We study complexity in the market for securitized products, a market at the heart of the financial crisis of 2007-2009. The complexity of these products rose substantially in the years preceding the financial crisis. We find that securities in more complex deals default more and have lower realized returns. The worse performance is economically meaningful: a one standard deviation increase in complexity represents an 18% increase in default on AAA securities. However, yields of more complex securities are not higher indicating that investors did not perceive them as riskier. Our results are consistent with complexity obfuscating security quality.
Former Kenan Institute Center for Sustainable Enterprise Research Associate and current ACTIVEST Co-founder Napoleon Wallace's latest project was recently featured in a New York Times DealBook newsletter piece. The article discusses the rating system his company is developing, . . .
Do founders actually assimilate and leverage the knowledge from the seasoned executives who surround them? Or do they shrug it off and march to the beat of their own drum? To better understand whether founder CEOs incorporate or ignore advice from their leadership team, we collected and analyzed data on more than 2,000 companies that went public from 1997 to 2013, roughly half of which were led by founders and the other half by hired (nonfounder) CEOs.
The rise of crowdsourcing platforms as a potential source for innovative ideas presents a challenge: How do you attract contributors to work on your particular problem?1 Past research has demonstrated the importance of well-crafted problem statements as a means to attract more innovative solutions. But what really goes into a problem statement that engages the crowd? Do the statements that attract a large number of proposed ideas share common elements?
Following state-level legal changes that increase labor dismissal costs, firms increase their innovation in new processes that facilitate the adoption of cost-saving production methods, especially in industries with a large share of labor costs in total costs. Firms with high innovation ability exhibit larger increases in process innovation and capital-labor ratios, an effect driven by both increases in capital investment and decreases in employment. By facilitating the adjustment of the input mix when conditions in input markets change, innovation ability allows firms to mitigate value losses and is a key driver of their performance.
Hasbrouck (2018) takes advantage of the fact that U.S. equity market data are timestamped to nanosecond precision, and explores models of price dynamics at resolutions sufficient to capture the reactions of the fastest agents. The paper therefore addresses the econometric analysis of multivariate time series models at sub-millisecond frequencies and relies on long distributed lag models to alleviate the computational complexity while still taking advantage of the inherent sparsity of price transitions.
We evaluate the impacts of tax policy on asset returns using the U.S. municipal bond market. In theory, tax-induced ownership segmentation limits risk sharing, creating downward-sloping regions of the aggregate demand curve for the asset. In the data, cross-state variation in tax privilege policies predicts differences in in-state ownership of local municipal bonds; the policies create incentives for concentrated local ownership.
To be effective, experts need to simultaneously develop others (i.e. provide advice and feedback to novices) and advance their own learning (i.e. seek and incorporate advice and feedback from others). However, expertise, and the state of efficacy associated with it, can inhibit experts from engaging in these activities or doing so effectively. We discuss when and why cognitive entrenchment and reduced perspective taking lead experts to hold misperceptions about others. We then explain how these misperceptions lead experts to provide less helpful advice and feedback to novices and to be less likely to seek and take input from others. We offer insights to overcome these barriers, enhancing experts’ ability to provide and propensity to seek advice and feedback.
Given that mask-wearing proved to be an important tool to slow the spread of infection during the COVID-19 pandemic, investigating the psychological and cultural factors that influence norms for mask wearing across cultures is exceptionally important. One factor that may influence mask wearing behavior is the degree to which people believe masks potentially impair emotion recognition.
Acquisitions are notoriously difficult to execute successfully. Poor implementation of the post-acquisition integration process is a major source of acquisition value destruction. To surface new solutions for this vexing problem, we leverage the emerging triadic view of M&A activities, which emphasizes the interconnectedness between sellers, acquirers, and the units that are transferred between them.
George Floyd's murder caused many firms to reveal how exposed they are to racial diversity issues. We examine investor and firm behaviors after this socially significant event to provide evidence on the valuation effects of the exposure and ensuing corporate responses. We develop a text-based measure of a firm's exposure to racial diversity issues from conference call transcripts and find that, after the murder of George Floyd, firms with diversity exposure experience a stock price decrease of approximately 0.7% around the date of the conference call. We provide evidence that this effect is attributable to race-related exposure and not gender-related exposure. Initiatives taken by firms mitigate the negative market reaction.
Crowdsourcing as a mechanism of open innovation is a popular way for organizations to solicit ideas from external agents. Our research focuses on the relationship between examples in problem statements provided to a crowd and the subsequent number of ideas submitted by the crowd.
Prior research suggests that female negotiators often obtain worse outcomes than male negotiators. The current research examines whether this pattern extends to the large subset of men and women who identify as gays and lesbians. In particular, we interweave scholarship on gender stereotypes with work on intersectionality and MOSAIC theory to develop a theoretical model that anticipates how male and female negotiators will be treated at the bargaining table based on whether they are perceived to be heterosexual or homosexual.
Prior research suggests that female negotiators often obtain worse outcomes than male negotiators. The current research examines whether this pattern extends to the large subset of men and women who identify as gays and lesbians. In particular, we interweave scholarship on gender stereotypes with work on intersectionality and MOSAIC theory to develop a theoretical model that anticipates how male and female negotiators will be treated at the bargaining table based on whether they are perceived to be heterosexual or homosexual. This model predicts that homosexual women, like heterosexual men, will receive more beneficial negotiation offers and outcomes than heterosexual women and homosexual men.
Private labels (PL), also known as store brands or private brands, account for hundreds of billions of dollars in consumer packaged goods sales every year. PLs build store loyalty, improve margins and have been a key factor in changing the balance of power between retailers and national brand (NB) manufacturers. Thus, retailers around the world have a stake in pushing their own store brands. Yet, while PLs enjoy great success in Western, and increasingly Central, Europe, their performance is much more muted in the world's largest market, the United States, and in emerging markets. Why is that the case?
Ally work, or actions to support those from less advantaged social groups, shows promise in advancing social welfare in workplaces. Although much of the literature has explained factors that predict ally work, in this paper, we shift the conversation to understand the positive spillover of managers’ ally work on observing employees. We focus specifically on self ally work. Drawing from the theory of political ideology-as-motivated cognition, we propose that employees perceive managers who enact self ally work as more liberal (rather than conservative).
This study builds on the knowledge spillover theory of entrepreneurship to examine the factors that influence the decision of latent entrepreneurs to move from opportunity recognition to opportunity exploitation and emergent entrepreneurship.
This study examines whether the implementation of industry-specific accounting standards helps capital market participants in making decisions about providing capital to firms. We predict and find an, on average, increase in firms’ capital growth in years following implementation of the relevant industry standard.
Scholars are increasingly recognizing that allyship affects allies themselves. Although existing scholarship covers a multitude of constructs, most of the literature focuses on social evaluations and their effects on allyship persistence. We posit that the dual focus on social evaluations and allyship persistence has limited the theoretical insights and applied relevance of scholarship on the consequences of allyship for allies.
We analyze the impact of the introduction of credit default swaps (CDSs) on real decision-making within the firm. Our structural model predicts that CDS introduction increases debt capacity more when uncertainty about the credit events that trigger CDS payment is lower.