Working papers

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Departments: Tax & Law, GREGHEC (CNRS)

This complaint to the European Ombudsman by Access Info Europe and the HEC-NYU EU Public Interest Clinic alleges maladministration in the selection of judges for the Courts of Justice of the EU (CJEU). The complaint argues that the Council of Europe wrongly refused access to information on selection processes used for CJEU judges.For each judicial appointment to the CJEU, a special panel issues an opinion regarding the candidate’s suitability. This opinion is not made publicly available and is only shared with member states.Since 2014, the clinic has repeatedly sought access to the panel opinions. The underlying rationale for requesting access to these opinions is that the public has a right to expect a high degree of transparency about the professional competence of candidates during the judicial selection process.The Council denied access to the opinions arguing Regulation 1049/2001 (on public access to EU institutions’ documents) does not apply to the requested documents and that the procedure for appointing judges and Advocates General is not within the Council’s “sphere of responsibility.” The EU Ombudsman opened an investigation in 2015 and after examining the panel’s opinion she encouraged the Council to reconsider its disclosure policy.During this process, the Council announced that it had reassessed its practices and decided to apply Regulation 1049/2001 to documents held by its General Secretariat in relation to tasks supporting various intergovernmental bodies and entities, including the relevant panel.The Ombudsman welcomed the Council's policy change, and encouraged the complainants to file a new access request to the Council.In her final 2016 decision, the Ombudsman stated that data relating to the professional competence and activities of public figures, especially those appointed to a high level public posts, may not require the same level of protection as might apply to personal data in other circumstances.Access Info and the clinic therefore made a repeat request to the Council. A first reply from the Council, received on the same day as the Ombudsman published her final 2016 decision, only granted partial access to the documents and left aside all information relating to the suitability of the candidates – which is the subject matter of this complaint.The complaint follows on an earlier complaint submitted to the Ombudsman:

Keywords: Judicial Transparency, CJEU, Court of Justice, EU Law, European Ombudsman, Access to Information, Transparency, Judicial, Judges

Departments: Strategy & Business Policy, GREGHEC (CNRS)

Constructing narratives of transformative change is an important but challenging practice through which strategy makers attempt to influence acceptance of an ongoing transformation. To understand whether and how strategy makers can construct a steady influx of captivating narratives of transformative change, we analyzed how one noted strategy maker assisted the successful transformation of his organization over three decades by orchestrating the production of change narratives. Our analysis reveals that the strategy maker constructed and reconstructed meanings of change over time using three sets of distinct but interconnected narrative practices. We develop a dynamic model linking the simultaneous mobilization of these practices to strategy makers’ ability to harness the persistent tension between novelty and familiarity in a transformative change, and thereby win endorsement from key audiences.

Keywords: Strategic Change, Narrative, Strategy as Practice, Storytelling, Reflection

Departments: Finance, GREGHEC (CNRS)

We study intergenerational risk sharing in Euro-denominated life insurance contracts. These savings products represent 80% of the life insurance market in Europe. Using regulatory and survey data for the French market, which is €1.3 trillion large, we analyze the patterns of intergenerational redistribution implemented by these products. We show that contract returns are an order of magnitude less volatile than the return of assets underlying these contracts. Contract return smoothing is achieved using reserves that absorb fluctuations in asset returns and that generate intertemporal transfers across generations of investors. We estimate the average annual amount of intergenerational transfer at 1.4% of contract value, i.e., €17 billion or 0.8% of GDP. Finally, we provide evidence that smoothing makes contract returns predictable, but inflows react only weakly to these predictable returns.

Keywords: Life insurance, intergenerational risk-sharing

Departments: Finance, GREGHEC (CNRS)

Incentive problems make assets imperfectly pledgeable. Introducing these problems in an otherwise canonical general equilibrium model yields a rich set of implications. Asset markets are endogenously segmented. There is a basis going always in the same direction, as the price of any risky asset is lower than that of the replicating portfolio of Arrow securities. Equilibrium expected returns are concave in consumption betas, in line with empirical findings. As the dispersion of consumption betas of the risky assets increases, incentive constraints are relaxed and the basis reduced. When hit by adverse shocks, relatively risk tolerant agents sell the safest assets they hold.

Departments: Finance, GREGHEC (CNRS)

There is a discrepancy between CAPM-implied and realized returns. As a result, using the CAPM in capital budgeting decisions -- as is recommended in finance textbooks -- should have valuation effects. For instance, low beta projects are expected to be valued more by CAPM-using managers than by the market. This paper empirically tests this hypothesis using publicly announced M&A decisions. We show that takeovers of lower beta targets are accompanied by lower CARs for the bidder. Consistent with our hypothesis, the effect is more pronounced for larger acquisitions, higher growth targets, and private targets. Furthermore, low beta bidders are more likely to use their own stock to finance the deal. More generally, low beta firms are less likely to issue equity, and more likely to repurchase shares. These effects are not reversed in the long-run, suggesting that CAPM-using managers may be irrational, though this last test lacks power.

Keywords: Capital Budgeting, Valuation, Mergers and Acquisitions, Capital Asset Pricing Model

Departments: Strategy & Business Policy, GREGHEC (CNRS)

We develop a conceptual understanding of when and how organizations respond to normative pressures. More precisely, we examine two main factors underlying the willingness and ability of organizations to respond to an issue: (1) issue salience, and (2) the cost-benefit analysis of resource mobilization. We suggest that decision-makers’ interpretation of issue salience in conjunction with their perception of the costs and benefits of taking action to address the issue generates five potential responses: symbolic compliance and symbolic conformity, substantive compliance and substantive conformity, and inaction. We extend the baseline model by examining a number of boundary conditions. By focusing on the willingness and ability of organizations to respond to normative pressures, and by adopting the issue as the unit of analysis, our model helps explain intra- as well as inter-organizational response heterogeneity to institutional complexity. We contribute to the institutional research tradition and offer useful implications for managerial practice, from strategic management to policy making.

Keywords: institutional theory, normative pressures, symbolic, substantive, conformity, compliance, issue salience

Departments: Tax & Law, GREGHEC (CNRS)

Young people entering the job market are in a precarious economic position. Across Europe, and in Belgium in particular, those who wish to enter into the professional world are faced with the de facto mandate that in order to gain experience and build the connections that will enable them to find paid professional work in the future, they must complete several internships. Yet many of these internships are unpaid or underpaid, forcing some young people to rely on their savings or their parents and shutting others out of the process entirely.The European Committee of Social Rights (the “Committee”) accepts collective complaints lodged by non-governmental organisations alleging violations of the European Social Charter (the “Charter”). The EU Public Interest Clinic prepared this draft Complaint for the non-profit organization European Youth Forum, alleging that unpaid internships in Belgium violate the Charter. Specifically, the provisions in Belgian law that enable unpaid internships, and the lack of enforcement of provisions that aim to curtail them, violate Articles 4, 7, and 10 of the Charter, which provide for fair remuneration, the protection of young people, and financial assistance for vocational training, respectively.

Keywords: Council of Europe, human rights, social rights, monitoring mechanism

Departments: Finance, GREGHEC (CNRS)

We study the quoting activity of market makers in relation with trading, liquidity, and expected returns. Empirically, we find larger quote-to-trade (QT) ratios in small, illiquid or neglected firms, yet large QT ratios are associated with low expected returns. The last result is driven by quotes, not by trades. We propose a model of quoting activity consistent with these facts. In equilibrium, market makers monitor the market faster (and thus increase the QT ratio) in neglected, difficult-to-understand stocks. They also monitor faster when their clients are less risk averse, which reduces mispricing and lowers expected returns.

Keywords: Liquidity, price discovery, volatility, trading volume, monitoring, neglected stocks, risk aversion, inventory, high frequency trading

Departments: GREGHEC (CNRS)

Research has suggested that firms may benefit from price uncertainty - about input commodities - because it creates an "option value". We use a stylized mathematical model to explore and generalize this claim and to specify its implications for firms' investment decisions under various setups. In particular, we study firms' motivation for investing in such risk management measures as financial hedging (FH) and technology improvement (TI): technology changes that result in less consumption of an input commodity, fewer waste products and emissions, and lower production costs. We derive a simple expression that explicitly quantities firm's attitude toward input-price risk by considering the firm's (positive or negative) risk premium (i.e., what it would pay to "lock in" the unit input price at its mean) and linking that premium to various firm and industry-level characteristics. Also, we examine the comparative risk management advantages of TI and FH and characterize conditions under which these strategies are complements or substitutes. We find that although input-price uncertainty may be beneficial even for risk-averse firms, they can benefit from investing in risk reduction measures (e.g., TI, FH) because they could increase the option value of that uncertainty. A firm's ability to adjust its price in response to both market competition and input-price variation mediates the benefit of risk-reducing measures and also affects the two strategies' complementarity.

Keywords: Risk Management, Risk Exposure, Technology Improvement, Financial Hedging

Departments: Finance, GREGHEC (CNRS)

Both in the United States and in the Euro Area, bank supervision is the joint responsibility of local and central supervisors. I study a model in which local supervisors do not internalize as many externalities as a central supervisor. Local supervisors are more lenient, but banks also have weaker incentives to hide information from them. These two forces can make a joint supervisory architecture optimal, with more weight put on centralized supervision when cross-border externalities are larger. Conversely, more centralized supervision endogenously encourages banks to integrate more cross-border. Due to this complementarity, the economy can be trapped in an equilibrium with both too little central supervision and too little financial integration, when a superior equilibrium would be achievable.

Keywords: banking union, bank supervision, financial integration