Research Paper Series

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Departments: Finance, GREGHEC (CNRS)

This paper shows that collateral constraints restrict firm entry and post-entry growth, even in the long-run. Our empirical strategy uses French administrative data and exploits cross-sectional variation in local house-price appreciation as shocks to the value of collateral available to homeowners. We control for local demand shocks by comparing homeowners to two control groups that live in the same region but do not experience collateral shocks: (i) renters and (ii) homeowners with a mortgage outstanding, who -- in France -- cannot take out a second mortgage on their house. In both comparisons, we find that an increase in collateral value leads to a higher probability of becoming an entrepreneur. Conditional on entry, entrepreneurs with access to more valuable collateral start larger firms, use more debt, and create more value added, for at least six years after creation.

Keywords: Collateral; Entrepreneurship; Real estate

Departments: Strategy & Business Policy, GREGHEC (CNRS)

Raters of firms play an important role in assessing domains ranging from sustainability to corporate governance to best places to work. Managers, investors, and scholars increasingly rely on these ratings to make strategic decisions, invest trillions of dollars in capital and study corporate social responsibility (CSR), guided by the implicit assumption that the ratings are valid. We document the surprising lack of agreement across social ratings from six well-established raters. These differences remain even when we adjust for explicit differences in the definition of CSR held by different raters, implying the ratings have low validity. Our results suggest that users of social ratings should exercise caution in interpreting their connection to actual CSR and that raters should conduct regular evaluations of their ratings.

Departments: Finance, GREGHEC (CNRS)

We study whether R&D-intensive firms are more resilient to trade shocks. We correct for the endogeneity of R&D using tax-induced changes to the cost of R&D. On average across US manufacturing firms, rising imports from China lead to slower sales growth and lower profitability. These effects are, however, significantly smaller for firms with a larger stock of R&D -- by about half when moving from the 25th percentile to the 75th percentile of the R&D stock distribution. As a result, while the average firm in import-competing industries cuts capital expenditures and employment, R&D-intensive firms downsize considerably less.

Keywords: R&D, Innovation, Product Market Competition, Trade Shocks

Departments: Economics & Decision Sciences, GREGHEC (CNRS)

An ambiguous statistical experiment is a set of joint probability distributions over states and signals. This note compares ambiguous experiments from the point of view of an ambiguity averse decision maker and extends the Blackwell (1951, 1953) ordering to this setting.

Keywords: experiments, value of information, multiple priors, maximin, rectangularity

Departments: Marketing

It is becoming increasingly easier for researchers and practitioners to collect eye tracking data during online preference measurement tasks. We develop a dynamic discrete choice model of information search and choice under bounded rationality, that we calibrate using a combination of eye-tracking and choice data. Our model extends the directed cognition model of Gabaix et al. (2006) by capturing fatigue, proximity effects, and imperfect memory encoding and by estimating individual-level parameters and partworths within a likelihood-based, hierarchical Bayesian framework. We show that modeling eye movements as the outcome of forward-looking utility maximization improves out-of-sample predictions, enables researchers and practitioners to use shorter questionnaires, and allows better discrimination between attributes.

Keywords: Preference Measurement, Incentive Compatibility, Eye Tracking, Dynamic Discrete Choice Models

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

Contingency theory suggests that the selection of coherent combinations of organizational capabilities and operational environments has important performance implications. This paper builds upon this perspective to analyse the emergence of a new business model that is modifying the structure of many industries: the provision of integrated solutions. The aim of the paper is to examine the strategic decisions behind the adoption of a business model based on integrated solutions and to understand how internal firm capabilities must be modified to match the external environment. Relying on primary data from 102 European IT firms, we discuss the value of specialized capabilities, and we analyze their degree of fit with the operational environment in which they are applied. Results show that solution providers that possess specialized capabilities obtain greater benefits when they operate in homogeneous environments.

Keywords: contingency theory, integrated solutions, IT sector, capabilities

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

The paper aims to contribute to the longstanding technology-push vs. demand-pull debate and to the literature on renewable energy diffusion and renewable energy policy assessment. We argue that in addition to the traditional push-pull dichotomy, the drivers of technological change must be differentiated by whether they are exogenous or endogenous to the economic system. We maintain that a specific type of endogenous demand-pull mechanism (i.e. economic growth) is a major catalyst of environmental innovation. We apply this perspective to study the diffusion of renewable energy (RE) technologies in 15 European Union countries from 1990 to 2012. Applying different panel data estimators, we find that public R&D investments, policies supporting RE and per capita income all have a positive impact on RE diffusion, whereas the variability of policy support has a negative impact. However, we also find that economic growth is a stronger driver than either public R&D investments or policies supporting RE, and that models that do not take it explicitly into account tend to overestimate the importance of exogenous drivers. Most importantly, we note that the effect of economic growth on RE diffusion exhibits a nonlinear, U-shaped pattern that resonates with the well-known Environmental Kuznets Curve hypothesis. RE penetration remains negligible at low levels of growth whereas it increases sharply only after income per capita has reached a given threshold and the demand for environmental quality rises. Our findings have implications for policy making. They suggest that for RE diffusion to increase, government action should be directed not only at shielding renewables from competition with fossil fuel technologies but also at stimulating aggregated demand and economic growth.

Keywords: Deployment policy, Technological innovation, Renewable Energy, Environmental Kuznets Curve, Nonstationary Panel.

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

Whereas systems integration is recognized as an important organizational capability, the mechanisms through which it creates value as well as the environmental contingencies that delimit its effectiveness remain unclear, particularly when firms deliver integrated solutions embodying products and services. Focusing on IT solution providers, we investigate the effectiveness of systems integration with respect to three specific approaches to solution design: breadth, modularity, and customization. We find a complementarity effect between systems integration and solution design approaches: if firms pursue customization or rely on a broad set of heterogeneous knowledge bases, systems integration becomes fundamental. Conversely, if firms adopt a modular design, systems integration is redundant and even counterproductive. We also find evidence of complementarity between breadth and customization, but not between breadth and modularity nor between customization and modularity.

Keywords: systems integration, modularity, customization, solution design

Departments: Strategy & Business Policy, GREGHEC (CNRS)

Strategic alliances are undertaken to create value through complementarities of resources and capabilities of the partner firms. We develop a matching framework to study strategic alliances, taking a market perspective that explicitly incorporates key features of transactions in strategic alliances: two sided decision making in voluntary collaboration; quest for complementarities between indivisible and heterogeneous partner attributes; and competition on each side for partners on the other side. We assess the relative performance of matching models and binary choice models when estimating parameters within simulations based on a known functional relationship. Within the context of research alliances in the bio-pharmaceutical industry, we hypothesize and find support using the matching model framework for complementarity in partner size, and in upstream research capabilities.

Keywords: alliances, two-sided matching, maximum score estimator, bio-pharmaceutical industry, complementarity

Departments: Economics & Decision Sciences, GREGHEC (CNRS)

Nudge is a semantically multifarious concept that originates in Thaler and Sunstein's (2008) popular eponymous book. In one of its senses, it is a policy for redirecting an agent's choices by only slightly altering his choice conditions, in another sense, it is concerned with bounded rationality as a means of the policy, and in still another sense, it is concerned with bounded rationality as an obstacle to be removed by the policy, when the latter has a benevolent aim. The paper centres on the interrelations, both semantic and factual, of these three nudge concepts. It argues that the first and second are basically disconnected on Thaler and Sunstein's major examples of nudges, and that this has gone unnoticed to them because they wrongly equate the second with the third concept, and also because they overestimate the explanatory power of behavioural economics, compared with that of classical rational choice theory, to account for successful interventions. After completing this analysis, the paper moves to some of the normative issues raised by Thaler and Sunstein. Their thought-provoking claim that liberalism and paternalism can be reconciled within one and the same doctrine of social ethics - libertarian paternalism – has been subjected to thorough philosophical criticism. Rather than following this abstract line, the paper takes the shortcut of arguing that Thaler and Sunstein lose their best defence of libertarian paternalism after the nudge concepts are disentangled. They had effectively based their case on the view that slight interventions could have powerful effects through a clever use of bounded rationality, and it has been shown that the latter is not really at work in the interventions they consider. The paper finally concludes that the three nudge concepts are worth pursuing, though independently of each other, and in particular that the third one, which involves correcting the pitfalls of bounded rationality, should receive sustained attention from policy analysts

Keywords: Nudge, liberal paternalism, policy analysis, law and economics, behavioural economics, rational choice theory, Thaler and Sunstein