Liquidity Regulation and Banks: Theory and Evidence
This paper theoretically and empirically investigates the effects of liquidity regulation on the banking system. We document that the current quantity-based liquidity rule has reduced banks’ liquidity risks. However, the mandated liquidity buffer appears to crowd out bank lending and lead to a migration of liquidity risks to banks that are not subject to liquidity regulation. These findings motivate a model of liquidity regulation with endogenous liquidity premiums and heterogeneous banks.
Bias against AI art can enhance perceptions of human creativity
The contemporary art world is conservatively estimated to be a $65 billion USD market that employs millions of human artists, sellers, and collectors globally. Recent attention paid to AI-made art in prestigious galleries, museums, and popular media has provoked debate around how these statistics will change. Unanswered questions fuel growing anxieties. Are AI-made and human-made art evaluated in the same ways? How will growing exposure to AI-made art impact evaluations of human creativity? Our research uses a psychological lens to explore these questions in the realm of visual art.
A Q Theory of Internal Capital Markets
We propose a tractable model of dynamic investment, spinoffs, financing, and risk management for a multi-division firm facing costly external finance. Our analysis formalizes
Meaning of Manual Labor Impedes Consumer Adoption of Autonomous Products
Open source software and global entrepreneurship
This is the first study to consider the relationship between open source software (OSS) and entrepreneurship around the globe. This study measures whether country-level participation on the GitHub OSS platform affects the founding of innovative ventures, and where it does so, for what types of ventures. We estimate these effects using cross-country variation in new venture founding and OSS participation. We propose an approach using instrumental variables, and cannot reject a causal interpretation.
News and Markets in the Time of COVID-19
The onset of COVID-19 was characterized by voluminous, negative news. Higher narrativity news topics (measured by textual proximity to articles describing the 1987 stock market crash and textual distance from Federal Reserve communications) were systematically associated with contemporaneous market responses, which were larger on high volatility days (hypersensitivity), and with markets–news feedback. Hypersensitive news topic-market pairs were associated with next-day reversals.
Dynamic Information Regimes in Financial Markets
We develop a model of investor information choices and asset prices in which the availability of information about fundamentals is time-varying and responds to investor demand for information. A competitive research sector produces more information when more investors are willing to pay for that research. This feedback, from investor willingness to pay for information to more information production, generates two regimes in equilibrium, one having high prices and low volatility, the other the opposite.
Dynamic Trading with Realization Utility
An investor receives utility bursts from realizing gains and losses at the individual-stock level (Barberis and Xiong, 2009, 2012; Ingersoll and Jin, 2013) and dynamically allocates his mental budget between risky and risk-free assets at the trading-account level. Using savings, he reduces his stockholdings and is more willing to realize losses. Using leverage, he increases his stockholdings beyond his mental budget and is more reluctant to realize losses. While leverage strengthens the disposition effect, introducing leverage constraints mitigates it.
Dynamic Banking and the Value of Deposits
We propose a theory of banking in which banks cannot perfectly control deposit flows. Facing uninsurable loan and deposit shocks, banks dynamically manage lending, wholesale funding, deposits, and equity. Deposits create value by lowering funding costs. However, when the bank is undercapitalized and at risk of breaching leverage requirements, the marginal value of deposits can turn negative as deposit inflows, by raising leverage, increase the likelihood of costly equity issuance.
Dark defaults: How choice architecture steers political campaign donations
In the months before the 2020 U.S. election, several political campaign websites added prechecked boxes (defaults), automatically making all donations into recurring weekly contributions unless donors unchecked them. Since these changes occurred at different times for different campaigns, we use a staggered difference-in-differences design to measure the causal effects of defaults on donors’ behavior. We estimate that defaults increased campaign donations by over $43 million while increasing requested refunds by almost $3 million.
Valuing Data as an Asset
In the twenty-first century, the most valuable firms in the world are valued primarily for their data. This makes data central to finance. Data are an important asset to price; they change firm valuation and are a key consideration for an entrepreneur starting a new firm.
Judging foreign startups
Can accelerators pick the most promising startup ideas no matter their provenance? Using unique data from a global accelerator where judges are randomly assigned to evaluate startups headquartered across the globe, we show that judges are less likely to recommend startups headquartered outside their home region by 4 percentage points. Back-of-the-envelope calculations suggest this discount leads judges to pass over 1 in 20 promising startups.
Accounting conservatism and relational contracting
License to Layoff? Unemployment Insurance and the Moral Cost of Layoffs
This study presents moral cost as a novel behavioral constraint on firm resource adjustment, specifically layoff decisions that can cause severe harm to employees. Revising the prevailing negative view of managers as purely self-interested, we propose that managers care about their employees and incur moral cost from layoffs. We leverage expansions in unemployment insurance as a quasi-natural experiment that reduces economic hardship for laid-off workers and, in turn, the moral cost of layoffs to managers. We find that these expansions license larger layoffs.
Right-of-Use Assets and the Prediction of Revenue
ASC 842, which requires balance sheet recognition of right-of-use (ROU) lease assets, resulted in a large increase in reported assets since 2019, thus impairing the time-series consistency of metrics that use assets (e.g., asset turnover). This paper shows that ROU assets can be estimated quite precisely using lease disclosure. Adding the estimated ROU asset for pre-ASC 842 observations substantially improves the ability of operating assets to explain sales. It also increases the ability of growth in operating assets to predict sales growth and explain analysts’ revenue growth forecasts.
Targeting versus Competition in Marketplace Design: Evidence from Geotargeted Internet Ads
How should market designers trade off targeting and competition? We study a natural experiment in the release of new targeting technology for online ads. A platform in our study introduced targeting into select geographic markets based on a discontinuity in local characteristics. We find that advertisers used new targeting to avoid low quality ad inventory. This led to a reduction in ad impressions. When advertisers avoided this inventory, they retreated into smaller, less competitive ad auctions featuring fewer bidders for available ad space.
Ride-Hailing Networks with Strategic Drivers: The Impact of Platform Control Capabilities on Performance
Problem definition: Motivated by ride-hailing platforms such as Uber, Lyft and Didi, we study the problem of matching riders with self-interested drivers over a spatial network.
Distance and Alternative Signals of Status: A Unifying Framework
In the past decades, as traditional luxury goods and conspicuous consumption have become more mainstream and lost some of their signaling value, new alternative signals of status (e.g., vintage, inconspicuous consumption, sustainable luxury) have progressively emerged. This research applies the grounded theory method to establish a novel framework that systematically unifies existing conceptualizations, findings, and observations on alternative signals of status.
Global Value Chains in Developing Countries: A Relational Perspective from Coffee and Garments
There is a consensus that global value chains have aided developing countries' growth. This essay highlights the governance complexities arising from participating in such chains, drawing from lessons we have learned conducting research in the coffee and garment supply chains. Market power of international buyers can lead to inefficiently low wages, prices, quality standards, and poor working conditions. At the same time, some degree of market power might be needed to sustain long-term supply relationships that are beneficial in a world with incomplete contracts.
Nudging App Adoption: Choice Architecture Facilitates Consumer Uptake of Mobile Apps.
How can firms encourage consumers to adopt smartphone apps? The authors show that several inexpensive choice architecture techniques can make users more likely to enable important app features and complete app onboarding. In six preregistered experiments (n = 5,968) and a field experiment (n = 594,997), choice architecture interventions manipulating choice sequence, color, and wording of app adoption decisions dramatically increased app adoption. Across experiments, integrating multiple feature decisions into a single choice increased adoption.
Managerial political power and the reallocation of resources in the internal capital market
Research Summary
We examine how managers' political power reallocates resources in the internal capital market. By shifting the focus from financial to firm-specific, non-financial resources that are difficult to evaluate and zero-sum in nature, we revise the prevailing view that managers' political power plays a significant yet contingent role under financial constraint and weak governance. We instead characterize managerial political power as an intrinsic, inescapable determinant of internal competition and resource allocation.
Endgame in the Internet Era
Strategies for coping with businesses that face the declining demand of late life-cycle products are
revisited in light of the enhanced competitive capabilities made possible by access to the World
Wide Web and connectivity to the Internet. Presumably endgame competitors may draw upon a
wider variety of implementation options on both the demand and supply sides when serving the
highly-connected markets reached via Internet access. Results are posited to be mixed since supply-
Participating in a climate prediction market increases concern about global warming
Modifying attitudes and behaviours related to climate change is difficult. Attempts to offer information, appeal to values and norms or enact policies have shown limited success. Here we examine whether participation in a climate prediction market can shift attitudes by having the market act as a non-partisan adjudicator and by prompting participants to put their ‘money where their mouth is’.
A Quantitative Study of Non-Linearity in Storytelling
Innovation and New Products Research: A State-of-the-Art Review
Mitigating Disaster Risks in The Age Of Climate Change
Emissions abatement alone cannot address the consequences of global warming for weather disasters. We model how society adapts to manage disaster risks to capital stock. Optimal adaptation — a mix of firm-level efforts and public spending — varies as society learns about the adverse consequences of global warming for disaster arrivals. Taxes on capital are needed alongside those on carbon to achieve the first best.
Equilibrium Effects of Food Labeling Policies
We study a regulation in Chile that mandates warning labels on products whose sugar or caloric concentration exceeds certain thresholds.We show that consumers substitute from labeled to unlabeled products—a pattern mostly driven by products that consumers mistakenly believe to be healthy. On the supply side, we find substantial reformulation of products and bunching at the thresholds.
Refugee Entrepreneurship: The Case of Venezuelans in Colombia
This paper analyzes the entire business registry of Colombia during 2015 to 2022, a period when Colombia received two million Venezuelan immigrants and refugees. We present two main findings. First, firms owned by foreigners, most of them Venezuelans, tend to be 10 to 20 percent more capitalized when founded, as compared to firms owned by locals within the same industry, geographic location, and year of registration. Second, while more intensive in capital, these firms owned by foreigners are just as likely to survive the first 2 and 3 years as firms owned by locals.
Sensory substitution can improve decision-making
Mortgage Refinancing, Consumer Spending, and Competition: Evidence from the Home Affordable Refinance Program
Data and Markets
Big data is changing every corner of economics and finance. The largest firms in the US economy are valued chiefly for their data. Yet, these data are largely excluded from macroeconomic and finance research. We review work and relevant tools for measuring economic activity, market power, data markets, and the role of data in financial markets. We also highlight areas where future work is needed.
Frontiers: Polarized America: From Political Polarization to Preference Polarization
In light of the widely discussed political divide and increasing societal polarization, we investigate in this paper whether the polarization of political ideology extends to consumers’ preferences, intentions, and purchases. Using three different data sets—the publicly available social media data of over three million brand followerships of Twitter users, a YouGov brand-preference survey data set, and Nielsen scanner panel data—we assess the evolution of brand-preference polarization.
The Impact of Paid Family Leave on Employers: Evidence from New York
To study the impacts of NewYork’s 2018 Paid Family Leave (PFL) policy on employer outcomes, we designed and fielded a survey of small firms in NewYork and a control state, Pennsylvania, which does not have a PFL policy. We match each NY firm to a comparable PA firm and use difference-in-differences models to analyze within-match-pair changes in outcomes. Contrary to common concerns about the burdens of PFL on employers, we find no evidence that PFL had any adverse impacts on employer ratings of employee performance or their ease of handling long employee absences.
The Effect of Financial Constraints on In-Group Bias: Evidence from Rice Farmers in Thailand
In-group bias can be detrimental for communities and economic development. We study the causal effect of financial constraints on in-group bias in prosocial behaviors – cooperation, norm enforcement, and sharing – among low-income rice farmers in rural Thailand, who cultivate and harvest rice once a year. We use a between-subjects design – randomly assigning participants to experiments either before harvest (more financially constrained) or after harvest. Farmers interacted with a partner either from their own village (in-group) or from another village (out-group).
Diminishing treasury convenience premiums: Effects of dealers’ excess demand and balance sheet constraints
After the global financial crisis, the yields of U.S. Treasury bills frequently exceed other risk-free rate benchmarks, thereby pointing to a diminishing convenience premium. Constructing a new measure of dealers’ balance sheet constraints for providing intermediation in U.S. Treasury markets, we trace these diminishing convenience premiums to primary dealers’ ability to act as intermediaries.
Privacy and the Value of Data
How does protecting the privacy of consumers affect the value of their personal data? We model an intermediary that uses consumers' data to influence the price set by a seller. When privacy is protected, consumers choose whether to disclose their data to the intermediary. When privacy is not protected, the intermediary can access consumers' data without their consent. We illustrate that protecting consumers' privacy has complex effects. It can increase the value of some consumers' data while decreasing that of others.
Geographic Fragmentation and Declining Dominance: Yet Another Story of AT&T’s Decline in the Post-divestiture Era
Why do dominant incumbents decline? Extant analyses of declining dominance largely focus on the erosion of technological bases of dominance. In contrast, our novel explanation focuses on the effect of geographic fragmentation on the erosion of demand-side barriers to entry and rise in strategic rivalry along the evolutionary path of the dominant incumbent’s growing industry.
Market Consequences of Sovereign Accounting Errors
This paper investigates the market consequences of sovereign accounting errors. Eurostat, a division of the European Commission, issues semiannual assessments of financial reports produced by the member states of the European Union (EU), and issues reservations that detail financial reporting errors when they have doubts on the quality of sovereign financial reporting.
New Products Research
Proximity Bias: Motivated Effects of Spatial Distance on Probability Judgments
Do Socially Responsible Firms Walk the Talk?
Several firms claim to be socially responsible. We confront these claims with the data using the most notable such proclamation in recent years, the August 2019 Statement on the Purpose of a Corporation by the Business Roundtable (BRT). The BRT is a large, deeply influential business group containing many of America’s largest firms; the 2019 Statement proclaimed that a corporation’s purpose is to deliver value to all stakeholders, rather than to solely maximize shareholder value.
Reducing discrimination against job seekers with and without employment gaps
Past research shows that decision-makers discriminate against applicants with career breaks. Career breaks are common due to caring responsibilities, especially for working mothers, thereby leaving job seekers with employment gaps on their résumés.
Welfare Consequences of Sustainable Finance
We model the welfare consequences of portfolio mandates that restrict investors to hold firms with net-zero carbon emissions. To qualify for these mandates, value-maximizing firms have to accumulate decarbonization capital. Qualification lowers a firm’s required rate of return by its decarbonization investments divided by Tobin’s q, i.e., the dividend yield shareholders forgo to address the global-warming externality.
Strategic Bank Liability Structure Under Capital Requirements
Banks strategically choose and dynamically restructure deposits and nondeposit debt in response to the minimum requirements on total capital and tangible equity. We derive the optimal strategic liability structure and show that it minimizes the protection for deposits conditional on capital requirements. Although, given any liability structure, regulators can set capital requirements high enough to remove the incentive for risk substitution, the strategic response to the capital requirements always preserves this incentive.
The Impacts of Paid Family and Medical Leave on Worker Health, Family Well-Being, and Employer Outcomes
This article reviews the evidence on the impacts of paid family and medical leave (PFML) policies on workers’ health, family well-being, and employer outcomes. While an extensive body of research demonstrates the mostly beneficial effects of PFML taken by new parents on infant, child, and parental health, less is known about its impact on employees who need leave to care for older children, adult family members, or elderly relatives. The evidence on employers is similarly limited but indicates that PFML does not impose major burdens on them.
The Value of Data Records
Many e-commerce platforms use buyers' personal data to intermediate their transactions with sellers. How much value do such intermediaries derive from the data record of each single individual? We characterize this value and find that one of its key components is a novel externality between records, which arises when the intermediary pools some records to withhold the information they contain. Ignoring this can significantly bias the evaluations of data records.
Corporate culture: Evidence from the field
Ninety-two percent of the 1348 North American executives we survey believe that improving corporate culture would increase firm value. A striking 84% believe their company needs to improve its culture. But how can that be achieved?
Flattening the Curve: Pandemic-Induced Revaluation of Real Estate
We show that the COVID-19 pandemic brought house price and rent declines in city centers, and price and rent increases away from the center, thereby flattening the bid-rent curve in most U.S. metropolitan areas. Across MSAs, the flattening of the bid-rent curve is larger when working from home is more prevalent, housing markets are more regulated, and supply is less elastic. Housing markets predict that urban rent growth will exceed suburban rent growth for the foreseeable future.