Research Paper Series

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Departments: Finance, GREGHEC (CNRS)

We study the effect of demographics on innovation, arguing that a younger labor force produces more innovation. Using the native born labor force projected based on local historical births, we find that a younger age structure causes a significant increase in innovation. We confirm our finding at three levels of analysis – commuting zones, firms, and inventors – in demanding specifications that account for firm and inventor life cycles and location choices. Innovation activities reflect the innovative characteristics of younger labor forces. Our results indicate that demographics increase innovation through the labor supply channel rather than through a financing supply or consumer demand channel.

Keywords: Innovation; Demographics; Age structure; Labor markets; Firms; Inventors; Patents


Departments: Marketing, GREGHEC (CNRS)

While single-brand reward programs encourage customers to remain loyal to that one brand, coalition programs encourage customers to be “promiscuous” by offering points redeemable across partner stores. Despite the benefits of this “open relationship” with customers, store managers face uncertainty as to how rewards offered by partners influence transactions at their own stores. We use a model of multi-store purchase incidence to show how the value of points shared among partner stores can explain patterns in customer-level purchases across them. The model is used to empirically test hypotheses on how reward spillovers among partners are driven by: (1) differences in policies on reward redemption, (2) the overlap in product categories between stores, and (3) geographic distance between stores within a city. In addition, we leverage variation generated by a natural experiment, i.e., a devaluation of the program's points, to demonstrate how the value of points influences the positioning of partner stores within the coalition and the purchasing patterns across them. We conclude by delineating some managerial implications for the design of a coalition's reward policies, including a simulation showing that customer-centric targeted rewards can be an effective strategy to compensate for the devaluation.

Keywords: loyalty programs, rewards, retailing, Bayesian estimation


Departments: Strategy & Business Policy, GREGHEC (CNRS)

The impact of socially responsible corporate behavior on economic performance is a major preoccupation of managers today. This article explores the links between narrowly defined constructs: stakeholder orientation, environmental proactivity and profitability, from the perspectives of stakeholder theory and resource-based theory. We collected data on the food and beverage, and household and personal products, industries. Using structural equation modeling, this paper makes two contributions. We found a negative link between companies simply having a higher stakeholder orientation and profitability. Importantly, however, environmental proactivity not only had a positive impact on profitability, but also appeared to mediate the relationship between stakeholder orientation and profitability. In other words, if a company is more environmentally proactive, it will be more attentive to a broad array of stakeholders, and this will in turn contribute positively to profitability.

Keywords: environmental proactivity, firm profitability, resource-based theory, stakeholder theory, stakeholder orientation


Departments: Strategy & Business Policy, GREGHEC (CNRS)

In this paper, we develop a theoretical model and offer a first empirical test of how competitive dethronement affects managerial risk taking. Drawing on the mechanism of endowment effect and reference-dependent utility theory, we predict that former market leaders take more risks compared to, otherwise identical, competitors. We empirically test this prediction using two contexts allowing us to use different methods to operationalize risk. The first setting draws on field data from a two-month banking sales contest. The second, quasi-laboratory, data comes from an educational game. Consistent with model’s prediction, we find that dethronement is associated with increased risk taking but that the endowment effect leading to such response decays over time. In contrast, a mere decline in performance ranking does not have the same effect.


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: http://ssrn.com/abstract=2636877.

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


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