Breaking the Cycle: How the News and Markets Created a Negative Feedback Loop in COVID-19
New research from CBS Professor Harry Mamaysky reveals how negativity in the news and markets can escalate a financial crisis.
New research from CBS Professor Harry Mamaysky reveals how negativity in the news and markets can escalate a financial crisis.
Adapted from “Global Value Chains in Developing Countries: A Relational Perspective from Coffee and Garments,” by Laura Boudreau of Columbia Business School, Julia Cajal Grossi of the Geneva Graduate Institute, and Rocco Macchiavello of the London School of Economics.
Adapted from “Online Advertising as Passive Search,” by Raluca M. Ursu of New York University Stern School of Business, Andrey Simonov of Columbia Business School, and Eunkyung An of New York University Stern School of Business.
This paper from Columbia Business School, “Meaning of Manual Labor Impedes Consumer Adoption of Autonomous Products,” explores marketing solutions to some consumers’ resistance towards autonomous products. The study was co-authored by Emanuel de Bellis of the University of St. Gallen, Gita Johar of Columbia Business School, and Nicola Poletti of Cada.
Co-authored by John B. Donaldson of Columbia Business School, “The Macroeconomics of Stakeholder Equilibria,” proposes a model for a purely private, mutually beneficial financial agreement between worker and firm that keeps decision-making in the hands of stockholders while improving the employment contract for employees.
At Columbia Business School, our faculty members are at the forefront of research in their respective fields, offering innovative ideas that directly impact the practice of business today. A quick glance at our publication on faculty research, CBS Insights, will give you a sense of the breadth and immediacy of the insight our professors provide.
As a student at the School, this will greatly enrich your education. In Columbia classrooms, you are at the cutting-edge of industry, studying the practices that others will later adopt and teach. As any business leader will tell you, in a competitive environment, being first puts you at a distinct advantage over your peers. Learn economic development from Ray Fisman, the Lambert Family Professor of Social Enterprise and a rising star in the field, or real estate from Chris Mayer, the Paul Milstein Professor of Real Estate, a renowned expert and frequent commentator on complex housing issues. This way, when you complete your degree, you'll be set up to succeed.
Columbia Business School in conjunction with the Office of the Dean provides its faculty, PhD students, and other research staff with resources and cutting edge tools and technology to help push the boundaries of business research.
Specifically, our goal is to seamlessly help faculty set up and execute their research programs. This includes, but is not limited to:
All these activities help to facilitate and streamline faculty research, and that of the doctoral students working with them.
We propose a framework for the joint study of the consumer's decision of where to buy and what to buy. The framework is rooted in utility theory where the utility is for a particular channel/brand combination. The framework contains firm actions, the consumer search process, the choice process, and consumer learning. We develop research questions within each of these areas. We then discuss methodological issues pertaining to the use of experimentation and econometrics.
We study a scenario in which a firm designs the compensation contract for a salesperson who exerts unobservable effort to increase the level of uncertain demand and, jointly, the firm also decides the inventory level to be stocked. We use a newsvendor-type model in which actual sales depend on the realized demand but are limited by the inventory available, and unfulfilled demand cannot be observed. In this setup, under the optimal contract, the agent is paid a bonus for meeting a sales quota.
It has been observed that ad-evoked feelings exert a positive influence on brand attitudes. To investigate the empirical generalizability of this phenomenon, we analyzed the responses of 1,576 consumers to 1,070 TV commercials from more than 150 different product categories. The findings suggest five empirical generalizations. First, ad-evoked feelings indeed have a substantial impact on brand evaluations, even under conditions that better approximate real marketplace settings than past studies did.
We study the drivers of the emergence of opinion leaders in a networked community where users establish links to others, indicating their "trust" for the link receiver's opinion. This leads to the formation of a network, with high in-degree individuals being the opinion leaders. We use a dyad-level proportional hazard model with time-varying covariates to model the growth of this network. To estimate our model, we use Weighted Exogenous Sampling with Bayesian Inference, a methodology that we develop for fast estimation of dyadic models on large network data sets.
As the debate over banking reform continues, the 800-pound gorilla in the room is the anemic market value of America's banks. The market-to-book value ratio of U.S. banks — an indicator of market perceptions of their future cash flow-generating potential — remains in the tank. This ratio averaged between 1.8 and 2.9 from 2000 until mid-2007, but then plunged to an average of between 0.9 and 1.3.
As the debate over banking reform continues, the 800-pound gorilla in the room is the anemic market value of America's banks. The market-to-book value ratio of U.S. banks — an indicator of market perceptions of their future cash flow-generating potential — remains in the tank. This ratio averaged between 1.8 and 2.9 from 2000 until mid-2007, but then plunged to an average of between 0.9 and 1.3.
A high quality customer database is a cornerstone of successful interactive marketing strategies and tactics. Based on the notion that customer data quality is not only a technical but also an organizational problem, this study develops and tests an organizational learning framework of the relationship between organizational processes, customer data quality and firm performance. The findings show that high quality customer data impact both customer and business performance and that the most important driver of customer data quality comes from the executive suite.
We show that counting downward while performing a task shortens the perceived duration of the task compared to counting upward. People perceive that less time has elapsed when they were counting downward versus upward while using a product (Studies 1 and 3) or watching geometrical shapes (Study 2). The counting direction effect is obtained using both prospective and retrospective time judgments (Study 3), but only when the count range begins with the number “1” (Study 2).
We develop a liability driven investment framework that incorporates downside risk penalties for not meeting liabilities. The shortfall between the asset and liabilities can be valued as an option which swaps the value of the endogenously determined optimal portfolio for the value of the liabilities. The optimal portfolio selection exhibits endogenous risk aversion and as the funding ratio deviates from the fully funded case in both directions, effective risk aversion decreases.
In one laboratory study and one field study conducted with a large, representative sample of respondents, we show that seemingly innocuous questions that precede a conjoint task, such as demographic and usage-related screening questions can alter the price sensitivities recovered from the main conjoint task. The findings demonstrate that whether these prior questions use broad response categories (i.e., few scale points) or narrow response categories (i.e., many scale points) systematically influences consumers' price sensitivity in a CBC (Choice Based Conjoint) study.
While customer management has become a top priority for practitioners and academics, little is known about how managers actually make customer management decisions. Our study addresses this gap and uses the adaptive decision maker as well as the fast and frugal heuristics frameworks to gain a better understanding of managerial decision making. Using the process-tracing tool MouselabWEB, we presented sales managers in retail banking with three typical customer management prediction tasks.
The 2008 financial crisis exemplifies significant uncertainties in corporate financing conditions. We develop a unified dynamic q- theoretic framework where firms have both a precautionary-savings motive and a market-timing motive for external financing and payout decisions, induced by stochastic financing conditions. The model predicts (1) cuts in investment and payouts in bad times and equity issues in good times even without immediate financing needs; (2) a positive correlation between equity issuance and stock repurchase waves.
Proximity to plants makes it easier for headquarters to monitor and acquire information about plants. In this article, I estimate the effects of headquarters' proximity to plants on plant-level investment and productivity. Using the introduction of new airline routes as a source of exogenous variation in proximity, I find that new airline routes that reduce the travel time between headquarters and plants lead to an increase in plant-level investment of 8% to 9% and an increase in plants' total factor productivity of 1.3% to 1.4%.
This paper reviews recent research at the intersection of industrial organization and corporate finance on credit default swap (CDS) markets. These markets have been at the center of the financial crisis of 2007-2009 and many aspects of their operation are not well understood. The paper covers topics such as counterparty risk in CDS markets, the "empty creditor problem," "naked" CDS positions, the super-senior status of credit (and other) derivatives in Chapter 11 bankruptcy, and strategic behavior in CDS settlement auctions.
At a time of historic challenges to the viability of the Eurozone, we assess the contribution of the EU and the Euro to equity market integration in Europe. We use a simple and essentially model free measure of bilateral market segmentation: two countries are segmented if there is a wide divergence in the valuations of their industries. We first establish that segmentation is significantly lower for EU versus non-EU members.
The modal scientific approach in consumer research is to deduce hypotheses from existing theory about relationships between theoretic constructs, test those relationships experimentally, and then show “process” evidence via moderation and mediation. This approach has its advantages, but other styles of research also have much to offer. We distinguish among alternative research styles in terms of their philosophical orientation (theory-driven vs. phenomenon-driven) and their intended contribution (understanding a substantive phenomenon vs. building or expanding theory).
In this report, the authors quantify the strategic relationship between brand management (brand equity) and customer management (the components of CLV), and demonstrate the role that marketing activities play in this relationship. They examine a unique database from the U.S. automobile market, comprised of 10 years of survey-based brand equity measures as well as acquisition rates, retention rates, and customer profitability.
We consider the optimal design of mortgage-backed securities (MBS) in a dynamic setting in which a mortgage underwriter with limited liability can engage in costly hidden effort to screen borrowers and can sell loans to investors. We show that (i) the timing of payments to the underwriter is the key incentive mechanism, (ii) the maturity of the optimal contract can be short, and that (iii) bundling mortgages is efficient as it allows investors to learn about underwriter effort more quickly, an information enhancement effect.
This paper argues that there is a Coasean Bargain available to banks, Long-term Investors, and Bank Regulators around a particular form of "Contingent Capital." By purchasing rights to issue equity in crisis events at a pre-specified price from Long-term Investors, banks can ensure that they will have sufficient regulatory capital available when they need it most: in a crisis. By selling these rights (effectively, a form of crisis insurance) long-term investors can monetize their counter-cyclical investments strategies in banks and, thus, obtain an adequate return as long-term investors.
We consider three "crisis shocks" related to key features of the 2007-2008 crisis, for emerging and developed economies: (1) the collapse of global trade, (2) the contraction of credit supply, and (3) selling pressure on firms' equity. Using an international cross-section of firms, we find that returns' sensitivities to these shocks imply large and statistically significant influences on residual equity returns during the crisis period (after controlling for normal risk factors that are associated with expected returns).
We propose a model of dynamic corporate investment, financing, and risk management for a financially constrained firm. The model highlights the central importance of the endogenous marginal value of liquidity (cash and credit line) for corporate decisions.
Leading up to the recent crisis, government encouraged risky lending, and failed to measure banks' risks credibly or to require sufficient capital. Regulators also failed to losses or enforce intervention protocols for timely resolution. This paper proposes radical policy changes to prevent a recurrence. The need is not for more complex rules and more supervisory discretion, but rather for simpler rules that are meaningful in measuring and limiting risk, hard for market participants to circumvent and credibly enforced by supervisors.
Over the years, the level of analytical rigor has risen in articles published in marketing academic journals. While, ceteris paribus, rigor is desirable, there is a growing sense that rigor has become a, if not the, goal for research in marketing. Consequently, other desirable characteristics, such as relevance, communicability, and simplicity, have been downplayed, to the detriment of the field of marketing.
We characterize the optimal mortgage contract in a continuous time setting with stochastic growth in house price and income, costly foreclosure, and a risky borrower who requires incentives to repay his debt. We show that many features of subprime loans can be consistent with properties of the optimal contract and that, when house prices decline, mortgage modification can create value for borrowers and lenders.
We propose an origination-and-contingent-distribution model of banking, in which liquidity demand by short-term investors (banks) can be met with cash reserves (inside liquidity) or sales of assets (outside liquidity) to long-term investors (hedge funds and pension funds). Outside liquidity is a more efficient source, but asymmetric information about asset quality can introduce a friction in the form of excessively early asset trading in anticipation of a liquidity shock, excessively high cash reserves, and too little origination of assets by banks.
We propose an origination-and-contingent-distribution model of banking, in which liquidity demand by short-term investors (banks) can be met with cash reserves (inside liquidity) or sales of assets (outside liquidity) to long-term investors (hedge funds and pension funds). Outside liquidity is a more efficient source, but asymmetric information about asset quality can introduce a friction in the form of excessively early asset trading in anticipation of a liquidity shock, excessively high cash reserves, and too little origination of assets by banks.
We study the bidding strategies of vertically differentiated firms that bid for sponsored search advertisement positions for a keyword at a search engine. We explicitly model how consumers navigate and click on sponsored links based on their knowledge and beliefs about firm qualities. Our model yields several interesting insights; a main counterintuitive result we focus on is the "position paradox." The paradox is that a superior firm may bid lower than an inferior firm and obtain a position below it, yet it still obtains more clicks than the inferior firm.
While millions of products are sold on its retail platform, Amazon.com itself stocks and sells only a very small fraction of them. Most of these products are sold by third-party sellers who pay Amazon a fee for each unit sold. Empirical evidence clearly suggests that Amazon tends to sell high-demand products and leave long-tail products for independent sellers to offer.
In many service industries, companies compete with each other on the basis of the waiting time their customers experience, along with other strategic instruments such as the price they charge for their service. The objective of this paper is to conduct an empirical study of an important industry to measure to what extent waiting time performance impacts different firms' market shares and price decisions.
Will Rogers, commenting on the Depression, famously quipped: "If stupidity got us into this mess, why can't it get us out?" Rogers's rhetorical question has an obvious answer: persistent stupidity fails to recognize prior errors and, therefore, does not correct them. For three decades, many financial economists have been arguing that there are deep flaws in the financial policies of the U.S.
We analyze contagious sovereign debt crises in financially integrated economies. Under financial integration banks optimally diversify their holdings of sovereign debt in an effort to minimize the costs with respect to an individual country"s sovereign debt default. While diversification generates risk diversification benefits ex ante, it also generates contagion ex post. We show that financial integration without fiscal integration results in an inefficient equilibrium supply of government debt.
Many companies do not know their marketing ROI because their organizations are not set up to evaluate marketing ROI.
Large companies are usually organized into business units, yet some activities are almost always centralized in a company-wide functional unit. We first show that organizations endogenously create an incentive conflict between functional managers (who desire excessive standardization) and business-unit managers (who desire excessive local adaptation). We then study how the allocation of authority and tasks to functional and business-unit managers interacts with this endogenous incentive conflict.
Applies economic, marketing, and finance concepts to develop a metric, Customer Value Added, that explains how marketing activities drive the financial performance of an organization. Includes empirical results for a consumer packaged goods company where Customer Value Added predicted revenue and contribution with R-squared values greater than 0.90.
How to view pricing, cross-selling, and customer loyalty during difficult economic times. (Reprinted from "Marketing in Difficult Times," Effective Executive, July, 2009, pp. 11-18.)
We examine whether securitization impacts renegotiation decisions of loan servicers, focusing on their decision to foreclose a delinquent loan. Conditional on a loan becoming seriously delinquent, we find a significantly lower foreclosure rate associated with bank-held loans when compared to similar securitized loans: across various specifications and origination vintages, the foreclosure rate of delinquent bankheld loans is 3% to 7% lower in absolute terms (13% to 32% in relative terms).
We present a broad-based, consumer-centric view of innovation — referred to as "perceived firm innovativeness" (PFI). PFI is conceptualized as the consumer's perception of an enduring firm capability that results in novel, creative, and impactful ideas and solutions. We develop and validate a PFI scale and show that PFI impacts consumer loyalty via two processing routes: a functional-cognitive route and an affective-experiential route.
This article studies optimal mortgage design in a continuous-time setting with volatile and privately observable income, costly foreclosure, and a stochastic market interest rate. We show that the features of the optimal mortgage are consistent with an option adjustable-rate mortgage (option ARM). Under the optimal contract, the borrower is given discretion of how much to repay until his balance reaches a certain limit. The default rates and interest rate payment on the mortgage correlate positively with the market interest rate.
On a visit to any major U.S. department store, consumers can observe vendor shops (typically for cosmetics, apparel, apparel accessories, electronics, and toys), each selling a particular brand exclusively and designed to reflect the image of that brand. For these vendor shops, also called boutiques or "stores within a store," retailers rent out retail space to the respective manufacturers and give them complete autonomy over retail-level decisions, such as pricing and in-store service.
Discussion of different marketing strategies to employ during difficult times. (Reprinted from "Marketing in Difficult Times," Effective Executive, July, 2009, pp. 11-18.)
We document the market response to an unexpected announcement of proposed sales of government-owned shares in China. In contrast to the "privatization premium" found in earlier work, we find a negative effect of government ownership on returns at the announcement date and a symmetric positive effect in response to the announced cancellation of the government sell-off.
We study the structure of optimal wedges and capital taxes in a dynamic Mirrlees economy with endogenous distribution of skills. Human capital is a private, stochastic state variable that drives the skill process of each individual. Building on the findings of the labor literature, we construct a tractable life-cycle model of human capital evolution with risky investment and stochastic depreciation.
If an investor wants to form a portfolio of risky assets and can exert effort to collect information on the future value of these assets before he invests, which assets should he learn about? The best assets to acquire information about are ones the investor expects to hold. But the assets the investor holds depend on the information he observes. We build a framework to solve jointly for investment and information choices, with general preferences and information cost functions.
If an investor wants to form a portfolio of risky assets and can exert effort to collect information on the future value of these assets before he invests, which assets should he learn about? The best assets to acquire information about are ones the investor expects to hold. But the assets the investor holds depend on the information he observes. We build a framework to solve jointly for investment and information choices, with general preferences and information cost functions.
This article explains how the metric, Customer Value Added (CVA), can be applied to develop effective marketing and branding strategies. Strategies that are successful against competitors should focus on creating CVA that is greater than those produced by competitors. To do so, one must first regularly measure and monitor CVA by examining its components, perceived value and variable costs per unit. Next, one must develop strategies and tactics to increase CVA effectively and efficiently. In the long run, the organization that succeeds in achieving and maintaining the highest CVA wins.
Why companies have had difficulties determining marketing ROI and how they should approach evaluating marketing ROI. (Reprinted from Columbia Ideas at Work, "Many Happy Returns on Marketing," 8/31/2009, pp. 1-2.)
Using data on repurchase agreements by primary securities dealers, we show that three classes of securities (Treasury securities, securities issued by government-sponsored agencies, and mortgage-backed securities) can be formally ranked in terms of their collateral values in the general collateral (GC) market.
The intensity of modern business has increased pressure for innovation, which places greater emphasis on creativity. This article explores one of the central sites of creativity in the American corporate world, the advertising agency. We examine how creativity in agencies is managed, controlled, and channeled to produce advertisements. We contend that the brand advertised and the agency’s creative collaborations have properties of ritual symbols and that rituals mediate tension inherent in two forces, stability and change, which define the brand and the advertising collaboration.