Firm Divestitures in different Environmental Contexts
My dissertation examines firm divestitures and their relationship with the business and geographic scope of the firm under buoyant and hostile economic environments. In order to accomplish this task, I have collected information on various kinds of divestitures undertaken by a panel of large European publicly listed firms. The three essays aim to contribute to the broader literature on divestitures as well as the work on the divestitures-diversification relationship and its contingencies. Past research generally suggests that divestitures are aimed at reducing excessive diversification. This view, however, overlooks the fact that not all divestitures result in refocusing. Indeed, many divestitures are motivated by the existence of over-capacity within the firm. In addition, while prior research has generally found that divestitures improve performance by reducing excessive diversification, more recent research has argued and shown that during an economic downturn, more diversified firms tend to outperform their focused counterparts. Changing economic conditions thus appear as a suitable context in which to study the mechanisms through which divestitures can create value. The first essay examines how, under different environmental conditions, firms are more prone to undertake either downscoping (divestitures leading to a reduction in business scope) or downsizing (divestitures that only reduce firm size without affecting business scope) divestitures, as well as the performance impact of either type of divestiture. I find that firms are less likely to undertake downscoping divestitures during an economic downturn whereas they are more likely to undertake downsizing divestitures. This paper provides a boundary condition to the argument that firms primarily divest to reduce diversification and depicts the key role of downsizing divestitures in a firm’s corporate strategy. The second essay focuses on the international dimension of divestitures. Extant work has narrowly defined foreign divestitures as the divestment of a subsidiary. The theoretical mechanisms driving foreign divestitures as well as the effect of these global strategic moves are contingent on the scope and size of the foreign divestiture. Real options theory has shown that foreign divestitures afford greater strategic flexibility to the firm by switching operations. However, we still do not know much about the timing of these options as well as the boundary conditions of this argument. This study examines the conditions under which firms are more or less inclined to exercise the option to abandon a geographic market as compared to the option to switch operations by merely selling off foreign assets while maintaining a geographic presence. This study contributes to the literature on foreign divestitures and real options perspective. The third essay attempts to shed light on the idea that divestitures provide dynamic capabilities to the firm. Extant research has argued that divestitures provide capabilities to grow and reconfigure the organization. However, not much is known about the conditions in which divestitures are more likely to enable dynamic capabilities. Furthermore, there is very little understanding of the impact of dynamic capabilities provided by divestitures on firm value creation. This study focuses on the cost of assets being sold relative to their market value as a conceptually relevant contingency that impacts the likelihood of firm divestitures. The article puts forth the concept of divestment potential to specify firm-level conditions when divestitures would arguably create greater shareholder value.
Three Essays on FinTech
This three-chapter thesis investigates the benefit and cost of financial technology (FinTech) for consumers and firms. The first chapter studies whether, in the consumer credit market, peer-to-peer (P2P) lending platforms serve as substitutes for banks or instead as complements. I develop a conceptual framework and derive testable predictions to distinguish between these two possibilities. Using a regulatory change as an exogenous shock to bank credit supply, I find that P2P lending is a substitute for bank lending in terms of serving infra-marginal bank borrowers yet complements bank lending with respect to small loans. These results indicate that the credit expansion resulting from P2P lending likely occurs only among borrowers who already have access to bank credit. This second chapter focuses on the potential cost of FinTech --- privacy intrusion. In particular, I study the value of privacy, for individuals, using data from large-scale field experiments that vary disclosure requirements for loan applicants and loan terms on an online peer-to-peer lending platform in China. I find that loan applicants attach positive value to personal data: Lower disclosure requirements significantly increase the rate at which applications are completed. I quantify the monetary value of personal data— and the welfare effect of various disclosure policies—by developing a structural model that links individuals’ disclosure, borrowing, and repayment decisions. Using detailed application-level data, I estimate that social network ID and employer contact are valued at 230 RMB (i.e., $33, or 70% of the average daily salary in China); for successful borrowers, this accounts for 8% of the average net present value of a loan. Requiring answers to these application questions reduces borrower welfare by 13% and costs the platform $0.50 in expected revenue per applicant. In the last chapter, I turn to investigate the benefit of FinTech for firms. This chapter is in collaboration with Paul Beaumont (McGill University), AnneSophie Lawniczak (Banque de France), and Eric Vansteenberghe (Paris School of Economics). We evaluate the tradeoff for small business between borrowing from crowd-funding platforms and traditional banks. To do so, we link the universe of Fintech SME loans in France to the credit registry at Banque de France (the French central bank) to obtain a comprehensive credit history of SMEs borrowing from Fintech platforms. The main finding is that following a successful Fintech loan application, SMEs experience a significant increase in bank credit. This result is robust to the inclusion of a control group of SMEs with successful bank loan applications. Importantly, the increase in bank credit is only present for long-term categories, which require collateral. This suggests that FinTech platforms may expand credit access for SMEs by relaxing their collateral constraints.
Influence of visual crowding on consumers' search and choice experiences.
In this dissertation, I examine the influence of visual crowding on consumers’ product search and choice. Visual crowding reduces individuals’ ability to distinguish objects in a scene from one another, thus making product search and choice more difficult. In the first chapter, I show that individuals’ ability to find a particular target product in a display varies in function of the embeddedness of the target, which depends on the locations of the target and non-target products in the display. I propose a metric that quantifies how visually crowded a target is in each location of a given product display, and that can be used to estimate the amount of visual search effort needed to find the target. In the second chapter, I examine how visual crowding impacts choice – specifically, how reducing visual crowding by adding space between products in an assortment influences variety perceptions and purchase behavior. In the third chapter, I explore visual attention to a product display in presence of different distractors. Overall, in this dissertation I try to ascertain which elements of product displays can reduce visual crowding and improve consumers’ shopping experiences. This research contributes to the literature on visual attention and assortments, and provides new insights for product display designs, in online and offline retail environments.
Essays in Decision Theory and Behavioral Economics
In this thesis, I propose new measurement and models of ambiguity aversion and status quo bias. The first two chapters utilize an agent’s attitude towards well-de?ned uncertainty (i.e., risk), which is better understood in the literature, to measure that of less well-de?ned uncertainty (i.e., ambiguity) and other components of decision making (e.g., utility function). This approach presents at least two advantages. First, it leads to an easily implementable tool for comparing ambiguity attitude across agents without requiring them to have the same risk attitude, as argued in Chapter 1. Second, it unveils a rich notion of trade-o ?s in the risk domain, through which popular decision-theoretic axioms can be reformulated to embed rank-dependent utility over risk into models of decision under uncertainty, as shown in Chapter 2. In the last Chapter, status quo bias is shown, under fairly general conditions, to be compatible with a rational decision model where the agent compares the likelihood of a status quo theory and various alternative theories, similar to statistical hypothesis testing. Taken together, the thesis provides new theoretical accounts of economic behavior that are amenable to formal analysis and empirical test.
Decisions: Theory, Experiments and Applications
This dissertation explores several intertwined dimensions of decision-making research. In particular, while focusing on decisions under risk and uncertainty, this work illustrates the transversality of approaches that characterize this area of investigation by collecting an experimental study, a theoretical elaboration and an application. The continuous dialogue between these different approaches to decision-making research is critical to its development, as empirical investigations test and inform formal theories and further ensure their meaningful application in theoretical and empirical contexts, thus contributing to virtuous “creative destruction” dynamics in the field. For example, a large body of empirical evidence shows violations of the expected utility theory. In response, decision theory and behavioral economics provided a large variety of nonexpected utility theories. The existing evidence, however, does not clearly discriminate among such theories. Relative to the investigation of the sources of violations, particular attention has been traditionally devoted to testing several variations of the independence axiom. Yet, on the gains domain, many of the most well-known non-expected utility models abide to the minimal behavioral restrictions traditionally known as the axioms P3 and P4 of Savage (1954), that allow to separate tastes, as captured by a utility function on outcomes, and beliefs, as captured by the willingness to bet on events, often a distorted probability. In the first chapter of this dissertation, we derive a non-parametric procedure for testing the separability of tastes and beliefs hypothesis and we apply it to the results of two experiments. While P3 is rarely violated, our test finds widespread and pronounced violations of P4, thus suggesting that the assumption of separation of tastes and beliefs may not hold in empirical settings. On the theory side, the issue of separating tastes and beliefs was apparently closed by a series of papers of Ghirardato and Marinacci on biseparable preferences. Inspired by the findings of the previous chapter, the purpose of the second chapter of this dissertation is to reopen this question by investigating whether, or under what theoretical conditions, such separation actually holds and what its implications are. In particular, we will provide separability conditions in terms of preference midpoints and the novel concept of likelihood midpoints. In the third chapter, we make use of recent developments in decision-making criteria to provide an extension of the seminal biform games setup of Brandenburger and Stuart (2007). While biform games provide the theoretical basis for formal work in value-based strategy, our framework helps reconciling observed behavior in applied contexts with theory. In particular, we apply the results of our setup to the choice of bringing in substitutes to complementers in business ecosystems, a central decision in competitive strategy. Our solution has several advantages. First, it subsumes the original biform games framework and seamlessly integrates recent related work that provides bounds to value capture. Also, it allows solving issues such as the possible non-uniqueness of solutions and invariance to the competitive environment structure while maintaining the role of competition in determining value capture. Finally, it permits richer preferences representations that, for example, can include subjective distortions of objective chances of value capture.
Explaining the Variability of Audiences’ Valuations: An Approach Based on Market Categories and Natural Language Processing
This dissertation examines whether the different categorization processes shaping audiences’ valuations in markets bring stability or variability to audiences’ valuations. While seminal research on categorization emphasized the stabilizing role of market categories, recent research suggests that audiences’ valuations can vary substantially even in markets which are wellstructured by pre-existing categories. This variability notably results from audiences’ heterogeneous preferences for typical offerings, from shifts in categories’ meanings or from audiences’ reliance on multiple models of valuation. Taking stock of these new results, this dissertation asks why audiences’ valuations are so variable and explores in more details the role that market categories play in this phenomenon. This dissertation proposes that i) ambiguous categories, ii) the influence of temporary attractions among audiences alongside more stable categories and iii) the co-existence of different types of evaluators all contribute to produce variability in audiences’ valuations. The first two empirical essays use data from publicly listed firms in the U.S. In these essays, firms’ similarity to existing category prototypes or audiences’ temporary attractions toward certain features are measured using semantics extracted from large corpora of annual reports and IPO prospectuses. The third essay is a theoretical model. This dissertation contributes to the literature on market categories, to the burgeoning research on optimal distinctiveness and to computational approaches to the study of organizations.
Three essays in accounting
This dissertation consists of three chapters in the field of audit research. The first chapter, joint with Francois Larmande, analyzes a model in which audit quality - above a given threshold - decreases accounting quality because of the substitution between accounting and real earnings management. The second chapter presents the joint work with Cedric Lesage, exploring the earnings management behavior of managers facing higher auditor’s expertise. The third chapter investigates how audit regulation affects managers’ disclosing and earnings management behaviors.
Firms' strategic responses to evaluations
The rise of digital media technology over the last decades has transformed the way in which organizations are evaluated. Judgments by experts and critics, recognized for their knowledge of evaluation criteria, appropriate weightings, and appropriate preferences, are losing their appeal to customers in many industries. Every day, on a plurality of platforms and websites, individuals disclose information about their interactions with organizations and their products or services. Compared to traditional media or professional critics, digital users and customers tend to share subjective and partial experiences, have lower concerns for accuracy and balance, and often put emphasis on the emotional content. As more customers rely on this information for their purchasing choices, firms in many industries find themselves in a position where it is hard to ignore the opinions expressed online by customers as inconsequential. In this thesis, I study how the strategies and behaviors of organizations are affected by this “democratization” of evaluation process. The empirical setting for my analyses is the restaurant industry. In the first chapter, I study online reviews as a source of information for restaurants, which may learn about problems, errors, or improvement opportunities. I examine what features of customer feedback make it more likely to be considered by target restaurants. With an online experiment in the French restaurant industry, I find that decision makers allocate attention to feedback that is expected to have a stronger impact on the reputation and performance of the restaurant. However, I also find evidence of a “disturbance” effect of the emotions evoked by certain feedback features. With this chapter I emphasize the importance of incorporating affective mechanisms in the study of attention, and shed light on how individual-level emotions impact organizational-level outcomes. In the second chapter, I analyze the effects of the interaction between amateur and expert evaluations. In particular, I study the entry of an expert evaluator (i.e., Michelin guide) in a market, and how it pushes some organizations to make strategic choices that signal their aspirations. Drawing on literature on organizational status, I find that restaurants better rated by Michelin make changes to their offer with the aim to self-identify with the élite group. These changes consist in the adoption or removal of certain features displayed in their menus. In addition, by using topic modeling techniques applied to Yelp reviews, I observe that customers’ reactions to the entry of Michelin make restaurants more or less sensitive to the expert’s evaluations. In the third chapter, I focus on how organizations use public responses to customers to address criticism in online settings. Recent studies are not conclusive on the reputational benefits of public responses to reviews. These responses may reduce the likelihood of future negative reviews while, at the same time, draw attention to problems. Building on existing literature on reputation and impression management, I propose that organizations may resolve this trade-off by making a strategic use of different types of verbal accounts (e.g., apology). Although public responses to customers may be counterproductive, adapting the style of public responses to the features of customer reviews might be an optimal strategy for organizations. For this study I analyze restaurant reviews in France and the United States using standard econometric models supported by supervised learning techniques.
Market categories, expertise, and evaluation of organizations
This dissertation examines how categories — groupings that are built upon social and cognitive similarities — affect the evaluation of organizations in markets. Research shows that market audiences are likely to penalize organizations that combine multiple categories. Questioning the past studies' underlying assumptions, my work contextualizes this demand of categorical purity by studying the role of (i) category nesting, that is the hierarchical disposition of categories, (ii) audience members’ heterogeneity in expertise and modes of categorization (the way individuals group entities together), and (iii) the differences of valence among categories themselves. Using experimental tests (Chapter 1), longitudinal data on venture capital deals worldwide from 1994 to 2017 (Chapter 2) as well as theoretical developments (Chapter 3), this dissertation provides evidence of conditions under which categorically atypical organizations are better appraised than categorically pure organizations in markets. This work offers contribution to organization theory and economic sociology by speaking to research on market categories, experts’ evaluations and optimal distinctiveness.
Essays in Finance
This thesis consists of three articles. The two first articles study information flows in the financial markets, and the third one studies how mutual fund families may use relatively discretionary income sources to channel profits to specific funds within the family. The first article, joint with Daniel Schmidt, studies price and liquidity spillovers in financial markets. Using a quasi-natural experiment, we show that investors look at stock prices to extract signals, and use these to trade. In the second article, I show that mutual fund acquire information through the securities lending market. I show that active mutual funds start selling the stocks that are borrowed from them by short sellers, whereas index funds — that are prohibited from trading — do not. One the other hand, index funds are able to charge higher stock lending fees from the borrowers. I attribute this to them being better lenders in the sense that they can not use the information they gain to trade, and thereby extract profits from the short sellers’ information. The third article, also with Daniel Schmidt, studies fund family level policies in allocating securities loans and lending revenues between member funds. We show that fund families deviate from the claimed fair allocation, directing more securities loans and lending profits to index funds. The finding is in line with with funds substituting a lower expense ratio with higher securities lending income.