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.
This essay reviews the literature on the role of the financial factors in the Depression, and draws some lessons that have more general relevance for the study of the Depression and for macroeconomics. I argue that much of the recent progress that has been made in understanding some of the most important and puzzling aspects of financial-real links in the Depression followed a paradigm shift in economics.
This paper extends the analysis of transactions cost models of vertical integration to multilateral settings. Its main focus is on supply assurance concerns which arise when several downstream firms are competing for inputs in limited supply. Integration reduces supply assurance concerns for an integrating firm but it may increase them for others. Therefore, to explain the scope of any firm, one must consider the overall network of production and distribution relations.
This paper analyzes the role of capital structure in the presence of intrafirm influence activities. The hierarchical structure of large organizations inevitably generates attempts by members to influence the distributive consequences of organizational decisions. In corporations, for example, top management can reallocate or eliminate quasi rents earned by their employees, while at the same time, they must rely on these employees to provide them with information vital to their decision making.
While under some circumstances information sharing in oligopoly may be beneficial, the literature ignores the possibility of strategic information sharing by assuming verifiability of data. I endogenize the incentives for truthful information sharing and prove that if firms have the ability to send misleading information, they will always do so. To overcome this problem I introduce a (costly) mechanism through which the firm will, in its own best interest, reveal the true value of its private information, even though outside verification is impossible.
The sheer number of organizations adopting an innovation can cause a bandwagon pressure, prompting other organizations to adopt this innovation. Institutional bandwagon pressures occur because nonadopters fear appearing different from many adopters. Competitive bandwagon pressures occur because nonadopters fear below-average performance if many competitors profit from adopting.
We consider an inventory system with compound Poisson demands replenished by discrete production of units on a single-server facility. This facility may start a vacation at any production completion epoch; at the completion of a vacation the inventory level is inspected to decide whether or not to resume production. Unit production and vacation times are independent and identically distributed with general distributions.
In this article, I explore the following issue: Can differences in the way firms are organized be explained in terms of the underlying information structures? Alternatively stated, what are the consequences of changes in the nature and precision of performance measures for the optimal firm structure, that is, the optimal number of workers and the resulting workers' contributions to the production process?
Price deviations from basic valuation models based on accounting earnings and book value of owners' equity are used to test the intrinsic value explanation of the price-earnings and price-book value anomalies. Relative price deviations from the implied benchmark prices are used to assign years into high and low deviation groups. Traditional zero investment hedge portfolios are formed in each year, and the returns are compared across high and low deviation years.
We investigate optimal production controls for a tandem two-machine system with an internal buffer and unreliable machines. First, numerical methods are used to generate optimal policies for specific examples. Then, based on diese numerical results, an approximate suboptimal control policy is developed that divides the state space into distinct regions and uses only simple hedging-point policies in each region. Algorithms to obtain hedging points are provided.
Manufacturing and service organizations routinely face the challenge of scheduling jobs, orders, or individual customers in a schedule that optimizes either (i) an aggregate efficiency measure, (ii) a measure of performance balance, or (iii) some combination of these two objectives. We address these questions for single-machine job scheduling systems with fixed or controllable due dates.
In 1991, D. J. Bertsimas and G. van Ryzin introduced and analyzed a model for stochastic and dynamic vehicle routing in which a single, uncapacitated vehicle traveling at a constant velocity in a Euclidian region must service demands whose time of arrival, location and on-site service are stochastic. The objective is to find a policy to service demands over an infinite horizon that minimizes the expected system time (wait plus service) of the demands. This paper extends our analysis in several directions.
We analyze a class of stochastic and dynamic vehicle routing problems in which demands arrive randomly over time and the objective is minimizing waiting time. In our previous analysis ([5] and [6]) on this problem, we needed to assume uniformly distributed demand locations and Poisson arrivals. In this paper, using quite different techniques, we are able to extend our results to the more realistic case where demand locations have an arbitrary distribution and arrivals follow a general renewal process.
According to human capital theory, technological change will influence the retirement decisions of older workers in two ways. First, workers in industries with high rates of technological change will retire later if there is a net positive correlation between technological change and on-the-job training. Second, an unexpected change in the rate of technological change will induce older workers to retire sooner because the required amount of retraining will be an unattractive investment.
According to human capital theory, technological change will influence the retirement decisions of older workers in two ways. First, workers in industries with high rates of technological change will retire later if there is a net positive correlation between technological change and on-the-job training. Second, an unexpected change in the rate of technological change will induce older workers to retire sooner because the required amount of retraining will be an unattractive investment.
We develop a simple O(n log n) solution method for the standard lot-sizing model with backlogging and a study horizon of n periods. Production costs are fixed plus linear and holding and backlogging costs are linear with general time-dependent parameters. The algorithm has linear [O(n)] time complexity for several important subclasses of the general model. We show how a slight adaptation of the algorithm can be used for the detection of a minimal forecast horizon and associated planning horizon.
We consider distribution systems with a single depot and many retailers each of which faces external demands for a single item that occurs at a specific deterministic demand rate. All stock enters the systems through the depot where it can be stored and then picked up and distributed to the retailers by a fleet of vehicles, combining deliveries into efficient routes. We extend earlier methods for obtaining low complexity lower bounds and heuristics for systems without central stock.
We investigate the stability of waiting-time derivatives when inputs to a queueing system-service times and interarrival times-depend on a parameter. We give conditions under which the sequence of waiting-time derivatives admits a stationary distribution, and under which the derivatives converge to the stationary regime from all initial conditions. Further hypotheses ensure that the expectation of a stationary waiting-time derivative is, in fact, the derivative of the expected stationary waiting time.
We consider a production/distribution network represented by a general directed acyclic network. Each node is associated with a specific "product" or item at a given location and/or production stage. An arc (i, j) indicates that item i is used to "produce" item j. External demands may occur at any of the network's nodes. These demands occur continuously at item specific constant rates. Components may be assembled in any given proportions.
This paper assesses policies of mass privatization in Germany, Czechoslovakia, Hungary and Poland. A central concern stemming from the analysis is that, in view of the fiscal crisis facing economies in transition, it is crucial for governments to try to maximize the proceeds from the sale of state assets. Because of the low initial level of private wealth, it is important, in this respect, to let potential buyers borrow from the government or issue claims on future revenues (obtained with the privatized assets) to the government in order to pay for the privatized firms.
We analyze incomplete long-term financial contracts between an entrepreneur with no initial wealth and a wealthy investor. Both agents have potentially conflicting objectives since the entrepreneur cares about both pecuniary and non-pecuniary returns from the project while the investor is only concerned about monetary returns.
Research was conducted to investigate the value implications of the changes in annual earnings. It was assumed that a relationship exists between the persistence of earnings and the changes in stock prices associated with reported earnings innovations. The study yielded three major findings. Results showed that other data contained in annual financial statements can be used to evaluate pricing multipliers. Findings also revealed the variability of the persistence of earnings and the pricing multipliers indicated by financial statements.
This note shows that in environments without externalities or aggregate feasibility constraints, extremely simple mechanisms can be used to approximately ("virtually") implement social choice functions in iteratively strictly undominated strategies.
The paper first characterizes the predictable components in excess rates of returns on major equity and foreign exchange markets using lagged excess returns, dividend yields, and forward premiums as instruments. Vector autoregressions (VARs) demonstrate one-step-ahead predictability and facilitate calculations of implied long-horizon statistics, such as variance ratios. Estimation of latent variable models then subjects the VARs to constraints derived from dynamic asset pricing theories.
The paper first characterizes the predictable components in excess rates of returns on major equity and foreign exchange markets using lagged excess returns, dividend yields, and forward premiums as instruments. Vector autoregressions (VARs) demonstrate one-step-ahead predictability and facilitate calculations of implied long-horizon statistics, such as variance ratios. Estimation of latent variable models then subjects the VARs to constraints derived from dynamic asset pricing theories.
We derive conditions under which the increments of a vector process are associated—i.e., under which all pairs of increasing functions of the increments are positively correlated. The process itself is associated if it is generated by a family of associated and monotone kernels. We show that the increments are associated if the kernels are associated and, in a suitable sense, convex. In the Markov case, we note a connection between associated increments and temporal stochastic convexity.
Common random numbers (CRN) is a widely-used technique for reducing variance in comparing stochastic systems through simulation. Its popularity derives from its intuitive appeal and ease of implementation. However, though CRN has been observed to work well with a broad range of models, the class of systems for which it is provably advantageous has remained rather limited.
A generalized semi-Markov scheme models the structure of a discrete event system, such as a network of queues. By studying combinatorial and geometric representations of schemes we find conditions for second-order properties—convexity/concavity, sub/supermodularity—of their event epochs and event counting processes. A scheme generates a language of easible strings of events. We show that monotonicity of the event epochs is equivalent to this language forming an antimatroid with repetition.
We establish stochastic monotonicity of the event epoch sequences of generalized semi-Markov processes through the structure of the generalized semi-Markov schemes on which they are based. Our main condition states, roughly, that the occurrence of more events in the short run never leads to the activation of less events in the long run.
Four groups are identified among 113 Fortune 500 manufacturers that approach innovation quite differently. The groups are based on 27 measured elements of formal and informal organization, corporate strategy, and corporate environment. Both financial performance and product innovation differ significantly among the groups. A group of 42 firms that invest heavily in innovation perform the best financially, with a smaller group of firms that are not innovative but which follow a strategy of acquisition performing nearly as well financially.
Four groups are identified among 113 Fortune 500 manufacturers that approach innovation quite differently. The groups are based on 27 measured elements of formal and informal organization, corporate strategy, and corporate environment. Both financial performance and product innovation differ significantly among the groups. A group of 42 firms that invest heavily in innovation perform the best financially, with a smaller group of firms that are not innovative but which follow a strategy of acquisition performing nearly as well financially.
Four groups are identified among 113 Fortune 500 manufacturers that approach innovation quite differently. The groups are based on 27 measured elements of formal and informal organization, corporate strategy, and corporate environment. Both financial performance and product innovation differ significantly among the groups. A group of 42 firms that invest heavily in innovation perform the best financially, with a smaller group of firms that are not innovative but which follow a strategy of acquisition performing nearly as well financially.
The paper analyzes the contemporaneous association between market returns and earnings for long return intervals. The research design exploits two fundamental accounting attributes: (i) earnings aggregate over periods, and (ii) expanding the interval over which earnings are determined, is likely to reduce "measurement errors" in (aggregate) earnings. These concepts lead to the level of (aggregate) earnings as a natural earnings variable for explaining security returns.
The reorder point/reorder quantity policies, also referred to as (r, Q) policies, are widely used in industry and extensively studied in the literature. However, for a period of almost 30 years there has been no efficient algorithm for computing optimal control parameteres for such policies. In this paper, we present a surprisingly simple and efficient algorithm for the determination of an optimal (r*, Q*) policy. The computational complexity of the algorithm is linear in Q*.
Countable-state, continuous-time Markov chains are often analyzed through simulation when simple analytical expressions are unavailable. Simulation is typically used to estimate costs or performance measures associated with the chain and also characteristics like state probabilities and mean passage times. Here we consider the problem of estimating derivatives of these types of quantities with respect to a parameter of the process. In particular, we consider the case where some or all transition rates depend on a parameter.
This article explores the differential measurement problems related to the earnings components by invoking the standard errors-in-variables perspective on estimated coefficients. A more traditional way of looking at accounting recognizes the process as one of measurements. That is, the analysis of transactions leads to line items in the financial statements, which in turn aggregate into the bottom line numbers: earnings and book value. The disclosures of the line items clearly suggest that the accountant is aware of the insufficiency of earnings and book values as determinants of values.
Alternative ways of conducting inference and measurement for long-horizon forecasting are explored with an application to dividend yields as predictors of stock returns. Monte Carlo analysis indicates that the Hansen and Hodrick (1980) procedure is biased at long horizons, but the alternatives perform better. These include an estimator derived under the null hypothesis as in Richardson and Smith (1991), a reformulation of the regression as in Jegadeesh (1990), and a vector autoregression (VAR) as in Campbell and Shiller (1988), Kandel and Stambaugh (1988), and Campbell (1991).
This paper documents that firms face upward-sloping supply curves when they repurchase shares in a Dutch auction, and it analyzes the market reaction to these offers. The announcement price increase is highly correlated with the ultimate repurchase premium. Prices decline at expiration only for pro-rated offers. The cumulative return is positive and highly correlated with the repurchase premium, excepting pro-rated offers. Much of this price increase is consistent with movement along an upward-sloping supply curve. Trading volume around the Dutch auction parallels fixed-price repurchasses.
This article examines how organizations participate in shaping the cultural environments of the nations that they inhabit. Cultural environments, we argue, emerge in a primarily unintended fashion as a consequence of routine, network interactions among organizations in four overlapping yet analytically distinct sectors: government, the mass media, educational institutions, and the business community. Differences in the structure of these national networks condition dynamic patterns of change in nations' cultural environments.
A signalling hypothesis of leveraged buyout (LBO) capital structure is examined, wherein the promoters of an LBO unambiguously convey their commitment to generate and distribute free cash flow to investors by assuming debt service obligations high enough to exhaust free cash flow during the initial phase of the LBO operation. The signalling equilibrium results in an equity value consistent with the promoters' expectations concerning free cash flow and permits them to keep the value released by the LBO.
This paper concerns dynamic part dispatch decisions in electronic test systems with random yield. A discrete time, multiproduct, miltistage production system is used as a model for the test system with the objective to minimize the sum of inventory holding, backlogging, and overtime costs over a finite horizon. Exact results for such systems have been limited to either single-stage, multiple time period, or multistage, single time period problems with a single product. Here we develop two approximate policies: the linear decision rule, and the myopic resource allocation.
This article outlines research developments that reconcile both fundamental analysis and accounting measurement to the modern theory of valuation. Three features of accounting suggest it may play a role. First, it has the nominal attributes of a value measurement system. The financial accounting process is focused on tracking the book value of equity or net worth. The final entry in the periodic accounting cycle is the close to book values.
This paper establishes connections between two derivative estimation techniques: infinitesimal perturbation analysis (IPA) and the likelihood ratio or score function method. We introduce a systematic way of expanding the domain of the former to include that of the latter, and show that many likelihood ratio derivative estimators are IPA estimators obtained in a consistent manner through a special construction. Our extension of IPA is based on multiplicative smoothing.
We consider inventory systems with several distinct items. Demands occur at constant, item specific rates. The items are interdependent because of jointly incurred fixed procurement costs: The joint cost structure reflects general economies of scale, merely assuming a monotonicity and concavity (submodularity) property. Under a power-of-two policy each item is replenished with constant reorder intervals which are power-of-two multiples of some fixed or variable base planning period.