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We investigate how Activist Short Sellers (AShSs) expose publicly listed firms in an increasingly popular form of “research reports” openly denouncing alleged frauds, flawed business models, accounting irregularities, and wrongdoings. We focus on six AShSs that issued research reports that often led to a strong negative market reaction. Our empirical analysis exploits both qualitative and quantitative methods for a comprehensive dataset of 383 research reports targeting 171 unique firms, and three first-hand interviews with AShSs. Drawing on Aristotle’s rhetoric, we first examine how AShSs use narratives in striving to convince other investors that the target firms are overvalued. Specifically, we search the documents produced by AShSs for stylized narratives related to credibility-based (ethos), emotions-based (pathos), and logic-based (logos) rhetorical strategies. To assess the impact of these strategies, we examine the extent to which the AShSs’ rhetorical strategies resonate in 3,665 press articles. As expected, the press often refers to logos-based arguments. Interestingly, the press also brings up frequently pathos-based and ethos-based statements. Considering the importance of the press in shaping investors’ opinions, our study points to AShSs’ narratives playing a major role in policing financial markets. Theoretically, we show that AShSs, as dissenting market participants, produce narratives that go beyond the language of formal rationality – as they strive to reveal new information and frame it persuasively, in order to destabilize the extent of trustworthiness surrounding target firms.

This paper explores the effects of online customer ratings on debt capacity. Using a large sample of Parisian restaurants, we find a positive and economically significant relation between customer ratings and bank debt. We use the locally exogenous variation in customer ratings resulting from the rounding of scores in regression discontinuity tests to establish causality. Customer ratings affect financial policy through a reduction in cash flow risk and higher resilience to demand shocks. Restaurants with good ratings use their extra debt capacity to invest in tangible assets. Finally, favorable online ratings relax credit constraints mostly for moderately constrained restaurants.

This paper studies the effect of transportation networks on spatial inequality within metropolitan areas. It uses a spatial equilibrium model featuring nonhomotheticities and worker heterogeneity, allowing to capture rich patterns of workers sorting on commuting costs and amenities. The model is calibrated for the Paris urban area. Counterfactual simulations study the effects of a) the Regional Express Rail and b) restricting car use in the city center. Despite a strong contribution to suburbanization and reducing welfare inequality, the public transport network plays no role in reducing income segregation. The effects of banning cars depends critically on the response of residential amenities in the city. If it is low enough, it reduces income disparities between Paris and its suburbs at the cost of a substantial welfare loss. If it is high enough, the policy creates welfare gains but steepens the income gradient.

This paper argues that central bankers should raise inflation to signal their credibility to forward guidance policies. As inflation can be stabilized in normal times either because of central banker's credibility (e.g. because of reputation concerns) or because of his aversion to inflation, the private sector is unable to infer the central banker's type from observing stable inflation before a liquidity trap, jeopardizing the efficiency of forward guidance policy. We derive optimal policy in a new-Keynesian model subject to liquidity traps where agents are uncertain about the central banker's type and we show that the credible central banker can signal his type by raising inflation before a trap. We show that this signaling motive can justify level of inflation well above 2% but also that the low inflation volatility during the Great Moderation was insufficient to ensure fully efficient forward guidance when needed.

The standard, Bayesian account of rational belief and decision is often argued to be unable to cope properly with severe uncertainty, of the sort ubiquitous in some areas of policy making. This paper tackles the question of what should replace it as a guide for rational decision making. It defends a recent proposal, which reserves a role for the decision maker’s confidence in beliefs. Beyond being able to cope with severe uncertainty, the account has strong normative credentials on the main fronts typically evoked as relevant for rational belief and decision. It fares particularly well, we argue, in comparison to other prominent non-Bayesian models in the literature.

This paper deals with the problem of string stability in a chain of acceleration-controlled vehicles, i.e. how input disturbances affect the distributed system for very long chains. There exist variants of string stability, like avoiding that a local disturbance gets amplified along the chain, or more strongly ensuring that the output vector's p-norm remains bounded for any bounded vector of input disturbances independently of the string length. They are all impossible to achieve with any linear controller if the vehicles only use relative information of few vehicles in front. Previous work has shown that adding absolute velocity into the controller, allows to at least avoid amplification of a local disturbance. In this paper, we consider the stronger definitions of string stability, under this same relaxation of using absolute velocity in the controller. We prove that the influence from input vector to output vector cannot be bounded independently of chain length in the most popular 2-norm sense, with any bounded stabilizing linear controller; while a proportional derivative (PD) controller can guarantee it in the practically relevant infinity-norm sense. Moreover, we identify the disturbance acting on the leader as the main issue for string stability., Comment: presented at IEEE-CDC 2018, Miami; more complete version and correcting a few typos

When people experience threats to important aspects of their self-concept (e.g., power, intelligence, sociability), they often compensate by consuming products that symbolize success, mastery, or competence on the threatened self-domain (within-domain compensatory consumption). Our research examines whether such compensatory consumption is effective in repairing the self-concept. Across seven experiments, we show that whether compensatory consumption is effective depends on the extent to which the connection between the compensatory products and the threatened domains is made explicit. When the connections are made explicit (e.g., through product names and marketing slogans), self-repair is impeded, but when the connections are only implicit (product is inherently symbolic of self-threat domain), self-repair can be successful. We further show that these differential effects of product connection explicitness are mediated by rumination: explicit connections induce rumination about the self-threat, which undermines self-repair, whereas implicit connections cause no rumination, facilitating self-repair. Our research provides a reconciliation of conflicting findings on self-repair in previous research, and also shows that despite the differences in efficacy, consumers compensate regardless of whether product connections are implicit or explicit, which has implications for consumer well-being.

Consistent with salience theories of choice, we find that managers overreact to salient risks. We study how managers respond to the occurrence of a hurricane event when their firms are located in the neighborhood of the disaster area. We find that the sudden shock to the perceived liquidity risk leads managers to increase the amount of corporate cash holdings, even though the real liquidity risk remains unchanged. Such an increase in cash holdings is only temporary. Over time, the perceived risk decreases, and the bias disappears. This bias is costly for shareholders because it leads to higher retained earnings and negatively impacts firm value by reducing the value of cash. We examine alternative explanations for our findings. In particular, we find only weak evidence that the possibility of risk learning or regional spillover effects may influence our results.

This paper investigates the determinants of value and growth investing in a large administrative panel of Swedish residents over the 1999-2007 period. We document strong relationships between a household's portfolio tilt and the household's financial and demographic characteristics. Value investors have higher financial and real estate wealth, lower leverage, lower income risk, lower human capital, and are more likely to be female than the average growth investor. Households actively migrate to value stocks over the life-cycle and, at higher frequencies, dynamically offset the passive variations in the value tilt induced by market movements. We verify that these results are not driven by cohort effects, financial sophistication, biases toward popular or professionally close stocks, or unobserved heterogeneity in preferences. We relate these household-level results to some of the leading explanations of the value premium.

This paper identifies the effect of trade policy on market power through new data and a new identification strategy. It uses a large data set containing export values and quantities by product and destination for all exporting firms in 12 developing and emerging countries over several years, merged with destination-product-specific information on tariffs and non-tariff barriers. Market power is identified by observing how exporting firms price discriminate across markets in reaction to variations in bilateral exchange rates. Pricing-to-market is prevalent in all regions of the sample, even among small firms, although it is increasing in firm size, in accordance with theory. More importantly, the effect of non-tariff measures is not isomorphic to that of tariffs: the observed pricing-to-market behavior suggests that, although tariffs reduce the market power of foreign firms through classic rent-shifting effects, non-tariff measures alter market structure and reinforce the market power of non-exiting firms, domestic and foreign ones alike.

Product categories are more than classification devices that organize markets; when reflecting market actors' purposes, they are also judgment devices. Taking stock of the literature on product categories and drawing on the distinction between the faculties of knowing and judging, we elaborate a framework that accounts for how and why market actors include or exclude normative attributes in a product category definition. Based on a field study of the development of socially responsible investment (SRI) funds in France, we describe the phases and conditions of a judgment framework for category definition for both established and nascent categories. We discuss implications for research on product categories and the workings of markets more broadly.

This article comments on the judgment no 12193 rendered by the Sezioni Unite of the Corte di Cassazione on 8 May 2019, where the recognition and registration, in Italy, of a foreign parental order inscribing the nonbiological parent as the children’s legal father were denied on the ground that they violated the prohibition of surrogacy under Italian law, which was considered to be of public policy. It scrutinises this judgment in two steps. First, it criticises the court’s methodology in the construction of the notion of public policy both in general and with particular regard to the surrogacy ban. Second, it examines whether the best interests of the children involved were sufficiently taken account of, and it finds that they were not. It concludes that, contrary to what the law prescribes, this judgment failed to give voice to the children born via surrogacy abroad and living with parents of the same sex.

We study retirement incentives with an augmented reduced form option value model à la Stock and Wise (1990). We propose methodological extensions to better reflect the respective incentives faced by singles and couples. Our results show that a more comprehensive modeling of couples’ incentives leads to very different patterns of retirement incentives – particularly for women. We apply the new indicators to data from the Survey of Health, Ageing and retirement in Europe in Belgium and find two key results. First, contrary to several previous studies, we obtain a positive signed income effects. Second, we find very different retirement incentives for men and women, with little flexibility in the retirement decision for men and substantially more flexibility for women as a function of financial incentive and household composition.

This is a pre-print of an article published in Computational Economics. The final authenticated version is available online at: https://doi.org/10.1007/s10614-019-09879-x In this paper, we develop a very flexible and comprehensive state-space framework for modeling time series data. Our research extends the simple canonical model usually employed in the literature, into a panel-data time-varying parameters framework, combining fixed (both common and country-specific) and varying components. Under some specific circumstances, this setting can be understood as a mean-reverting panel time-series model, where the mean fixed parameter can, at the same time, include a deterministic trend. Regarding the transition equation, our structure allows for the estimation of different autoregressive alternatives, and include control instruments, whose coefficients can be set-up either common or idiosyncratic. This is particularly useful to detect asymmetries among individuals (countries) to common shocks. We develop a GAUSS code that allows for the introduction of restrictions regarding the variances of both the transition and measurement equations. Finally, we use this empirical framework to test for the Feldstein–Horioka puzzle in a 17-country panel. The results show its usefulness for solving complexities in macroeconomic empirical research.

International audience; For an efficient integration of autonomous vehicles on roads, human-like reasoning and decision making in complex traffic situations are needed. One of the key factors to achieve this goal is the estimation of the future behavior of the vehicles present in the scene. In this work, we propose a new approach to predict the motion of vehicles surrounding a target vehicle in a highway environment. Our approach is based on an LSTM encoder-decoder that uses a social pooling mechanism to model the interactions between all the neighboring vehicles. The originality of our social pooling module is that it combines both local and non-local operations. The non-local multi-head attention mechanism captures the relative importance of each vehicle despite the inter-vehicle distances to the target vehicle, while the local blocks represent nearby interactions between vehicles. This paper compares the proposed approach with the state-of-the-art using two naturalistic driving datasets: Next Generation Simulation (NGSIM) and the new highD Dataset. The proposed method outperforms existing ones in terms of RMS values of prediction error, which shows the effectiveness of combining local and non-local operations in such a context.

We examine whether a firm’s decision to disclose non-financial proprietary information depends on peer disclosures of similar information. Using a sample of 5,035 unique clinical trials by U.S. pharmaceutical firms over the 2007-2014 period, we find that the firm is less likely to disclose its own clinical trial results if peers have published clinical trial results pertaining to the same medical condition. Conditional on disclosing clinical trial results, the firm is also less likely to disclose the trial results on time when peers have disclosed their clinical trial results. Our cross-sectional tests suggest that proprietary costs of disclosure play an important role in the relation between peer disclosures and the firm’s own disclosure. In particular, the negative relation is more pronounced when proprietary costs of disclosure are higher. Taken together, our findings provide new evidence on the interplay between peer and own disclosures of non-financial proprietary information.

Do the rich always get richer by investing in a cryptocurrency for which new coins are issued according to a proof-of-stake (PoS) protocol? We answer this question in the negative: Without trading, the investor shares in the cryptocurrency are martingales that converge to a well-defined limiting distribution and, hence, are stable in the long run. This result is robust to allowing trading when investors are risk neutral. Then, investors have no incentive to accumulate coins and gamble on the PoS protocol but weakly prefer not to trade. This paper was accepted by Kay Giesecke, finance.

Unrealized gains and losses on available-for-sale securities (AFSGL) are included in Other Comprehensive Income (OCI) and directly affect shareholders’ equity but are not included in earnings. We investigate whether unrealized AFSGL help predict future earnings and whether analysts and investors incorporate the information conveyed by unrealized AFSGL in a timely manner. We conduct our investigation on a sample of banks because unrealized AFSGL are material in the banking industry. First, we show that unrealized AFSGL are material and help in predicting next period realized AFSGL and future earnings change. Second, we document that financial analysts are slow to react to unrealized AFSGL and update their forecasts after AFSGL are realized in earnings. Third, we find that investors are also slow to react to unrealized AFSGL and do so only after AFSGL are included (realized) in earnings and after financial analysts update their forecasts. We document an annual difference of 5% in future abnormal returns between banks in the top and bottom quintiles of past unrealized AFSGL. A zero-cost trading strategy that relies on public information about unrealized AFSGL generates a sizeable monthly alpha that ranges between 1.8% and 1.9%.

International audience; The distinction between effort and other factors, such as family background, matters for correcting policies and normative reasons when we appeal to inequality of opportunity. We take advantage of a purposefully designed survey on secondary schools in rural Bangladesh to offer a comprehensive view of the importance of overall effort when measuring inequalities of opportunity in education. The analysis comprises decomposition exercises of the predicted variance of student performance in mathematics and English by source (effort, circumstances, etc.) and subgroup (within- and between-schools) based on parametric estimates of educational production functions. Pupils’ effort, preferences, and talents contribute between 31% and 40% of the total predicted variances in performance scores. The contribution of overall effort falls by 10% when the correlation between effort and circumstances is taken into account. These findings are robust to the choice of estimation strategy (i.e. combined within- and between-schools variation models versus multilevel random-effect models). All in all, these results advocate that social determinism in education can be mitigated by individual effort at school.

We examine the impact of a new mobile-based, dockless bike-sharing service on public transportation. In contrast to traditional rental bikes that are parked at fixed stations, the dockless bikes can be picked up and returned at literally anywhere. This dockless feature of the shared bikes likely provides a solution to the last mile problem, potentially making it a complement to public transportation. Assembling a unique panel data of shared-bike rides and subway traffic, we estimate the relationship between shared-bike ridership and public transportation. Our results show that increases in shared-bike rides lead to increases in subway traffic. This positive effect is stronger for peak hours during weekdays and non-peak hours during weekends. We argue this effect is most likely driven by shared bikes promoting public transportation use and substituting for private cars (substitution effect) and also stimulating new travel (stimulating effect). Overall, we find that dockless shared bikes, in contrast to most of the other sharing economy phenomenon, acts as a complement rather than a substitute for public transportation. In addition, increased use of dockless shared bikes has a positive societal impact, leading to less urban congestion and better environmental protection.

Advances in robotics now permit humans to work collaboratively with robots. However, humans often feel unsafe working alongside robots. Our knowledge of how to help humans overcome this issue is limited by two challenges. One, it is difficult, expensive and time-consuming to prototype robots and set up various work situations needed to conduct studies in this area. Two, we lack strong theoretical models to predict and explain perceived safety and its influence on human–robot work collaboration (HRWC). To address these issues, we introduce the Robot Acceptance Safety Model (RASM) and employ immersive virtual environments (IVEs) to examine perceived safety of working on tasks alongside a robot. Results from a between-subjects experiment done in an IVE show that separation of work areas between robots and humans increases perceived safety by promoting team identification and trust in the robot. In addition, the more participants felt it was safe to work with the robot, the more willing they were to work alongside the robot in the future.

Engaging in unethical consumption behaviors is an acute societal problem that can have severe consequences for adolescents, and businesses in particular have been accused of making such consumption particularly appealing and accessible. However, the causes of unethical behaviors are not well understood and research on the causes has been mixed. In this research, we investigate the effects of coping strategies for loneliness on adolescents’ adoption of unethical behaviors, a topic that business ethics research has not explored. In a large-scale study (n = 409) of adolescents (ages 13–17), we show that whether loneliness leads to the adoption of unethical behaviors depends on the strategies adolescents use to cope with their loneliness: active coping strategies are associated with fewer unethical behaviors, whereas passive coping strategies are associated with more unethical behaviors. In addition, we show that active and passive coping strategies can be executed through consumption practices. We show that the relation between active coping and fewer unethical behaviors is mediated by sharing of possessions, whereas the relation between passive coping strategies and more unethical behaviors is mediated by product acquisition. Finally, we also show that these mediated relations differ as a function of age cohort (grade level). The indirect effect of active coping on fewer unethical behaviors via sharing holds only for middle school adolescents, whereas the indirect effect of passive coping on more unethical behaviors via product acquisition holds only for high school adolescents. We shed new light on both the bright and dark sides of materialism and unethical behaviors and provide practical implications for research on loneliness, business ethics, and unethical behaviors.

International audience; What causes adolescents to develop consumer’ ethical beliefs? Prior research has largely focused on the negative influence of peers and negative patterns of parent–child interactions to explain risky and unethical consumer behaviors. We take a different perspective by focusing on the positive support of parents and peers in adolescent social development. An integrative model is developed that links parental and peer support with adolescents’ self-worth motives, their materialistic tendencies, and their consumer ethical beliefs. In a study of 984 adolescents, we demonstrate support for a sequential mediation model in which peer and parental support is positively related to adolescents’ self-esteem and feelings of power, which are each associated with decreased materialism as a means of compensating for low self-worth. This reduced materialism is, in turn, associated with more ethical consumer beliefs.

We propose a new model of interdealer trading. Dealers trade together to reduce their inventory holding costs. Core dealers share these costs efficiently and provide liquidity to peripheral dealers, who have heterogeneous access to core dealers. We derive predictions about the effects of peripheral dealers' connectedness to core dealers and the allocation of aggregate inventories between core and peripheral dealers on the distribution of interdealer prices, the efficiency of interdealer trades, and trading costs for the dealers' clients. For instance, the dispersion of interdealer prices is higher when fewer peripheral dealers are connected to core dealers or when their aggregate inventory is higher.

This paper was presented for the first time during the 2018 SASE Annual Conference that was held in June 2018 at Doshisha University. A revised version of this paper is to be published in The Japanese Political Economy.; This paper aims at finding out how the shareholder-value pursuit has affected labor policies at large Japanese listed enterprises. It concentrates on the issue of labor bifurcation, whereby the proportion of nonregular employees has grown rapidly over the last two decades, currently approaching the numbers of regular employees.In Japan, corporate governance reforms became key to structural macroeconomic changes according to the 2013 “Japan Revitalization Strategy” formulated by the Cabinet Office. This document mandated the creation of the JPX-Nikkei Index 400 – an index called to accommodate the most investor-friendly joint-stock companies. The move towards a shareholder model has been further reinforced through a rapid surge in foreignstockholding that started during the post-bubble period of the mid-1990s. At the same time, the externalities of increased returns to stockholders have been the changes in the related domains of management and labor, which I explain through the application of the political economic theory. This theory underlines the importance of inclusion into a “political bloc” for being eligible for economic benefits. Consequently, I argue that increased returns to politically privileged shareholders have been achieved at the expense of a growing proportion of unprivileged nonregular employees.The evidence yields support to the argument about the positive correlation between shareholder value and the proportion of nonregulars. On the other hand, foreign stockholding does not appear to be significantly correlated with the increase in nonregular employment. In turn, the study has found that the proportion of nonregular employees is significantly correlated with domestic ownership that characterizes higher managerial entrenchment.

An important challenge for many firms is to identify the life transitions of its customers, such as job searching, expecting a child, or purchasing a home. Inferring such transitions, which are generally unobserved to the firm, can offer the firms opportunities to be more relevant to their customers. In this paper, we demonstrate how a social network platform can leverage its longitudinal user data to identify which of its users are likely to be job seekers. Identifying job seekers is at the heart of the business model of professional social network platforms. Our proposed approach builds on the hidden Markov model (HMM) framework to recover the latent state of job search from noisy signals obtained from social network activity data. Specifically, we use the latent states of the HMM to fuse cross-sectional survey responses to a job-seeking status question with longitudinal user activity data, resulting in a partially HMM. Thus, in some time periods, and for some users, we observe a direct measure of the true job-seeking status. We demonstrate that the proposed model can predict not only which users are likely to be job seeking at any point in time but also what activities on the platform are associated with job search and how long the users have been job seeking. Furthermore, we find that targeting job seekers based on our proposed approach can lead to a 29% increase in profits of a targeting campaign relative to the approach that was used by the social network platform. This paper was accepted by Juanjuan Zhang, marketing.

Automakers, including Toyota and General Motors, were recently caught by the U.S. regulator for deliberately hiding product defects in an attempt to avoid massive recalls. Interestingly, regulators in the United States and United Kingdom employ different policies in informing consumers about potential defects: the U.S. regulator publicly announces all ongoing investigations of potential defects to provide consumers with early information, whereas the UK regulator does not. To understand how these different announcement policies may affect cover-up decisions of automakers, we model the strategic interaction between a manufacturer and a regulator. We find that, under both countries’ policies, the manufacturer has an incentive to cover up a potential defect when there is a high chance that the defect indeed exists and it may inflict only moderate harm. However, if there is only a moderate chance that the defect exists, only under the U.S. policy does the manufacturer have an incentive to cover up a potential defect with significant harm. We show that the U.S. policy generates higher social welfare only for very serious issues for which both the expected harm and recall cost are very high and the defect is likely to exist. We make four policy recommendations that could help mitigate manufacturers’ cover-ups, including a hybrid policy in which the regulator conducts a confidential investigation of a potential defect only when it may inflict significant harm. This paper was accepted by Vishal Gaur, operations management.

Son preference is common in many Asian countries. Though a growing body of literature examines the drivers and socioeconomic impacts of phenomenon in case of China and India, work on other Asian countries is scarce. This study uses nationally representative survey of over 13 thousand households from Pakistan (PDHS 2012-13) to analyze the effects of observed preference for sons on women’s participation in intra-household decision-making. Four key intra-household decisions are considered: decisions regarding healthcare, family visits, large household purchases and spending husband's income. These correspond to four categories of household decisions, namely healthcare, social, consumption and financial. Probit and Ordered Probit are employed as the main estimation techniques and other determinants of household decision-making are controlled for. Besides, a number of matching routines are employed to account for the possibility of potential selection bias.We find that women with at least one son have more say in household decisions. Bearing at least one son is associated with 5%, 7% and 5% higher say in decisions involving healthcare, social and consumption matters respectively. Women's role in financial affairs, however, does not differ significantly from women with no sons. Female participation in decisionmaking grows significantly with the number of sons but only up to the third parity. These results are particularly visible among younger, wealthier and educated women, and those who got married earlier. The findings suggest a limited improvement in women's bargaining power at home resulting from the birth of one or more sons. This in part explains higherdesire for sons expressed by women compared to men in household surveys.; La préférence pour les garçons est courante en asie. Alors que beaucoup d’étudess’intéressent aux facteurs et aux impacts socioéconomiques de ce phénomène en Chine et enInde, les travaux sur les autres pays asiatiques sont plus rares. A partir d’une enquêtenationale réalisée sur plus de 13 000 ménages pakistanais (PDHS 2012-13), cette étudeanalyse les effets de la préférence pour les garçons sur la participation des femmes auxdécisions prises dans le ménage. Quatre décisions importantes du ménage seront prises encompte : celles relatives aux soins de santé, aux visites de famille, sur les achats du ménage etsur l’affectation des dépenses des revenus du mari. Celles-ci représentent quatre catégoriesdes décisions au sain du ménage : les décisions lié à la santé, aux liens sociaux, à laconsommation et aux affaires financières. Les méthodes Probit et Probit Ordinal sontutilisées pour les estimations de base et d’autres déterminants liés aux décisions prises dans leménage seront pris en compte. De plus, méthodes d’appariment sont utilisées pour tenircompte d’éventuels biais de sélection.Les résultats indiquent que le fait d’avoir au moins un fils a une influence sur les décisions duménage. Le fait d’avoir au moins un fils est associé à une hausse de 5%, 7% et 5% sur lesdécisions impliquant respectivement les soins de santé, les relations sociales et laconsommation. L’implication des femmes dans les finances du ménage ne varie pourtant passignificativement avec celle des femmes sans fils. La participation des femmes dans les prisesde décision augmente avec le nombre de fils mais seulement jusqu’à 3 garçons. Ce résultatentraine une amélioration relative sur le pouvoir de négociation des femmes au sein duménage suite à la naissance d’un ou plusieurs garçons. Cela explique en partie le désir plusfort des femmes d’avoir des fils par rapport aux hommes, selon les enquêtes ménages.

How do resolution frameworks affect the private restructuring of distressed banks? We model a distressed bank’s shareholders and creditors negotiating a restructuring given asymmetric information about asset quality and externalities onto the government. This yields negotiation delays used to signal asset quality. We find that strict bail-in rules increase delays by worsening informational frictions and reducing bargaining surplus. We characterize optimal bail-in rules for the government. We then consider the government’s possible involvement in negotiations. We find this can lead to shorter or longer delays. Notably, the government may gin from committing not to partake in negotiations.

Decision theory offers a formal approach to decision making, which is often viewed and taught as the rational way to approach managerial decisions. Half a century ago it generated high hopes of capturing and perhaps replacing intuition, and providing the “right” answer in practically all managerial situations. Today it seems fair to say that decision theory has not lived up to these expectations. Behavioral science provides ample evidence that managers fail to follow the dicta of decision theory, even when these are explained to them. As a result, executives often find decision theory frustrating and useless and prefer to rely on their intuition. This paper suggests that this extreme conclusion is unwarranted and calls for a re-appraisal of decision theory. We propose that it should not always be regarded as a mathematical tool that produces the answer; rather, it can be viewed as a framework for a dialog between the decision maker and the decision theorist. In one extreme, the decision theorist studies the problem and provides the “correct’’ answer. But in another, the decision theorist only challenges the decision maker’s intuition and logic. In between, a whole gamut of possible dialogs exists, in which decision theory doesn’t replace intuition, but supports and refines it.

French Abstract: Les economistes ont coutume de distinguer entre une composante positive et une composante normative de leurs travaux, ce qui est une singularite de leur discipline, car cette distinction n'a pas de repondant exact dans les autres sciences sociales. Elle a fortement evolue au cours du temps et les differentes manieres de la concevoir aujourd'hui en refletent l'histoire. On se propose ici d'en retracer les origines et les premieres formes, de l'economie politique classique anglaise de la premiere moitie du XIXe siecle jusqu'a l'apparition de l'economie du bien-etre dans la premiere moitie du XXe siecle. Ce parcours sequentiel vise aussi a identifier les positions les plus representatives et les arguments invoques pour les soutenir, en preparant ainsi une discussion qui serait moins historique et plus strictement conceptuelle. English Abstract: Economists are accustomed to distinguishing between a positive and a normative component of their work, a distinction that is peculiar to their field, having no exact counterpart in the other social sciences. The distinction has substantially changed over time, and the different ways of understanding it today are reflective of its history. Our objective is to trace the origins and initial forms of the distinction, from the English classical political economy of the first half of the 19th century to the emergence of welfare economics in the first half of the 20th century. This sequential account will also serve to identify the main representative positions along with the arguments used to support them, and it thus prepares the ground for a discussion that will be less historical and more strictly conceptual.

This is a study of analysts’ use of accounting information for valuation purposes in a venture capital setting. This setting is characterized in terms of the distinctive scouting and coaching work of venture capital funders, and the unproven and incomplete nature of the ventures and entrepreneurs, which seek funding to scale operations, pivot into new markets, internationalize, or undertake some other kind of fundamental change. Based on interviews with entrepreneurs (project-makers) and venture funders (analysts), a four phase model of valuation is proposed. The model illuminates that, in contrast with common assumptions in the existing literature, accounting is mobilized neither to reveal truth nor constitute knowledge about the objects of investment, but to promise and to care. This paper articulates these two concepts in the context of accounting. Promising is shown to be a means not to implement a predesigned business plan and a budgeted set of activities but to commit to a new and unclear future and agree high and sometimes unrealistic expectations. Caring is shown not to be a means to predict a final fate for the organization, but to give and take, interact and sometimes discipline in order to determine what is necessary to preserve and possible to change. Understanding that what is valued is not what exists but what is possible to create helps to resolve puzzles about accounting’s uncertain and ambiguous status and significance in the entrepreneurial economy. It also and more generally illustrates how accounting operates in relation to an unknowable object and future: not as a means to know or reveal but to write and rewrite a daring and ambitious narrative in which the protagonists (here the project-maker and venture) become something else (a manager and an organization).

We provide a new methodology to empirically investigate the respective roles of systematic and idiosyncratic skewness in explaining expected stock returns. Using a large number of predictors, we forecast the cross-sectional ranks of systematic and idiosyncratic skewness which are easier to predict than their actual values. Compared to other measures of ex ante systematic skewness, our forecasts create a significant spread in ex post systematic skewness. A predicted systematic skewness risk factor carries a significant risk premium that ranges from 7% to 12% per year and is robust to the inclusion of downside beta, size, value, momentum, profitability, and investment factors. In contrast to systematic skewness, the role of idiosyncratic skewness in pricing stocks is less robust. Finally, we document how the determinants of systematic and idiosyncratic skewness differ.

We study the effect of dividend taxes on the payout and investment policies of publicly listed firms. To do so, we exploit a unique setting in Switzerland where, following the corporate tax reform of 2011, some but not all firms were suddenly able to pay tax-exempt dividends to their shareholders. Using a difference-in-differences specification, we show that treated firms swiftly and permanently increase their dividend payout by around 30% compared to control firms after the tax cut. When studying the effect of agency conflicts, we show that the impact on the payout is less pronounced for firms in which the controlling shareholders have more voting rights than cash-flow rights. We find a significant positive abnormal stock return after the announcement of the payment of a tax-exempt dividend. However, reducing dividend taxes does not boost investment. This is due to a significant drop in retained earnings and to the fact that equity issuances do not surge after the tax cut. Our evidence is consistent with models where the marginal source of finance is retained earnings, and inconsistent with the neoclassical theory of dividend taxation.

© 2020 The Author(s) 2020. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. There is a discrepancy between CAPM-implied and realized returns. Using the CAPM in capital budgeting - as recommended in textbooks - should thus have real effects. For instance, low beta projects should be valued more by CAPM users than by the market. We test this hypothesis using M&A data and show that bids for low-beta private targets entail lower bidder returns. We provide further support by testing several ancillary predictions. Our analyses suggest that using the CAPM when valuing targets leads to valuation errors (relative to the market's view) corresponding on average to 12% to 33% of the deal values.

International audience; This paper proposes an indirect inference (Gourieroux, Monfort and Renault, 1993; Smith, 1993) estimation method for a large class of dynamic equilibrium models. Our approach is based on the observation that the econometric structure of these systems naturally generates auxiliary equilibria that can serve as building blocks for estimation. We use this insight to develop an accurate estimator for the long-run risk model of Bansal and Yaron (2004). We demonstrate the accuracy of our method by Monte Carlo simulation and estimate the long-run risk model on U.S. data. We also illustrate the good performance of the methodology on an asset pricing model with investor learning.

In this paper, we develop a theoretical model and offer a first empirical test of how competitive dethronement affects managerial risk taking. Drawing on the mechanism of endowment effect and reference-dependent utility theory, we predict that former market leaders take more risks compared to, otherwise identical, competitors. We empirically test this prediction using two contexts allowing us to use different methods to operationalize risk. The first setting draws on field data from a two-month banking sales contest. The second, quasi-laboratory, data comes from an educational game. Consistent with model’s prediction, we find that dethronement is associated with increased risk taking but that the endowment effect leading to such response decays over time. In contrast, a mere decline in performance ranking does not have the same effect.

Both in the United States and in the Euro area, bank supervision is the joint responsibility of local and central/federal supervisors. I study how such a system can optimally balance the lower inspection costs of local supervisors with the ability of the central level to internalize cross-border or interstate externalities. The model predicts that centralised supervision endogenously increases market integration and cross-border externalities, further strengthening the need for centralised supervision. This complementarity implies that, for some parameterizations of the model, the economy can be trapped in a local supervision equilibrium with low supervision and integration. In such a case, the forward-looking introduction of a centralized supervisory architecture achieves a superior equilibrium. JEL Classification: D53, G21, G28, G33, G38, L51

Online crowdfunding is a popular new tool for raising capital to commercialize product innovation. Product innovation must be both novel and useful (1-4). Therefore, we study the role of novelty and usefulness claims on Kickstarter. Startlingly, we find that a single claim of novelty increases project funding by about 200%, a single claim of usefulness increases project funding by about 1200%, and the co-occurrence of novelty and usefulness claims lowers funding by about 26%. Our findings are encouraging because they suggest the crowd strongly supports novelty and usefulness. However, our findings are disappointing because the premise of crowdfunding is to support projects that are innovative, i.e. that are both novel and useful, rather than projects that are only novel or only useful.

Firm political contributions are associated with lower credit default swap spreads for contributing firms. To address endogeneity, we employ novel instruments and use a set of exogenous events on campaign contribution restrictions: (a) the passage of the Bipartisan Campaign Reform Act (BCRA) that banned soft money contributions, (b) the Federal Election Commission decision to interpret the BCRA less strictly, (c) the partial reversal of the BCRA and, (d) the McConnell v. FEC Supreme Court decision, which upheld the BCRA. Overall, the evidence suggests that political contributions are valued by credit market participants.

Research Summary: Firms and nongovernmental organizations (NGOs) often collaborate to establish new supply chains. With a formal model, we analyze how NGOs can alleviate market failures and improve supplier economic inclusion while strategically interacting with firms. We account for the specific goals of the NGO and the need to induce collaboration between firms and their suppliers. The analysis reveals a “valley of frustration,” when NGO efforts benefit all actors but only marginally the firm. We also show that more powerful firms might prefer to internalize NGO functions, while firms with lower bargaining power and higher investment requirements are better off collaborating with NGOs. Finally, we study NGOs‐firms matching patterns and find that firms with higher bargaining power match with NGOs holding stronger capabilities. Managerial Summary: This article analyzes interactions between firms and nongovernmental organizations (NGOs) aiming to improve the economic inclusion of suppliers or to promote the adoption of specific (e.g., sustainable) practices. For firm executives, this study shows the constraints and benefits associated with working with NGOs, the conditions under which integration of NGO functions is preferable as well as the types of NGOs that offer better prospects for a successful collaboration. For NGO executives, it highlights the need to provide enough economic incentives to firms and suppliers alike to ensure their collaboration and the trade‐offs associated with this constraint, in particular, if NGO capabilities are limited. Overall, the study provides a comprehensive understanding of how NGO activities can influence value creation in a vertical value chain.

Energy efficiency projects are often executed by specialized entities, namely energy service companies (ESCOs). A typical ESCO's core business is conducted using performance-based contracts, whereby payment terms depend on the energy savings achieved. Despite their success in public, commercial, and industrial sectors, ESCOs in the residential sector are involved in fewer projects and face several challenges. First, an energy efficiency project often leads to changed consumption behavior; hence it is more difficult to evaluate the energy savings that are due to the project itself. The second challenge is that residential clients are more risk averse and, thus, less willing to contract for projects whose outcomes are uncertain. Third, a lack of monitoring protocols leads to ESCO's moral hazard problems. This paper studies ESCO contract design issues, focusing primarily on the residential market for energy efficiency. As opposed to other sectors, coordinating contracts do not exist. We show, however, that simple piecewise linear contracts work reasonably well. To improve their profitability, ESCOs can reduce uncertainty about the technology employed and/or develop ways of verifying post-project energy efficiency. Since policy makers are understandably keen to promote energy efficiency, we show also how regulations and monetary incentives can reduce inefficiencies in ESCOs' relationships and thereby maximize environmental benefits.

The correlation across US states in house price growth increased dramatically between 1976 and 2000. This paper shows that the contemporaneous geographic integration of the US banking market, via the emergence of large banks, was a primary driver of this phenomenon. To this end, we first theoretically derive an appropriate measure of banking integration across state pairs and document that house price growth correlation is strongly related to this measure of financial integration. Our IV estimates suggest that banking integration can explain up to one third of the rise in house price correlation over the period.

We depart from Savage's (1954) common state space assumption and introduce a model that allows for a subjective understanding of uncertainty. Within the revealed preference paradigm, we take the analyst's perspective and uniquely identify the agent's subjective state space via her preferences conditional on incoming information. According to our representation, the agent's subjective contingencies correspond to sets of the analyst's states and, as such, are coarse. The agent uses an additively separable utility with respect to her set of contingencies; and she adopts an updating rule that follows the Bayesian spirit but is limited by her perception of uncertainty. We illustrate the relevance of our theory with applications to the confirmatory bias and correlation neglect, as well as to optimal contract design.

We examine the relation between the presence of U.S. government as a major customer and a supplier firm’s loan contract terms, using major corporate customers as a benchmark. We find that firms with major government customers are associated with fewer covenants and a lower likelihood of having performance pricing provisions in their loan contracts. In contrast, we do not find such associations for firms with major corporate customers. Further, we find no evidence that the existence of major government customers is related to the supplier firm’s loan spread, security, or maturity. We conjecture that lenders benefit from the stricter monitoring of the government as a major customer and thus use fewer covenants and performance pricing provisions when lending to firms with major government customers than when lending to those with major corporate customers. We provide evidence consistent with this conjecture.

In this chapter, we first review the two main approaches to categories (understood from a cognitive perspective) found in the current literature. The ecological and the goal-based approaches to categories vary in terms of premises (prototypes vs. ideals), processes (central tendency and family resemblance vs. conceptual combination and goal achievement), and economic and institutional consequences. We then present three modes of reconciliation between the two approaches (intra-audience, inter-audience and as a function of field evolution) and integrate them more broadly into the institutional literature. Finally, in the last section, we expose fruitful areas for future research: we account for the domain validity of each approach; emphasize ignored research avenues at the field, organizational and individual levels; and finally make stronger connections between category research and strategy research.

This paper reviews several streams of research on market category formation. Most past research has largely focused on established category systems and the antecedents and consequences of categorical positioning (i.e., categorical purity vs. spanning; combination vs. replacement) but relatively ignored the formative processes leading to new categories. In this review, we address this lacuna to posit that scholarship would benefit from clearly disentangling category emergence from category creation. We analytically describe the differences between the two and elaborate the boundary conditions that guide and define which process is more likely to occur in a given market. Our review contributes to illuminating the role of organizational agency and strategic actions in market categories and their formation, which deserve greater attention as a result of their theoretical and practical implications.

This paper frames a model which summarizes the principal factors and relationships to incorporate human element, as per fatigue engagement, in the strategic and tactical decision making. A characterization of humans as per a dynamic interferer in system is presented. The findings are tested in an U-shaped assembly division of an international motor company. Dual-Resource Constrained sets are proposed. A Multi Agent model architecture, incorporating system dynamics modelling per humans, is implemented. ANOVA is executed for interaction analyses. Results designed optimal job sequence, rest break and task’s sequence, recovery rate and load characters as per enhanced system’s performances. Stable fatigued conditions are under complete recovery. Production rate in system is affected by fatigue that in turn increases with rise in switching rate. Chaotic market behavior prefers decentralized assignment of worker to task. Continuous switching suffers from learning attitude. Chaotic demand impairs fatigue across workforce reporting instable operator fatigue under different allocation rules. Under loudly physical tasks, random assignment is preferable for productivity outcomes. Autonomous control of workers at work considerably impairs fatigue under complete resting schema.

We debate the motivation for and effectiveness of public policies to encourage individuals to become entrepreneurs. Reviewing established evidence we find that most western world policies do not greatly reduce or solve any market failures but instead waste taxpayers’ money, encourage those already intent on becoming entrepreneurs, and mostly generate one-employee businesses with low growth intentions and a lack of interest in innovating. Most policy initiatives that would have the effect of promoting valuable entrepreneurship would not be recognizable as such, because they would primarily address other market failures: a central-payer healthcare would remove health-care related distortions affecting employment choices; greater STEM education would produce more engineers of which some start valuable new firms; and labor market reform to encourage hiring immigrants in jobs they have been educated for would reduce inefficient allocation of talent to entrepreneurship.

We propose a simple model of the sovereign-bank diabolic loop, and establish four results. First, the diabolic loop can be avoided by restricting banks' domestic sovereign exposures relative to their equity. Second, equity requirements can be lowered if banks only hold senior domestic sovereign debt. Third, such requirements shrink even further if banks only hold the senior tranche of an internationally diversified sovereign portfolio--known as ESBies in the euro-area context. Finally, ESBies generate more safe assets than domestic debt tranching alone; and, insofar as the diabolic loop is defused, the junior tranche generated by the securitization is itself risk-free.