Research Paper Series

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Departments: Finance, GREGHEC (CNRS)

High frequency arbitrage opportunities arise when the price of one asset follows, with a lag, changes in the value of another related asset due to information arrival. These opportunities are toxic because they expose liquidity suppliers to the risk of being picked off by arbitrageurs. Hence, more frequent toxic arbitrage opportunities and a faster arbitrageurs' response to these opportunities impair liquidity. We find support for these predictions using high frequency triangular arbitrage opportunities in the FX market. In our sample, a 1% increase in the likelihood that a toxic arbitrage terminates with an arbitrageur's trade (rather than a quote update) raises bid-ask spreads by about 4%.

Keywords: Arbitrage, Adverse Selection, Liquidity, High Frequency Trading


Departments: GREGHEC (CNRS)

This paper investigates the determinants of being unbanked. Using interstate branching deregulation in the U.S. after 1994 as an exogenous shock on banking competition, we show that the share of low income households without a bank account decreases as banking competition intensifies. Consistent with the hypothesis that banks discriminate, we also find that banking competition reduces the racial gap between banked and unbanked households, but only in states with a strong preference for racial discrimination. Reducing the number of unbanked has implications in terms of debt holding and wealth accumulation. These findings suggest that the large share of unbanked households among the poor is partly due to bank practices and discrimination.

Keywords: Banks, Regulation, Imperfect Competition, Household Finance, Discrimination


Departments: Tax & Law, GREGHEC (CNRS)

This chapter provides a detailed analysis of the economic, legal and public policy rationales for the application of taxes and other fiscal measures on health-related commodities. The motivation for such taxes has been more often linked to the fiscal revenues generated than to their potential public health benefits. However, especially in more recent times, an increased emphasis has been placed on the latter by many governments, as evidence emerged of the adverse public health, social and economic consequences of the consumption of certain commodities.An increasing number of governments are seeking to expand their use of fiscal measures to promote healthier behaviours, not only by increasing tax rates on commodities such as tobacco products and alcoholic beverages, but also by exploring the scope for taxing selected foods and non-alcoholic beverages as a way to make people’s diets healthier. A number of countries apply different tax rates to certain food categories, and some have specific taxes on foods high in salt, sugar or fat, and on sugary drinks. Only in the past two years, countries such as Denmark, Hungary, Finland and France introduced taxes on various foods and non-alcoholic beverages, and many more have been debating the possible use of similar measures. The key public health rationale for the use of taxes on health-related commodities lies in their ability to change people’s consumption behaviours. Additional health benefits may derive from the role possibly played by taxes as incentives to product reformulation. For instance, in 2012, many beer producers in the United Kingdom decreased the alcohol content of their brands sold in the United Kingdom by 0.2% to avoid an increase in duties. As with other attempts to use taxes to prevent some adverse outcome (e.g. environmental taxes), a key issue becomes the proximity of the tax point to the behaviour being targeted. The closer is the tax point to the behaviour, then (other things being equal) the more likely is the tax to have a beneficial impact. Excises introduced for public health purposes illustrate the dilemma clearly. Although for administrative reasons the tax may be levied earlier in the supply chain, the tax point is generally the purchase of the product by a consumer. Tobacco is always harmful, in whatever way and quantity it is consumed (although the harm will be even greater in an environment which results in secondary smoking). The relationship is less strong with alcohol, because the quantity consumed and the manner in which it is consumed (e.g. regular vs. binge drinking) determines the harm which may be caused. This relationship is even looser with diet-related taxes. This does not mean that taxation is an inappropriate instrument, but rather that, in addition to the harms discouraged by the tax, the welfare of a broader group of consumers will be affected.

Keywords: Taxation, Public Health, Fat Tax, Risk Regulation, Lifestyle Risk, Non Communicable diseases, EU Law, WTO law, Paternalism, Nudge


Departments: Accounting & Management Control, GREGHEC (CNRS)

Drawing on a framework of deinstitutionalization, this study explores the abandonment of budgeting through a multiple-case study of four companies. The findings illustrate how a number of antecedents to deinstitutionalization acted in each setting and show that abandonment was only achieved through skillful agency by dominant insiders to construct the need and manage for change. In addition, an interesting finding of the study is that two of the four companies reversed the deinstitutionalization and re-introduced traditional budgeting. This is explained by highlighting the role of remnants of formerly institutionalized practices and by demonstrating the importance of administrative and cultural controls which can support the abandonment of a central control practice in the first place. Overall, this research extends previous studies of deinstitutionalization by analyzing a taken-for-granted practice at the micro level and by giving a more agentic account of its processes.

Keywords: deinstitutionalization; budgeting; budget abandonment; Beyond Budgeting


Departments: Accounting & Management Control

Companies around the world use International Financial Reporting Standards (IFRS) to prepare their financial statements. IFRS are issued in English and subsequently translated into a multitude of languages to make them accessible to non-English-speaking users. This translation process inevitably entails a degree of shift in meaning from the original text and accounting scholars have argued that the use of translated versions of IFRS might impair accounting judgments. However, this assertion lacks empirical support. We contribute to the literature on IFRS translation by theoretically deriving hypotheses on the impact of translation on accounting judgment quality. Furthermore, we test our hypotheses based on a series of 2x2 between-subjects experiments with 229 German students who possessed different levels of accounting knowledge. Participants made judgments about a series of cases according to IAS 24 Related Party Disclosures. Our manipulations entail the language of the accounting standard used (English vs. German) and the language of the input case information (English vs. German). We find that the use of IAS 24 in the participants’ mother tongue (German) has a positive impact on the quality of accounting judgments. We also find some support for an influence of the language of the input case information on judgment. Moreover, participants’ accounting knowledge and English skills are positively associated with accounting judgment quality. Our study contributes to the literature on the translation and adoption of IFRS and yields recommendations for accounting regulation, practice and education.

Keywords: IFRS, judgment, translation, language


Departments: Accounting & Management Control, GREGHEC (CNRS), Finance

We examine the effect of dispersion in a firm's existing debt on the contract terms of newly issued loans. We find that new loans of firms whose existing debt is more dispersed among different types of lenders include more covenants and default clauses and are more likely to be collateralized. These findings provide evidence that new lenders seek protection from potential conflicts among different types of creditors by including additional contract terms in the loan agreements. Consistent with the notion that conflicts between different types of lenders matter most in case of default and are aggravated by information asymmetries, we further find that the effect of creditor dispersion is stronger for firms with high default risk and more pronounced for firms with low accounting quality. Finally, we provide evidence for a similar effect of creditor dispersion on the contract terms of newly issued bonds.

Keywords: Creditor Dispersion, Debt Contract Terms, Debt Capital Structure


Departments: Strategy & Business Policy

A central theme of economic sociology has been to highlight the complexity and diversity of real-world markets, but many network models of economic social structure ignore this feature and rely instead on stylized one-dimensional characterizations. Here, we return to the basic insight of structural diversity in economic sociology. Using the Indian interorganizational ownership network as our case, we discover a composite – or “hybrid” – model of economic networks that combines elements of prior stylized models. The network contains a disconnected periphery conforming closely to a “transactional” model; a semi-periphery characterized by small, dense clusters with sporadic links, as predicted in “small world” models; and finally a nested core composed of clusters connected via multiple independent paths. We then show how a firm’s position within the meso-level structure is associated with demographic features such as age and industry, and differences in the extent to which firms engage in multiplex and high value exchanges

Keywords: Network, Organization, Structure


Departments: Strategy & Business Policy

A central theme of economic sociology has been to highlight the complexity and diversity of real-world markets, but many network models of economic social structure ignore this feature and rely instead on stylized one-dimensional characterizations. Here, we return to the basic insight of structural diversity in economic sociology. Using the Indian interorganizational ownership network as our case, we discover a composite – or “hybrid” – model of economic networks that combines elements of prior stylized models. The network contains a disconnected periphery conforming closely to a “transactional” model; a semi-periphery characterized by small, dense clusters with sporadic links, as predicted in “small world” models; and finally a nested core composed of clusters connected via multiple independent paths. We then show how a firm’s position within the meso-level structure is associated with demographic features such as age and industry, and differences in the extent to which firms engage in multiplex and high value exchanges.

Keywords: Network, Organization, Structure


Departments: Finance, GREGHEC (CNRS)

We derive several popular systemic risk measures in a common framework and show that they can be expressed as transformations of market risk measures (e.g., beta). We also derive conditions under which the different measures lead to similar rankings of systemically important financial institutions (SIFIs). In an empirical analysis of US financial institutions, we show that (1) different systemic risk measures identify different SIFIs and that (2) firm rankings based on systemic risk estimates mirror rankings obtained by sorting firms on market risk or liabilities. One-factor linear models explain most of the variability of the systemic risk estimates, which indicates that systemic risk measures fall short in capturing the multiple facets of systemic risk.

Keywords: Banking Regulation, Systemically Important Financial Firms, Marginal Expected Shortfall, SRISK, CoVaR, Systemic vs. Systematic Risk


Departments: Marketing, GREGHEC (CNRS)

This web appendix has three main purposes. First, we provide a more or less 'stand-alone' technical appendix that describes the estimation algorithm for the proposed attribute model using Markov Chain Monte Carlo techniques (sections A1 and A2). The reversible jump (RJ) algorithm (Green, 1995) is also described in detail for the (vector) finite mixture regression model. We first give a discussion of priors and a general description of the reversible jump algorithm; then we present details of the estimation schema for the standard finite mixture regression model. We subsequently extend these details for the attribute model. As we will show, the algorithms and equations for the attribute model are similar to the results for the vector model due to a simple transformation. This similarity makes the coding of the attribute model straightforward once computer code for the vector model (with reversible jump steps) is developed. Furthermore, we discuss how the algorithms should be modified to estimate a standard choice model (e.g. a probit model). Second, we briefly discuss in section A3 the benchmark models for heterogeneity considered in the main document and their implementation, including the mixture of normals model (Allenby et al. 1998, Lenk and DeSarbo 2000) and the Dirichlet Process Priors (Ansari and Mela 2003, Kim et al. 2004). Third, we present the results of an additional simulation experiment where the traditional (vector) finite mixture model is used to generate the data in section A4, which augments the Monte Carlo experiment in the main document.

Keywords: heterogeneity, mixture models, hierarchical Bayes, conjoint analysis, reversible jump MCMC, segmentation