Hui Chen, Bjorn Jorgensen, Insider trading and real activities manipulation through overproduction, In: SSRN, No. 2358668, 2014. (Working Paper)
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Hui Chen, The effect of agency problems on optimal operating leverage and risk allocation, In: SSRN, No. 2358670, 2013. (Working Paper)
Prior research has established that high operating leverage leads to high systematic risk. We examine a firm's choice of operating leverage in a principal-agent setting, and find that the degree of operating leverage is strictly lower when the manager's actions are unobservable. Further, the production output is also lower when agency problems are present. The suboptimal operational decisions result in not only decreased shareholder value, but also lower consumer surplus and lower total social welfare. However, accounting information can help mitigate this problem. Specifically, the more precise the accounting information, the less the reduction in the players' payoffs. With the recent trend in risk management moving toward a more comprehensive approach in evaluating a firm's risk, the results of this paper can provide some insight on how risk affects a firm's stakeholders differently, and what consequences it has in a broader economic sense. |
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Hui Chen, Bjorn Jorgensen, Firm exit through bankruptcy - the effect of accounting bias on product market competition, In: SSRN, No. 1934456, 2011. (Working Paper)
We analyze the effect of accounting biases on the profits of firms that compete in a Cournot product market. We find accounting biases strictly decrease firms' profits when the firms are fully equity-financed. However, different results emerge when we introduce debt into the firms' financial structures. Firms must report interim accounting signals, on which their debt covenants are based. We contrast firms' profits under an unbiased accounting system, a conservative accounting system and an aggressive accounting system. Conservative accounting system increases the likelihood of debt covenant violations and firm liquidation. Interestingly, the increased likelihood of liquidation could make the borrowing firms better off by turning the surviving firm into a monopolist that captures the entire market share. In addition, conservative accounting bias gives the banks more decision rights in liquidating or re-organizing the firms' operations, thus reducing the "excessive liquidation" problem. Absent renegotation, conservative accounting system improves the banks' payoffs. |
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Hui Chen, Debra Jeter, Ya-wen Yang, Pay-performance sensitivity before and after SOX, In: SSRN, No. 2321732, 2014. (Working Paper)
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Hui Chen, David Parsley, Ya-wen Yang, Coporate lobbying and financial performance, In: SSRN, No. 1014264, 2014. (Working Paper)
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Mathias Beck, Cindy Lopes-Bento, Andrea Schenker-Wicki, Radical or incremental: Where does R&D policy hit?, In: MSI, No. 1417, 2014. (Working Paper)
This study investigates the efficacy of public R&D support. Compared to most existing studies, we do not stop at substitution effects or general innovation outcome measures, but we are interested in knowing where the policy effect is highest: on innovation close to the market (i.e. incremental innovation) or on innovation that is still far from the market and hence more risky and radical. Using firm level data from the period 1999 to 2011, we find that the policy hits where the market failure is highest, that is, for radical innovation. Taking into account that the Swiss funding agency encourages collaboration, we find no evidence that the impact
of the policy is positively effected by various R&D collaboration patterns. |
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Uschi Backes-Gellner, Benefits of Apprenticeship Training and Future Challenges – Empirical Results and Lessons from Switzerland and Germany, In: Swiss Leading House "Economics of Education" Working Paper, No. 97, 2014. (Working Paper)
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Simone Balestra, Uschi Backes-Gellner, Heterogeneous effects of pupil-to-teacher ratio policies – A look at class size reduction and teacher aide, In: Swiss Leading House "Economics of Education" Working Paper, No. 102, 2017. (Working Paper)
This paper investigates the effect of two pupil-to-teacher ratio policies on test scores for children with different achievement levels. Using data from a large randomized experiment in early childhood, we estimate unconditional quantile treatment effects of small class and teacher aide, as compared to regular classes. For the small class intervention, results show that pupils in the middle of the achievement distribution profit the most from being assigned to a smaller class, whereas pupils at the bottom or at the top of the achievement distribution experience almost no gain in test scores. For the teacher aide intervention, the analysis reveals positive and significant effects for students at the bottom of the achievement distribution, an effect stronger for boys and disadvantaged pupils. The findings suggest that the average effects reported in traditional empirical studies on pupil-to-teacher ratio interventions provide an incomplete characterization of the impact on the achievement distribution, thus constituting a weak guide for policymakers. |
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Leif Brandes, Marc Brechot, Egon Franck, Managers’ External Social Ties at Work: Blessing or Curse for the Firm?, In: IBW Working Paper Series, No. 345, 2014. (Working Paper)
Existing evidence shows that decision-makers’ social ties to internal co-workers can lead to reduced firm performance. In this paper, we show that decision-makers’ social ties to external transaction partners can also hurt firm performance. Specifically, we use 34 years of data from the National Basketball Association and study the relationship between a team's winning percentage and its use of players that the manager acquired through social ties to former employers in the industry. We find that teams with “tie-hired-players” underperform teams without tie-hired-players by 5 percent. This effect is large enough to change the composition of teams that qualify for the playoffs. Importantly, we show that adverse selection of managers and teams into the use of tie-hiring procedures cannot fully explain this finding. Additional evidence suggests instead that managers deliberately trade-off private, tie-related benefits against team performance. |
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Simon Alder, Chinese Roads in India: The Effect of Transport Infrastructure on Economic Development, In: Center for Institutions, Policy and Culture in the Development Process, No. 209, 2014. (Working Paper)
This paper uses a general equilibrium framework as in Eaton and Kortum (2002) to estimate the contribution of transport infrastructure to regional development. I apply the analysis to
India, a country with a notoriously weak and congested transportation infrastructure. I first
analyze the development effects of a recent Indian highway project that improved connections between the four largest economic centers. I estimate the effect of this new infrastructure on income across districts using satellite data on night lights. The results show aggregate net gains from the Indian highway project, but unequal effects across regions. China has followed a different highway construction strategy and has experienced more significant convergence across regions than India. I therefore use the model to gauge the effects of
a counterfactual highway network for India that replicates the Chinese strategy of connect-
ing intermediate-sized cities. I find that this counterfactual network would have benefited
the lagging regions of India, but not the aggregate economy. I also construct additional counterfactuals and discuss their effects on economic development. |
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Jeanine Miklos-Thal, Hannes Ullrich, Career prospects and effort incentives: Evidence from professional soccer, In: SSRN, No. 1431910, 2014. (Working Paper)
It is difficult to empirically test the prediction that future career prospects create implicit efforts incentives because researchers cannot randomly "assign" career prospects to economic agents. To overcome this challenge, we use data from professional soccer, where employees of the same club face different external career opportunities depending on their nationality. We test whether the career prospect of being selected to a Euro Cup national team affects players' pre-Cup performances, using nationals of countries that did not participate in the Euro Cup as a control group. We find that the Euro Cup career prospect has positive effects on the performances of players with intermediate chances of being selected to their national team, but negative effects on the performances of players whose selection is very probable. Our findings have implications for the incentive effects of within-firm promotions and of external career opportunities. |
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Daniel Cerquera, Francois Laisney, Hannes Ullrich, A note on regressions with interval data on a regressor, In: SSRN, No. 1419, 2014. (Working Paper)
Motivated by Manski and Tamer (2002) and especially their partial identification analysis of the regression model where one covariate is only interval-measured, we present two extensions. Manski and Tamer (2002) propose two estimation approaches in this context, focussing on general results. The modified minimum distance (MMD) estimates the true identified set and the modified method of moments (MMM) a superset. Our first contribution is to characterize the true identified set and the superset. Second, we complete and extend the Monte Carlo study of Manski and Tamer (2002). We present benchmark results using the exact functional form for the expectation of the dependent variable conditional on observables to compare with results using its nonparametric estimate, and illustrate the superiority of MMD over MMM. |
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Tobias Kretschmer, Christian Peukert, Video Killed the Radio Star? Online Music Videos and Digital Music Sales, In: CEP Discussion Papers, No. 1265, 2014. (Working Paper)
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Giovanni Di Iasio, Stefano Battiston, Luigi Infante, Federico Pierobon, Capital and contagion in financial networks, In: MPRA Paper, No. 52141, 2013. (Working Paper)
We implement a novel method to detect systemically important financial institutions in a network. The method consists in a simple model of distress and losses redistribution derived from the interaction of banks' balance-sheets through bilateral exposures. The algorithm goes beyond the traditional default-cascade mechanism, according to which contagion propagates only through banks that actually default. We argue that even in the absence of other defaults, distressed-but-non-defaulting institutions transmit the contagion through channels other than solvency: weakness in their balance sheet reduces the value of their liabilities, thereby negatively affecting their interbank lenders even before a credit event occurs. In this paper, we apply the methodology to a unique dataset covering bilateral exposures among all Italian banks in the period 2008-2012. We find that the systemic impact of individual banks has decreased over time since 2008. The result can be traced back to decreasing volumes in the interbank market and to an intense recapitalization process. We show that the marginal effect of a bank's capital on its contribution to systemic risk in the network is considerably larger when interconnectedness is high (good times): this finding supports the regulatory work on counter-cyclical (macroprudential) capital buffers. |
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Tarik Roukny, Co-Pierre George, Stefano Battiston, A Network Analysis of the Evolution of the German Interbank Market, In: Discussion Paper Deutsche Bundesbank, No. 22, 2014. (Working Paper)
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Katherine Caves, Simone Balestra, The impact of high school exit exams on graduation rates and achievement, In: UZH Business Working Paper Series, No. 346, 2014. (Working Paper)
In this paper, we examine the long-term effects of high school exit exams (HSEEs) on graduation rates and achievement using an interrupted time series approach. We find that introducing a HSEE has an overall positive effect on graduation rate trends, an effect which is heterogeneous over time. In the year of introduction and the following three years we find a negative impact of HSEE on graduation rates; this negative impact is short-lived and becomes positive over the long term. We perform robustness checks using states that do not have HSEEs as control group. We also estimate a pre-intervention negative effect, suggesting that high schools start preparing for the HSEE before its actual introduction. We find no effects for achievement, possibly due to the lack of meaningful cross-state achievement data in the time period studied. |
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Vivien Kappel, The Effects of Financial Development on Income Inequality and Poverty, In: CER ETH Economics Working Paper Series, No. 10/127, . (Working Paper)
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Claire Célérier, Boris Vallee, Are Bankers Worth Their Pay? Evidence from a Talent Measure, In: SSRN, No. 2393110, 2014. (Working Paper)
We empirically test the hypothesis that relatively high returns to talent explain the wage premium for working in finance. We exploit a specificity of the French educational system to build a precise measure of talent that we match with compensation data obtained from an educational elite. Using this measure, we show wage returns to talent to be three times higher in the finance industry than in the rest of the economy. This greater sensitivity to talent almost fully explains the level of the finance wage premium, its evolution since the 1980s, and, at the individual level, the pay increase workers obtain when joining the finance industry. Finally, talented workers receive a larger share of variable compensation, and even more so in the finance industry. |
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Claire Célérier, Adrien Matray, Unbanked Households: Evidence of Supply-Side Factors, In: SSRN, No. 2392278, 2014. (Working Paper)
This paper provides evidence that supply-side factors significantly drive the high share of unbanked households. Using interstate branching deregulation in the U.S. after 1994 as an exogenous shock, we show that an increase in bank competition is associated with a large drop in the share of unbanked households. The effect is even stronger for populations that are more likely to be rationed by banks, such as black households living in ``high racial bias'' states. The improved access to bank accounts leads to higher savings rates but does not translate to higher levels of indebtedness. |
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Peter Höschler, Uschi Backes-Gellner, Shooting for the Stars and Failing: College Dropout and Self-Esteem, In: Swiss Leading House "Economics of Education" Working Paper, No. 100, 2017. (Working Paper)
We investigate the relationship between unfulfilled educational aspirations and self-esteem. Classifications of education relying on completed years of schooling or degree attainment are not able to distinguish between college dropouts with unfulfilled aspirations and graduates with fulfilled aspirations. To separate the two groups, we develop a classification of education combining the highest type of college enrolled in (aspiration) and the highest degree obtained (realization of aspiration). Using data spanning three decades from the National Longitudinal Survey of Youth, we find that four-year college dropouts compared to graduates have permanently lower self-esteem, whether dropouts obtain an associate’s degree or not. However, associate’s degree holders who had never enrolled in a four-year college do not experience this long-term negative effect. Therefore, finishing the highest type of college in which the student ever enrolled is critical for the formation of self-esteem. We discuss implications for college enrollment decisions. |
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