Julia Meyer, Annette Krauss, Measuring and aggregating social performance of microfinance investment vehicles, In: CMF Working Paper Series, No. 3-2015, 2015. (Working Paper)
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This paper develops a method to measure and compare social performance of microfinance investments at the level of microfinance investment vehicles. Drawing from measurement theory, it develops formal quality criteria that individual social performance indicators, the selection, and the aggregation of such indicators into a single metric need to satisfy. Social performance indicators are selected for both microfinance investment vehicles, and their underlying portfolio. The method presented here uses data of the microfinance investment universe to determine a rating framework for the underlying of microfinance institutions, in addition to a unique set of variables captured at MIV level. The paper demonstrates the approach in a sample calculation and serves as a guideline for a future empirical application among microfinance investment vehicles. |
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Kjell G. Nyborg, Matti Keloharju, Markku Malkamäki, Kristian Rydqvist, A Descriptive Analysis of the Finnish Treasury Bond Market 1991-1999, In: Bank of Finland Research Discussion, No. 16, 2002. (Working Paper)
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This paper presents a descriptive analysis of the primary and secondary market for Finnish treasury bonds. The paper focuses on three issues. First, we report basic descriptive statistics such as auction volumes and secondary market yields and volumes. Second, we estimate the revenues earned by primary dealers from the treasury bond market. Third, we analyse the development of the price of the auctioned bonds, relative to other benchmark bonds, around the time of the auction. We find evidence of a price decrease in the auctioned bond series before the auction and a price increase after the auction. This pattern is strongest for 1992-1994 when Treasury funding needs were heavy and secondary market trading volume of treasury bonds was modest. |
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Mathias Beck, Andrea Schenker-Wicki, Lukas Schönenberger, Making Sustainable Strategy in Complex Management Environments: Proposition for a Systemic and Practice-Oriented Methodology, In: UZH Business Working Paper, No. 353, 2015. (Working Paper)
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The increasing complexity of the modern world creates both higher risks and new interdependencies in the socioeconomic environment. To cope with these challenges powerful new tools must be applied to find sustainable solutions. System dynamics is a field that offers potential assistance in dealing with complex issues. However, managers and politicians often lack the knowledge and necessary skills to apply quantitative methods in their decision-making process. In contrast, qualitative approaches are easily understood and handled but have limited capacities for analysis. To address this gap, we have developed a bundle of tools tailored for managers and politicians facing complex problems. These tools enable executives to recognize effective levers and assess potential consequences of specific interventions in a highly interconnected system. The approach detailed here equips decision makers with a powerful method to develop, test, and communicate strategies to find long-term sustainable solutions for complex issues in business and society. |
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Rajna Gibson, Carmen Tanner, Alexander Wagner, Moral commitment: Does it reduce or enhance the response to social norms? Evidence from an experiment on earnings management, In: Swiss Finance Institute Research Paper, No. 15-01, 2021. (Working Paper)
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Social norms play a powerful role in guiding managerial behavior. For example, prior work has established the power of injunctive (prescriptive) norms in areas where views on what is right and wrong widely differ, such as earnings management (EM). Existing work highlights the effects of social norms on the average norm addressee. However, little is known about individual differences in reactions to injunctive norms. That is, who is more malleable, and who resists more? In this research, we conduct an experiment on EM to study such potential differences in individual responses to social norms. We find that participants with a strong commitment to honesty react less to both EM-disapproving and EM-approving injunctive norms. These findings have implications for the theoretical and empirical analysis of managerial behavior and for the use of injunctive social norms as steering tools for truthful reporting. |
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Magnus Dahlquist, Henrik Hasseltoft, Economic Momentum and Currency Returns, In: n/a, No. n/a, 2015. (Working Paper)
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Past trends in a broad range of fundamental variables predict currency returns. We document that a trading strategy that goes long currencies in countries with strong economic momentum and short currencies in countries with weak economic momen- tum exhibits an annualized Sharpe ratio of about one and yields a significant alpha when controlling for standard carry, momentum, and value strategies. The economic momentum strategy subsumes the alpha of carry trades, suggesting that cross-country di↵erences in carry are captured by di↵erences in past economic trends. Moreover, we study investors’ expectations of fundamental variables and find the expectations to be extrapolative but negatively related to the portfolio weights, which rank economic trends across countries. |
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Kjell G. Nyborg, Central Bank Collateral Frameworks, In: Swiss Finance Institute Research Paper, No. 15-10, 2015. (Working Paper)
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This paper seeks to inform about a feature of monetary policy that is largely overlooked, yet occupies a central role in modern monetary and financial systems, namely central bank collateral frameworks. Their importance can be understood by the observation that the money at the core of these systems, central bank money, is injected into the economy on terms, not defined in a market, but by the collateral frameworks and interest rate policies of central banks. Using the collateral framework of the Eurosystem as a basis of illustration and case study, the paper brings to light the functioning, reach, and impact of collateral frameworks. A theme that emerges is that collateral frameworks may have distortive effects on financial markets and the wider economy. They can, for example, bias the private provision of real liquidity and thereby also the allocation of resources in the economy as well as contribute to financial instability. Evidence is presented that the collateral framework in the euro area promotes risky and illiquid collateral and, more generally, impairs market forces and discipline. The paper also emphasizes the important role of ratings and government guarantees in the Eurosystem’s collateral framework. |
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Brian M Burnett, Hui Chen, Katherine Gunny, Return on political investment in the American Jobs Creation Act of 2004, In: Harvard Business School Accounting & Management Unit Research Paper Series, No. 50, 2014. (Working Paper)
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Prior literature raises a “puzzle” of high rates of return on corporate political investment, but evidence for this puzzle is largely descriptive in nature. We exploit the setting of the American Jobs Creation Act’s passage in 2004 to provide more robust estimates of political returns based on instrumentation in a two-stage regression model. We find for the median sample firm that an increase of \$1 million in lobbying spending is associated with about \$32.35 million in taxes saved. These estimates, while consistent with a high-returns “puzzle,” are nearly an order of magnitude lower than those previously reported via descriptive methods. |
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Brian Burnett, Hui Chen, Katherine Gunny, Auditor-provided lobbying service and audit quality, In: SSRN, No. 1956831, 2014. (Working Paper)
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Regulators and the public are concerned about accounting firms lobbying politicians on behalf of their own audit clients because it could impair auditor independence. In this study, we examine whether these lobbying activities by accounting firms are associated with their clients’ audit quality. Since required disclosures of lobbying activities are limited, we construct a novel proxy to capture auditor lobbying on behalf of audit clients. Using this proxy, we find that perceived audit quality is negatively related to lobbying. However, we fail to find that actual audit quality is lower for these clients. Our findings suggest that investors perceive auditors’ lobbying for clients’ political interests as harmful to audit quality but that these concerns do not appear to materialize in the outcome of the audit process. This evidence suggests that reputation concerns and litigation risk may provide enough discipline for auditors to maintain independence. |
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Hui Chen, David Parsley, Ya-wen Yang, Corporate lobbying and firm performance, In: SSRN, No. 1014264, 2014. (Working Paper)
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Corporate lobbying activities are designed to influence legislators, regulators, and courts, presumably to encourage favorable policies and/or outcomes. In dollar terms, corporate lobbying expenditures are typically one or even two orders of magnitude larger than spending by Political Action Committees (PAC), and unlike PAC donations, lobbying amounts are direct corporate expenditures. We use data made available by the Lobbying Disclosure Act of 1995, to examine this more pervasive form of corporate political activity. We find that on average, lobbying is positively related to accounting and market measures of financial performance. These results are robust across a number of empirical specifications. We also report market performance evidence using a portfolio approach. We find that portfolios of firms with the highest lobbying intensities significantly outperform their benchmarks in the three years following portfolio formation. |
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Hui Chen, The effect of agency problems on optimal operating leverage and social welfare, In: SSRN, No. 2358670, 2015. (Working Paper)
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In this paper, 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. The results of this paper may 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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Martin Scheffel, Hans Gersbach, Jean-Charles Rochet, Taking Banks to Solow, In: CEPR Discussion Papers, No. DP10439, 2015. (Working Paper)
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We develop a simple integration of banks into the Solow model. The objective is to provide a tractable benchmark for analyzing the long-term impact of crises on economic activities and growth. A fraction of firms have to rely on banks for financing their investments while banks face themselves an endogenous leverage constraint. Informed lending by banks and uninformed lending through capital markets spur capital accumulation. The ensuing coupled accumulation rules for household wealth and bank equity yield a uniquely determined steady state. We highlight three properties when shocks to wealth, productivity or trust affect the economy. First, typically bond and loan financing react in opposite directions to such shocks. Second, negative temporary shocks to household wealth (financial crisis) or negative sectoral production shocks can surprisingly cause persistent booms of banking and even of the entire economy -- after an initial bust. Third, shocks to bank equity (banking crisis), however, lead to large and persistent downturns associated with high output losses. |
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Stefano Battiston, Tasca Paolo, Diversification and financial stability, In: SRC Discussion Paper, No. 10, 2014. (Working Paper)
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Claire Célérier, Boris Vallee, The motives for financial complexity: An empirical investigation, In: SSRN, No. 2289890, 2015. (Working Paper)
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This paper investigates the motives for financial complexity by focusing on a large market of investment products exclusively targeted to households. We develop a robust measure of complexity by performing a text analysis of the term sheets of 55,000 retail structured products issued in 17 European countries since 2002. We first find that the complexity of structured products has significantly increased over the period 2002-2010. Second, calculating the fair value of a subsample of products, we show that relatively more complex products have higher markups. Third, the headline rate offered by a product is an increasing function of its complexity. Fourth, distributors targeting low-income investors, such as savings banks, offer relatively more complex products. Fifth, competition amplifies rather than mitigates the migration towards higher complexity. These findings are diffcult to fully reconcile with a completing market motive for financial complexity, while being more consistent with banks catering to yield seeking investors, or developing obfuscation strategies. |
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Christian Essling, Johannes Koenen, Christian Peukert, Another loudness war: how record labels compete for consumer attention, In: SSRN, No. 2444708, 2015. (Working Paper)
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In markets with thousands of products, firms cannot take it for granted that consumers are even aware of their articles’ existence. Advertising and actions to attract consumer attention are therefore integral components of a firm’s competitive toolbox. We study firms’ behavior in a perfect example for such a market: The music industry, in which consumers can choose from a plethora of albums and songs. We study a specific strategic instrument of firms, single releases, applying unique micro-level data. Arguing that the digitization of the industry via MP3, filesharing, and iTunes amounts to forced unbundling, the role of singles has changed from individual revenue generators (pre-digital era) to pure attention gatherers. In accordance with this driving hypothesis, we observe an inverse U-shaped relationship between competition intensity and the number of singles released in the digital era, while previously competition had a purely negative effect. |
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Selin Akca, Thomas Otter, Identifying the discount factor of forward looking consumers based on consumption from inventory, In: SSRN, No. 2440681, 2014. (Working Paper)
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In this paper we study the identification of discrete choice models of dynamically optimizing consumers. We first provide additional formal results for existing identification solutions. We then investigate the ‘last in, last out’ (LILO) constraint on consuming from the inventory as a means to identifying the discount factor in these models. We find that the LILO constraint (over-)identifies the discount parameter in the absence of assumptions about consumers’ expectations and show how LILO results in efficient estimates in a parametric, maximum likelihood framework using simulated data. Finally, we report survey based empirical evidence for the relevance of LILO strategies in four different categories. |
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Marc Brechot, Stephan Nüesch, Egon Franck, Does sports activity improve health? Representative evidence using proximity to sports facilities as an instrument, In: IBW Working Paper Series, No. 348, 2014. (Working Paper)
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Using representative and geocoded data from the Swiss Household Panel and the Swiss Business Census, we estimate the effect of sports activity on health care utilization and health. Because sports activity is likely correlated with unobserved determinants of health care utilization and health, we use the number of sports facilities within 6 miles of the individual’s residence as an instrument. We find that doing sports at least once a week significantly reduces the number of doctor visits, overweight and sleeping problems. The magnitudes of these effects are larger in the IV estimations than in OLS estimations, which are biased toward zero due to reporting errors in sports activity and an omitted variable bias. To know the magnitudes of the causal effects is crucial for any kind of cost-benefit analysis of promoting individual sports activity. |
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Thomas J. Chemmanur, Manish Gupta, Karen Simonyan, Management Quality and Innovation in Entrepreneurial Firms, In: -, No. -, 2014. (Working Paper)
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We make use of hand-collected data on the quality and reputation of the management teams of a large sample of venture-backed entrepreneurial firms undertaking initial public offerings (IPOs) to address two research questions: How does the human capital of a firm’s top management team (“management quality”) affect the quantity and quality of innovation undertaken by it? Second, what are the effects of the pre-IPO innovativeness of a firm and its management quality on the characteristics of its IPO and its post- IPO operating performance? We hypothesize that higher quality management teams hire better scientists and other researchers; invest in more innovative projects; and manage these projects more ably, leading to higher innovation productivity. Consistent with this, we show in the first part of our analysis using ordinary least squares and instrumental variable analyses that firms with higher management quality exhibit higher innovation productivity in the years immediately before and after their IPOs. The above results hold for both the quantity (number of patents) and quality (citations per patent) of innovation. In the second part of our analysis, we find that firms with greater pre-IPO innovativeness are associated with a larger number of anti-takeover provisions in their corporate charter (determined at IPO), higher IPO valuations, younger age at IPO, and better post-IPO operating performance. Further, we find that the above effects are enhanced if innovative firms are managed by teams of higher management quality. |
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Lisa M George, Christian Peukert, Youtube Decade: Cultural Convergence in Recorded Music, In: NET Institute Working Paper, No. 14-11, 2014. (Working Paper)
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The YouTube platform reduces fixed entry costs for local artists but also lowers the cost of access to international superstars. The net effect is an empirical question. We study the effect of YouTube on the market for music, focusing on converging tastes for international hits. We consider Austria and Germany, which share a common culture and technological development but differ in access to music videos on YouTube. Exploiting a contract dispute that has blocked official music videos in Germany since 2009, we find that YouTube increases the number of US hits on European charts. We further find evidence that YouTube speeds the hit-making cycle and brings more unique titles to top charts. Although the superstar effect dominates, the magnitude of estimated effects are modest, suggesting that YouTube will not drive out the market for local music. |
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Stefan Schembera, Andreas Scherer, Organizing corruption controls after a scandal: Regaining legitimacy in complex and changing institutional environments, In: UZH Business Working Paper Series, No. 343, 2014. (Working Paper)
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We study the corruption control strategies at three Multinational companies (MNC) before, during, and after the disclosure of corruption scandals and the initiation of legal procedures. In particular, we want to explore why some MNCs after a corruption scandal exceed regulatory expectations, choose proactive strategies, and influence their environment as institutional entrepreneurs that define best practices and new industry standards. Other companies, by contrast, act in a more incremental and self-referred way. We build on the concept of legitimacy in institutional theory, distinguish four strategies to regain legitimacy: decoupling, isomorphic adaptation, moral reasoning, and substantial influence, and explain the choice and sequence of these strategies. While all three case firms managed to (eventually) adapt to the compliance requirements imposed by external regulatory authorities, we found that only very distinct constellations of scandal and reintegration process characteristics, such as the presence of a strong legitimacy shock and the necessity to react both radically and instantly, forces the company into the role of an institutional entrepreneur. In cases where such legitimacy shocks are lacking, companies have more time to react and hence rather choose to gradually adapt their organizational processes to regulatory expectations. Rather than acting as institutional entrepreneurs, these companies rely almost exclusively on participating in moral reasoning activities to safeguard their new anti-corruption strategy. However, if change processes occur rather reluctantly after the disclosure of a big scandal, we found that externally imposed monitors may exercise severe pressure forcing the transgressor to eventually install a leading set of corruption controls. |
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Hui Chen, Katherine Gunny, Profitability and cost shifting in government procurement contracts, In: SSRN, No. 2482605, 2014. (Working Paper)
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