Research Paper Series

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Departments: Economics & Decision Sciences, GREGHEC (CNRS), Finance

Using inter-state banking deregulation in the U.S. as an exogenous experiment, we find that a 1% increase in banking integration between U.S. states caused a 0.164-0.184% increase in the foreign exports/domestic shipments ratio for U.S. state level exports in the years 1992-1996. We can ascribe these effects to the integration by banks with foreign assets: a 1% increase in banking integration through such banks caused the exports/domestic shipments ratio to increase by 0.22-0.41% while the expansion of banks with purely domestic assets appears to have no impact. Given our empirical specification, this increase in openness can be attributed to an increase in capital to cover variable and fixed export costs relative to domestic shipping costs and a higher provision of trade finance services. Serving new destinations (the extensive margin defined at the state-country level) accounts for 22% to 28% of the banking integration effect that we observe.

Keywords: Exports, financial depth, inter-state banking deregulation


Departments: Marketing, GREGHEC (CNRS)

This paper models payment evasion as a source of profit by letting the firm choose the price charged to paying consumers and the fine collected from detected payment evaders. The consumers choose whether to purchase, evade payment, or refrain from consumption. We show that payment evasion allows the firm to charge a higher price to paying consumers and to generate a higher profit. We also show that higher fines do not necessarily reduce payment evasion. Finally, we provide empirical evidence which is consistent with our theoretical analysis, using comprehensive micro data on fare dodging on the Zurich Transport Network.

Keywords: Payment Evasion, Pricing, Fine, Self-Selection


Departments: Economics & Decision Sciences, GREGHEC (CNRS), Finance

We provide the first evidence that changes in risk-based capital requirements for banks affect the real economy through international trade. Using a natural experiment – mandatory Basel II adoption in its Standardized Approach by all banks in Turkey on July 1, 2012 – we investigate the impact of new risk-weights applied to commercial letters of credit (CLC) on that country’s exports to 174 countries. We estimate the resulting payment-term-cost elasticity of CLC-financed trade to be between -0.5 and -1 while the overall trade elasticity to be between -0.032 and -0.179. Calculations suggest that both CLC-related bank pricing and rationing channels are involved.

Keywords: commercial letters of credit; international trade finance; exports; risk-weights; Basel II


Departments: Economics & Decision Sciences, GREGHEC (CNRS)

Judgment (or logical) aggregation theory is logically more powerful than social choice theory and has been put to use to recover some classic results of this field. Whether it could also enrich it with genuinely new results is still controversial. To support a positive answer, we prove a social choice theorem by using the advanced nonbinary form of judgment aggregation theory developed by Dokow and Holzman (2010c). This application involves aggregating classifications (specifically assignments) instead of preferences, and this focus justifies shifting away from the binary framework of standard judgement aggregation theory to a more general one.

Keywords: Social choice, Judgment aggregation, Logical aggregation, Aggregation of classifications, Assignments, Nonbinary evaluations


Departments: GREGHEC (CNRS), Finance

Using securities lawsuits related to M&A as an industry shock, we examine whether litigation risk acts as an external governance mechanism by disciplining managers' investment decisions. In the two years following an M&A lawsuit (a lawsuit where plaintiffs allege that the firm hid poor performance related to a prior acquisition), we find that industry peers experience higher bidder announcement returns, choose more adequate methods of payment, and engage in fewer diversifying and smaller takeovers. Collectively, this evidence is consistent with post lawsuit deals being of higher quality. Furthermore, we find that peer firms respond to the increased litigation risk by reducing abnormally high investment expenditures. Finally, the reactions are stronger among firms with fewer anti-takeover provisions. Overall, our results show that M&A lawsuits can have an industry-wide deterrence effect on firms' suboptimal investment behavior.

Keywords: Litigation Risk, Mergers, Investment Decisions, Corporate Governance


Departments: Accounting & Management Control

Meaning work is a key category of institutional work, which aims at maintaining or changing of field-level meanings. Mobilizing institutional analysis of field level change processes and the social movement framing literature, this study conceptualizes the types of meaning work that actor at the boundary of a social movement and the incumbent field undertake in the process of “mainstreaming”. Mainstreaming in this paper is defined as a process whereby a social movement succeeds in diffusing its norms, values or practices across the wider incumbent field. During the past few decades, socially responsible investment (SRI) has shifted from being a marginal, religious, mostly US-based movement to an influential international movement, which has succeeded in mobilizing a large number of incumbent investors and financial organizations. Based on a multi-stage qualitative analysis of the SRI field during the past 50 years, this study first establishes the structural changes that define a field undergoing mainstreaming. It then introduces propositions regarding links between these field-level changes and the meaning work that actors at the boundary between a social movement and the incumbent field undertake.

Keywords: field, social movements, framing, institutions, socially responsible investment, meaning


Departments: Economics & Decision Sciences, GREGHEC (CNRS)

One apparent reason for deferring a decision – abstaining from choosing, leaving the decision open to be taken by someone else, one’s later self, or nature – is for lack of sufficient confidence in the relevant beliefs. This paper develops an axiomatic theory of decision in situations where a costly deferral option is available that captures this source of deferral. Drawing on it, a preliminary behavioural comparison with other accounts of deferral, such as those based on information asymmetry, is undertaken, and a simple multi-factor model of deferral – involving both confidence and information considerations – is formulated. The model suggests that incorporating confidence can account for cases of deferral that traditional accounts have trouble explaining.

Keywords: Confidence, multiple priors, deferral, delegation, information acquisition, value of information, incomplete preferences


Departments: Accounting & Management Control

Transparency is one of the fundamental norms that structure our contemporary individual, organizational and social lives. Its influence can be felt at all levels, and it provides, in particular, the normative foundation for the current explosion of accounting, audit and other visibility-based accountability structures. The emergence and rapid expansion of international organizations – that have played a central role in structuring transnational governance around a plethora of standards and audits – has been fundamental to the theorization and global diffusion of accountability regimes. In this paper, we undertake a conceptual genealogy of the powerful notion of transparency. Starting with its Enlightenment roots, we explore the multiple competing and conflicting mobilizations of the notion of transparency through time to liberate, to deliberate, to legitimize, to control, to structure or to govern. We then trace the transposition of these various historical trajectories into the transnational space. Beginning with the League of Nations, we follow the various mutations of transnational transparency up to its contemporary and profound neoliberal transformation. We show how transnational transparency has shifted from being a norm of emancipatory accountability, “exposing the few to the many”, to one of governing by “exposing the many to the few”.

Keywords: transparency, transnational governance, accountability, genealogy, enlightenment, visibility


Departments: Operations Management & Information Technology, GREGHEC (CNRS)

Confronted by increasingly tight budgets and a broad range of alternative options, policy makers need empirical methods to evaluate the effectiveness of policies aimed at supporting the diffusion of renewable energy sources (RES). Rigorous empirical studies of renewable energy policy effectiveness have typically relied on panel data models to identify the most effective mechanisms. A common characteristic of some of these studies, which has important econometric implications, is that they assume that the contribution of RES to total electricity generation will be stationary around a mean. This paper reviews such assumptions and rigorously tests the time series properties of the contribution of RES in the energy mix for the presence of a unit root. To that end, we use both individual and panel unit root tests to determine whether the series exhibit non-stationary behavior at the country level as well as for the panel as a whole. The analysis, applied to a panel of 19 OECD countries over the period 1990-2012, provides strong evidence that the time series of the renewable share of electricity output are not stationary in 17 of the 19 countries examined. This finding has important implications for energy policy assessment and energy policy making, which are discussed in the paper

Keywords: Unit root, cross-sectional dependence, renewable energy diffusions, renewable energy policies


Departments: Economics & Decision Sciences, GREGHEC (CNRS)

We provide possibility results on the aggregation of beliefs and tastes for Monotone, Bernoullian and Archimedian preferences of Cerreia-Vioglio, Ghirardato, Maccheroni, Marinacci, and Siniscalchi (2011). We propose a new axiom, Unambiguous Pareto Dominance, which requires that if the unambiguous part of individuals’ preferences over a pair of acts agree, then society should follow them. We characterize the resulting social preferences and show that it is enough that individuals share a prior to allow non dictatorial aggregation. A further weakening of this axiom on common-taste acts, where cardinal preferences are identical, is also characterized. It gives rise to a set of relevant priors at the social level that can be any subset of the convex hull of the individuals’ sets of relevant priors. We then apply these general results to the Maxmin Expected Utility model, the Choquet Expected Utility model and the Smooth Ambiguity model. We end with a characterization of the aggregation of ambiguity attitudes.

Keywords: Preference Aggregation, Social Choice, Uncertainty