Instruction - Tick Check Box  one by one - IMPORTANT!

In this experimental simulation game, “Investors” and “Management” will interact on the basis of four (A, B, C, D)
companies’ financial statements to improve their bonus ranking (sole purpose of all players) over 20 years or so.
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“Investors” are fund-managers of an international investment firm in charge of investing in emerging economies. A
and B are companies in India; C and D in China. Both countries are generally expected to grow steadily (approx.
5% - 10% pa) over the next 20 years or so.
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However, in both countries, management rarely practice Corporate Social Responsibility Management (CSR
Management) - defined as proactive engagement in promotion of human rights, and social and environmental
sustainability. Despite the prospect for high growth, investors are often reluctant to invest in these countries due to
potential CSR scandals that can suddenly destroy shareholder value - which is the same in this experiment.

The governments of India and China are considering introducing a new regulation under which all companies have
to disclose their “CSR Expenses” as an independent line item of the Income Statement (Data 2). Assume that the
CSR committee decides the level of CSR Expense, executes and honestly discloses the results. Assume that the
media such as FT and the Economist publish the disclosed CSR data with reader-friendly rankings (Data 3).
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“Management” of A, B, C and D are asked to decide the level of their CSR expense which, depending on the state
of the regulation, may or may not be disclosed to any market participants. In any case, Management are asked to
maximise their bonus which is determined solely by “Investors’ average % allocation of funds to the
management’s company” (as the proxy of share price) (Data 4). Traditional knowledge tells us, generally
speaking, the higher the profit, the higher the dividends, and also the higher the share price. Assume that, unless
Management incurs some CSR Expenses, the level of Profit and “Profit per Share” are, by default of the experiment,
the same across all four companies. Namely, if CSR Expenses incur, the Profit (per Share) goes down.

“Investors” are asked to allocate funds to each company (Restriction: Not less than 5% or not more than 45% to
any one company: Data 1) to improve their bonus ranking. The bonus ranking in the market depends 80% on
the Share Value Change and 20% on the Dividend receipts from the companies you decide to invest in (Data 5)
Dividends are paid out to investors in proportion to the level of their investment in the company. The share price
based bonus has a higher weightage (80%) than the dividends based bonus (20%) in determining the overall bonus
ranking, because in emerging markets investors generally expect more gains from share price movements than
from dividends.
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Management and Investor will have to give a reason of their decision in the “Reason” box (at least 15 words are
required), and press “Submit” button. (Note: The reasons will NOT be disclosed to any market participant). As long
as you have time, you can change your mind and resubmit the data. If Investors missed the submission, his/her
allocation of funds will stay the same as the previous year. If you are inactive in the investment decisions, or if your
numerical data and reasons are inconsistent, you could be removed from the experiment by the Administrator.
Please try to make rational decisions and state the reasons or investment strategy every time.
Now, study the Investors’ screen carefully. Management should also study the Investors’ screen so that you know how
you would be monitored by Investors. Read through Action 1, 2 and 3, then Data 1, 2, 3, 4 and 5.
<< Important to understand the “Screen” >>
START
Data 2
Income Statement for A.
“CSR Exp.” may or may not be
disclosed depending on the
regulation of country / year.
Data 1
Action 1
Investors can see the history (2
years) of his/her investment in
each company.
Allocate 100 units of fund to the
four companies (5-45% each).
Action 2
State the reason, investment
strategy or policy you have in each
round. More than 15 words are
required.
Data 3
CSR Index (CSR Exp. / Profit
* 100%) and CSR Ranking
based on CSR Index. They
are available only when
Financial Statements show
CSR Exp.
Action 3
Count down. To avoid any
technical problems, it is highly
recommended to submit the data
at least 15 seconds before.
Assume the details of CSR
Index and Ranking are
scrutinised by media such as
Economist or Financial
Times.
Data 5
Data 4
Graph – the average
allocation of funds by
all investors. You can
use this as a proxy of
share price movement.
If you hover the cursor
over the graph, you will
see some more data.
Your Share Value Change Bonus is
determined by the combination of your
holdings and their share price movement –
similar to gains and losses in the real stock
market. The ranking, of course, depends on
the size of your bonus.
Your Dividends Bonus is determined by the
total size of dividends from four companies.
You gain high Dividends when you invested in
high profit companies. The ranking, of course,
depends on the size of your bonus.
Total ranking depends on the combination of
the two rankings, but there is a weighting:
80% for Share Value Change bonus ranking
and 20% for Dividends bonus ranking.