 (ebook) | ISBN 9789811220487 (ebook other)
Subjects: LCSH: Decision making. | Blockchains (Databases) | Big data.
Classification: LCC HD30.23 .I534 2020 | DDC 658.4/038028557--dc23
LC record available at https://lccn.loc.gov/2020026479
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library.
A word on the cover:
The cover art shows six panels of a painting that depicts the exponential growth of knowledge from
darkness and ignorance enveloping the little person to an intensifying brighter and clearer world. The
scenario becomes more complicated with the explosion and interconnectedness of information. The
first panel of bare indigo dark landscape becomes illuminated by a constellation of signs and symbols
connected to one another in a myriad way in the successive panels. The black, orange, yellow circles
symbolize the semiotics of meaning creation and meaning communicated by the little person, the
decision analyst.
The artist Dr. Rajini Sarma Balachandran is a Ph.D. in Political Science from New York University and
has exhibited her paintings in the New York/New Jersey area.

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Desk Editors: Balamurugan Rajendran/Daniele Lee

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© 2021 World Scientific Publishing Company
https://doi.org/10.1142/9789811220470_fmatter
Preface
This book came out of a desire to consolidate information that can be suit-
able for making decisions in firms to make their operations efficient to
reduce their costs and consequently, increase their profitability. Historically,
the primary source for firm information is through published accounting
statements prepared according to generally accepted accounting princi-
ples. This is true for those decision-makers who have no access to private
inside information. Managers within a firm have access to inside opera-
tional information and the data set is larger and more reliable. The data are
gathered through a centralized ledger keeping of activities of the firm. The
advent of blockchain has generated great interest as an alternative to cen-
tralized organizations. Decentralized ledger keeping, one of the main
features of blockchain, has given rise to many issues of technology, devel-

opment, implementation, acceptance, evaluation, and so on. Blockchain
concept is a follow-up to big data environment facilitated by enormous
progress in computer hardware, storage capacities, and technological
prowess. This has resulted in acquiring of data not considered possible
earlier, and with shrewd modeling analytics and algorithms, the applica-
tions have mushroomed to significant levels. This handbook is an attempt
to discuss the progress in data collection, pros and cons of collecting
information on decentralized publicly available ledgers and several appli-
cations. A few chapters in this book amplify on the reliable vs. relevant
characteristics of information that has been a point of discussion among
accounting personnel.
Chapter 1 by Chen, Cong, and Xiao, “A Brief Introduction to
Blockchain Economics”, looks at the economic and behavioral aspects of
v
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vi Information for Efficient Decision Making
the introduction of the new technology in organizations. The chapter gives
an overview of what blockchain is, how they are found to be useful in
several applications, and what are the impediments to their usage.
Numerous economic characteristics of this new technology are discussed.
An alternative to blockchain as a distributed ledger technology is termed
Directed Acyclic Graph, and these two concepts are compared. The basic
characteristic of the blockchain technology lies in the provision of decen-
tralized consensus referring to consensus agreements on transactions,
providing, in addition, protocols for conflict resolution, aiding mainte-
nance of history of events, institutional memory, immutable records, etc.
With the advent of big data phenomenon, there is a clamor to go for
it and attempt to devise approaches to use it to improve efficiencies of
decision-making in contracts, production, and operations. Particularly, it is
well established that the contracts can become more efficient in principal–
agent relationships if information can be gathered on the effort and/or pri-
vate information of the agent resulting in reduction of moral hazard.
Essentially, the two issues of moral hazard and agent’s private information
that are unobservable to the principal can be mitigated with the vast data
that can be gathered and processed. Puaschunder (Chapter 2, “Data
Fiduciary in Order to Alleviate Principal–Agent Problems in the Artificial
Big Data Age”) in her chapter contributes to the idea that there are conflict-
ing utilities for the agent in making all data about him/her become known
to the principal, lest it be misused. Even outside the principal–agent frame-
work, the problem of individuals’ decision to share information about them-
selves on social media can enable big data administrators to reap benefits
from putting data together over time and reflecting the individual’s infor-
mation in relation to big data of others. This can work against the interests
of the agent and even the principal if the data become public information.
The author introduces a utility theory based on fundamental economic prin-
ciples and builds the concepts to study this issue. She also considers the
possibility of long-term, cumulative effects of such dissemination of infor-
mation. Blockchain technology faces a challenge on the issue of privacy of
participants, and this chapter contributes to this vital point.
One of the challenges of implementing blockchain is the cost of
implementation and the replacement of existing systems with the new one.
Bhimani, Hausken, and Arif (Chapter 3, “Blockchain Technology Adoption
Decisions: Developed vs. Developing Economies”) argue that these
impediments to blockchain differ according to whether the country is
economically developed or still developing. Their adoption is facilitated
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Preface vii
where there is a desire for transparency and trust and other benefits and
the costs of shifting investments onto the technology seem worthwhile.
In developing economies, blockchain adoption finds resistance by those
who benefit from the lack of transparency and abusers of the economic
system. Further, blockchain adoption can seem desirable particularly
when regulatory barriers are low. They analyze how emerging and devel-
oped economies differ in relation to the point at which the benefits of
blockchain exceed the costs leading to the adoption of the technology. The
chapter provides an outline of reception to blockchain adoption in various
countries of the world and explains how and why they differ.
Blockchain, conceptually and practically, brings in a strong form of
decentralization without a centralized authority. Should this get to be
implemented, the question would be how it would affect the functioning
of the economy. The development is still at an embryonic stage in terms
of conceptual development, practical application, and academic research.
When fully implemented, there is expectation of fewer obstacles to truth-
ful information exchange among concerned parties. For example, capital
market could become more efficient with blockchain and big data, and
along with usage of cryptocurrency, trading and completion and recording
of transactions can take place simultaneously with no time lag. Since the
role of middlemen and central banks will get diminished, it could be
termed a decentralized set up. Zhang, Zandi, and Kim (Chapter 4, “A
Discussion on Decentralization in Financial Industry and Monetary
System”) in their chapter argue how this will likely improve the welfare
of all participants. How far the central agency can be done away without
loss of firm-wide total welfare is still a vexing question. The authors
examine some cases of hypothetical decentralized markets to elaborate
how an economy composed of such settings would function with resultant
costs, benefits, and risks.
Funding of developing and manufacturing innovative products is
through a contract between the investors and the producers. There is risk
involved in such a venture, particularly for the investor who is often exter-
nal to the producer. The innovating firms that seek external funds are typi-
cally not yet fully established as otherwise they could use internally
generated funds. Financing such projects can be quite difficult. Recent
innovations in digital ledger technologies and business models have the
potential to mitigate some of these identified problems, if they can be used
to construct smart efficient contracts. Tinn (Chapter 5, “Raising Funds
with Smart Contracts: New Opportunities and Challenges”) discusses the
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viii Information for Efficient Decision Making
extent to which the new technologies such as blockchain can eliminate
historically identified important frictions and make the economic system
more efficient. However, the author brings out the emergence of new
forms of frictions and unresolved issues coming out of adoption of these
technologies. The chapter focuses on analyzing two recent FinTech devel-
opments, distributed ledger technologies and crowdfunding, that may
have the greatest potential to mitigate or alter the type of frictions young
innovative firms face. Several unresolved issues and ongoing debates on
this topic are also brought forward. The investors may find it very costly
or impossible to verify claims by entrepreneurs on cash flow, profitability,
and success probabilities of the new ventures. Debt contracts are instituted
between the investor and the entrepreneur to minimize the expected veri-
fication costs by using information more readily available. The chapter
explains simple smart contracts. Digital technology has the potential to
reduce or even eliminate much of the verification costs. The chapter con-
siders that there is a shared blockchain that guarantees that the cash flows
the project generates through successful sales are recorded and verifiable
on an ongoing basis. The efficacy of such smart contracts over the less
flexible debt and equity contracts is discussed.
There is a natural relation of blockchain to accounting as a transaction
ledger and its possible uses in accounting functions and business opera-
tions. George and Patatoukas (Chapter 6, “The Blockchain Evolution and
Revolution of Accounting”) discuss the classification and characteristics
of cryptoassets, as well as initial coin offerings, by which cryptoassets are
sold as a means to fund startup blockchain ventures. They follow it up
with a discussion of the evolving global regulatory environment for cryp-
toassets and ICOs and the accounting treatment of this new asset class.
The importance of blockchain development to auditing of financial reports
due to the continuous assurance given by blockchain is amplified.
However, the new technology does not, as yet, provide sufficient and com-
plete audit evidence. The auditors have the opportunity to use innovative
audit techniques that utilize the verification characteristics of blockchain
networks and thus increase the efficacy of the audit process. The authors
explore application of the technology to supply chain networks and con-
tracting, characterized by a lack of trust between transacting parties, yet
transparency and verification of information remaining important.
As such, it is well suited to aid in data sharing and communication among
the various organizations in a supply chain and in bringing accountability
and transparency to enable efficient contracting.
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Preface ix
Blockchain technology has garnered a lot of interest among
professionals, educationists, and practitioners. However, Alles and Gray
(Chapter 7, “What Accountants Need to know about Blockchain”) observe
the enthusiasm primarily at the top management CEO level but reserva-
tions at the technologist level in companies. They caution that immediate
applications of blockchain in the accounting arena do not match the enthu-
siasm expressed by many. The chapter provides an overview of the con-
cept of blockchain, the cryptocurrency, and their relationships. They
elaborate on the costs involved with implementation of cryptocurrencies
in conjunction with blockchain. There are several stumbling blocks in
implementing this technology in accounting. Accounting may have to be
adjusted or remodeled to incorporate the use of this technology and make
it useful and cost-effective. The chapter gives a balancing approach to the
issue of this subject.
Cupertino, Taticchi, and Vitale (Chapter 8, “Management Control and
Information, Communication and Technologies: A Bidirectional Link —
The Case of Granarolo”) provide through a real case study the coordina-
tion needed to link management control systems with information,
communication, and new technologies. Information, Communication and
Technologies (ICT), they find currently in place, is inadequate to coordi-
nate the process between presales efforts to garner new clients to get them
on board to effectively manage to the end of sales fruition. The chapter
illustrates how a new innovation in technology can be integrated into the
company operations. In the case of ICT solutions, technology alone could
be useless if not accompanied by adequate training of people, re-engineer-
ing of business processes, as well as wide organizational change. This is
likely in any implementation of new technological innovation.
Prices in stock markets are influenced by information available, pub-
licly, or sometimes, privately by certain large stockholders. The latter may
be termed illegal trading in the arena of capital markets. The stockholders
and analysts need to be contended with company information that may not
be available in regulated financial statements, gleaned, and studied from
past returns patterns or company information reported in the press cover-
age. Partha Mohanram (Chapter 9, “A Brave New World: The Use of Non-
traditional Information in Capital Markets”) details another form of
information source that is creeping into the public domain due to increased
computer capacity through big data. Suitable analytics can be used to
process this information, and it will have an impact on the capital market
functioning. The author, in particular, looks at the social media where
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