Corporations face constant pressure to respond to a wide range of social, environmental and governance issues, many of are outside the company’s core mission. Determining whether or how to respond to such pressures is a complex process, often requiring substantial time and resources on the part of senior management. In a new paper, “Willing and Able: A General Model of Organizational Responses to Normative Pressures,” Olga Hawn, University of North Carolina Kenan-Flagler Business School Assistant Professor for Strategy, Entrepreneurship, and Sustainability; Rodolphe Durand of HEC Paris; and Ioannis Ioannou from the London Business School provide a dynamic framework for understanding how companies analyze and respond – or don’t respond – to “normative pressures” on matters that include global warming, environmental stewardship, occupational health, executive compensation and corporate governance, among others. This pressure comes from a wide range of interest groups that may include activists, non-governmental organizations (NGOs) and other stakeholders.
Climatologists project that global temperatures may rise by up to four degrees Celsius over the next century. This projection raises a natural question: “Can we assess the impact that this temperature increase will have on the U.S. economy?” UNC Kenan-Flagler Business School Professor of Finance Ric Colacito discusses his co-authored paper “Temperature and Growth: A Panel Analysis of the United States.”
Many people dream of starting their own business. But before they can make their dream a reality, one of the first and most important decisions they must make is whether to go it alone or partner with someone they may, or may not, already know. Which approach is better? Kenan Institute Grant Recipient Travis Howell, previews his findings in a soon-to-be-published working paper.
In the past decade, coworking spaces have emerged as a new and promising phenomenon within entrepreneurship. Due to its prevalence, popularity and potential for disruptive change, coworking is increasingly relevant to theory, practice and policy in entrepreneurship, yet its implications are largely unstudied given its rapid rise. Overall, more data and analysis is needed to inform owners, policy makers and entrepreneurs about the effects of coworking. This paper, by UNC Kenan-Flagler Ph.D. candidate Travis Howell and Professor of Strategy and Entrepreneurship Chris Bingham, is meant to increase understanding about the nature and value of this new phenomenon. In other words, it attempts to address the question: Does coworking work?
The COVID-19 pandemic has exposed flaws in the global supply chain that have existed for years, with disruptions that have led to a scarcity of goods as diverse as PPE, food and toilet paper. In this Kenan Insight, we examine how threats to supply chains are forcing companies to rethink how they can position themselves to mitigate future risk.
We model the threat of such liquidation through the intermediation of an activist shareholder. Among other things, our model predicts that MDPs are more likely to be adopted by funds that appear to be less effective in providing portfolio services to their investors and that are relatively easy to liquidate or ‘attack’. We test the model on a panel of 236 CEFs and find good agreement with our model.
Using the approach of Ghysels, Santa-Clara, and Valkanov (2005), after correcting a coding error pointed out to us, we find that the Merton model holds over samples that exclude financial crises, in particular the Great Depression and/or the subprime mortgage financial crisis and the resulting Great Recession. We find that a simple flight to safety indicator separates the traditional risk-return relationship from financial crises which amount to fundamental changes in that relationship.
We study the interaction of flexible capital utilization and depreciation for expected returns and investment of firms. Empirically, an investment strategy that buys (sells) equities with low (high) utilization rates earns 5% p.a.
When policymakers implement a disinflation program directed at high inflation, the real dollar value of their country’s stock market index experiences a cumulative abnormal 12-month return of 48 percent in anticipation of the event. In contrast, the average cumulative abnormal 12-month return associated with disinflations directed at moderate inflation is negative 18 percent. The 66-percentage point difference between cumulative abnormal returns, along with descriptive evidence and case studies, suggests that unlike the swift eradication of past high inflations documented by Sargent (1982), the US will not experience a quick, low-cost transition from moderate inflation to the Fed’s two-percent target.
Supreme Court decisions on reproductive rights and affirmative action inadvertently afford the nursing profession a propitious opportunity to capitalize on the nation’s rich mosaic of iceberg demographic identities—inherited and acquired traits that may not be visibly apparent—to address pressing worker shortages and other workplace conundrums.
In online service marketplaces, supply-side thickness - the number of providers - is widely believed to be crucial for facilitating matches, i.e., transactions between providers and customers. The empirical literature generally supports this view, providing evidence for the hypothesis that market thickness increases matches, albeit at varying rates. This support is typically obtained in contexts with a passive seller listing where all sellers are readily listed for customers. Distinctively, our study empirically examines an online marketplace where providers are active, meaning they must take an action to be listed.
We find analysts convey information about a firm’s earnings without fully revising their earnings forecast by increasing bundling intensity, which is the extent to which an analyst report that has an earnings forecast revision includes also price target and/or recommendation revisions with the same sign as the earnings forecast revision. We develop a firm-level measure of bundling intensity, BF_Score, and find it is an economically meaningful predictor of analyst-based earnings surprises.
The authors find that hedge funds during the 2008 financial crisis did not systematically benefit from opportunistic trading, which could have generated systemic risks in financial markets. Although some funds that used leverage actually performed worse than expected given ex ante risk-factor loadings, this result was most likely caused by meeting redemptions rather than by forced selling during the crisis.
Prior research on organizational responses to normative pressures has cataloged a spectrum of strategies, ranging from accommodation to resistance, but more assertive responses have largely been overlooked. We expand the existing repertoire to include the more aggressive, targeted, and intertemporal response of organizational repression.
We investigate systematic changes in corporate effective tax rates over the past 25 years and find that effective tax rates have decreased significantly. Contrary to conventional wisdom, the decline in effective tax rates is not concentrated in multinational firms; effective tax rates have declined at approximately the same rate for both multinational and domestic firms. Moreover, within multinational firms, both foreign and domestic effective rates have decreased. Finally, changes in firm characteristics and declining foreign statutory tax rates explain little of the overall decrease in effective rates.
Accounting rules, through their interactions with capital regulations, affect financial institutions’ trading behavior. The insurance industry provides a laboratory to explore these interactions: life insurers have greater flexibility than property and casualty insurers to hold speculative-grade assets at historical cost, and the degree to which life insurers recognize market values differs across U.S. states. During the financial crisis, insurers facing a lesser degree of market value recognition are less likely to sell downgraded asset-backed securities. To improve their capital positions, these insurers disproportionately resort to gains trading, selectively selling otherwise unrelated bonds with high unrealized gains, transmitting shocks across markets.
We identify a new channel for the transmission of shocks across international markets. Investor flows to funds domiciled in developed markets force significant changes in these funds' emerging market portfolio allocations. These forced trades or “fire sales” affect emerging market equity prices, correlations, and betas, and are related to but distinct from effects arising purely from fund holdings or from overlapping ownership of emerging markets in fund portfolios. A simple model and calibration exercise highlight the importance to these findings of “push” effects from funds' domicile countries and “co-ownership spillover” between markets with overlapping fund ownership.
There has been renewed advocacy for restrictions on international financial flows in the wake of the recent financial crisis. Motivated by this trend, we explore the extent to which cross-border flows affect real economic activity. Unlike previous research efforts that focus on aggregated capital flows, we exploit novel data on forced trading by global mutual funds as a plausible source of exogenous flow shocks. Such forced trading is known to generate large liquidity and price effects, but its real impacts have not been studied extensively. We find that both country- and firm-level investment growth rates are significantly affected by these exogenous capital shocks, and that their effect is more pronounced for firms whose marginal investment decisions are more equity-reliant.
Few papers in the literature on inequality measurement deal with uncertainty, particularly when the ranking of cohorts may not be fixed. We present a set of axioms implying such a class of inequality measures under uncertainty that is a one-parameter extension of the generalized Gini mean over the distribution of average allocations. The extension consists of a quadratic term accounting for inter-personal correlations. In particular, our measure can simultaneously accommodate a preference for “shared destiny”, a preference for probabilistic mixtures over unfair allocations, and a preference for fairness “for sure” over fairness in expectation.
A recent analysis by Greg Brown, Kenan Institute director, and Philip Howard, a visiting instructor of finance at UNC’s Kenan-Flagler Business School, shows that four of the five best-run publicly-traded companies in North Carolina are located in the Raleigh-Durham-Chapel Hill area. The data is discussed in a recent Triangle Business Journal article.