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The Differential Impact of Financial Reporting Complexity on Public and Private Debt Contracting: Evidence from ASU 2017-12
No full textInstitutional differences between public and private debt markets can impact how complexity in accounting rules affects debt contracting. Using the adoption of ASU 2017-12 that substantially simplified the reporting of hedging activities, I compare debt contracting outcomes arising from public bond issuers’ and private loan borrowers’ implementations of less complex hedge accounting. I find that consistent with their commitment to high reporting quality, bond issuers lower credit spreads by 13 – 22 basis points through effective hedging induced by the ASU. In contrast, private loan borrowers face 11 basis points higher loan pricing, and 50% greater balance-sheet covenants post-ASU adoption. I argue that when the ASU removes risk-relevant reporting requirements, information frictions increase for banks, increasing the agency cost of private debt; and hedging outcomes from private borrowers’ ASU adoptions are insufficient towards offsetting the increased agency cost of debt. I extend the literature by documenting the heterogenous debt contracting effects of accounting rules’ complexity, which has mainly been studied from the perspective of equity investors and analysts
Flowers and Bees: Spatial Network Effects in the Adoption of a Sharing-Economy Platform
No full textThis paper empirically analyzes spatial network effects in the adoption of a car-sharing platform that connects consumers with individual car owners. Car locations are pinned on a map, and consumers travel to rent them. We thus develop a model of platform adoption by both types of participants (i.e. consumers and providers), which accommodates information asymmetry and spatial network effects across locations. We apply it to data at the earliest stage of the platform and find that proximity and consumer mobility between locations play a significant role in the network effects of existing providers on consumers. The effects of added providers in one location on consumer adoptions in other locations vary widely by location pair and are highly asymmetric, due to local characteristics and flows of consumers. In contrast, existing consumers have a limited impact on provider adoptions. Through seeding experiments, we investigate how the geographic distribution of initial participants impacts the platform diffusion and find that targeting the supply side in big cities leads to the highest platform growth. We also use our parameter estimates to measure the long-term impact of a local promotional campaign and show that it is mostly local despite spatial network effects
Dr Jekyll and Mr Hyde: Feedback and welfare when hedgers can acquire information
No full textI analyze welfare in a model where information acquisition is endogenous, information has real effects, and agents are rational. Hedgers derive a private benefit from holding the asset. Information improves welfare if real efficiency gains exceed cost of acquiring information and foregone gains from trade. I show three new results. Hedgers and speculators have different incentives to acquire information. Gains from trade are lower when hedgers acquire information than when speculators do. Agents may produce less information than would be socially optimal, in which case a contract whereby a firm pays a designated market-maker to lower her spread increases welfare
Beyond Uncertainty Aversion
No full textInternational audienceAlthough much of the theoretical and applied literature involving decision under ambiguity works under the assumption of uncertainty aversion, experimental evidence suggests that it is not a universal behavioural trait. This paper introduces and axiomatises the family of α-UA (for α-Uncertainty Attitude) preferences: a simple extension of uncertainty averse preferences with a Hurwicz-style mixing coefficient, so as to admit a richer range of uncertainty attitudes. The parameters of the model are uniquely identified in our characterisation. It provides, in the Hurwicz α-maxmin EU special case, a new resolution of a long-standing identification problem. It also yields novel models, including extensions of variational and multiplier preferences. Comparative statics support the interpretation of the mixing coefficient as an index of imprecision aversion. In a standard portfolio problem, the model yields the intuitive relationship between imprecision aversion and investment in an uncertain asset: as the former increases, the latter decreases
Antitrust Enforcement Increases Economic Activity
No full textWe hand-collect and standardize information describing all 3,055 antitrust lawsuits brought by the Department of Justice (DOJ) between 1971 and 2018. Using restricted establishment-level microdata from the U.S. Census, we compare the economic outcomes of a non-tradable industry in states targeted by DOJ antitrust lawsuits to outcomes of the same industry in other states that were not targeted. We document that DOJ antitrust enforcement actions permanently increase employment by 5.4% and business formation by 4.1%. Using an event-study design, we find (1) a sharp increase in payroll that exceeds the increase in employment, meaning that DOJ antitrust enforcement increases average wages, (2) an economically smaller increase in sales that is statistically insignificant, and (3) a precise increase in the labor share. While we cannot separately measure the quantity and price of output, the increase in production inputs (employment), together with a proportionally smaller increase in sales, strongly suggests that these DOJ antitrust enforcement actions increase the quantity of output and simultaneously decrease the price of output. Our results show that government antitrust enforcement leads to persistently higher levels of economic activity in targeted industries
Knowledge Workers and Firm Capabilities
No full textSpecialized knowledge-generating jobs comprise close to one fifth of employment and one fourth of the wage bill in French manufacturing firms. These jobs gained importance over the period 1999- 2015 at the cost of production-related jobs. Conditioning on firm size and shares of management workers, their higher shares in employment at the firm level are correlated with more innovation and intangible capital, greater product complexity, higher total factor productivity and profitability. This suggests that firms use specialized knowledge workers to generate within-firm knowledge and create firm capabilities. Consistently with empirical regularities, we model firms as organizations where efficient production of higher-value added, complex goods requires information acquisition by within-firm knowledge workers to develop capabilities beyond those created by management and hierarchies
Taking the help or going alone: ChatGPT and class assignments
No full textThere is increasing speculation about the future role of ChatGPT and other artificial intelligence (AI) chatbots aiding humans in a variety of tasks. But do people do better when aided by these tools, as compared to when they complete tasks on their own? Can they properly evaluate and where necessary correct the responses provided by ChatGPT to enhance their performance? To investigate this question, this study gives university-level students class assignments involving both answering questions and correcting answers provided by ChatGPT. It finds a significant reduction in student performance when correcting a provided response as compared to when they produce an answer from scratch. One possible explanation for this discrepancy could be the confirmation bias. Beyond emphasising the need for continued research into human interaction with AI chatbots, this study exemplifies one potential way of bringing them into classroom: to raise awareness of the pitfalls of their improper use
Generalized Biform Games
No full textHow to extend the use of value-based strategy models to situations with large quasi-rents shared among multiple actors, such as ecosystems? How to consider how players understand competition in value-based models? How to overcome some limitations of these models such as lack of uniqueness of solutions? In this paper, we extend the reach of value-based strategy by revisiting the celebrated biform games model to answer these questions. Operationally, we make players evaluate their payoff from the cooperative stage of the game according to a generalized expectation over their value capture. Our solution has several advantages: (i) It subsumes the original biform framework and seamlessly integrates recent works providing bounds to value capture (ii) 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 (iii) It remains axiomatically justified on behavioral grounds (iv) It permits richer preferences representations that, for example, can include subjective distortions of objective chances of value capture (v) It further leads the way to the use of generalized preference representations in the value-based framework
Wisdom of Crowds along the Supply Chain: Causal Evidence from Trade Credit
No full textUsing the Twitter setting, we examine whether social media data about trade debtors’ prospects are informative for assessing their creditworthiness. We employ a regression discontinuity design to exploit the random, discrete variation in the debtors’ consumer satisfaction scores around discontinuities created by exogenous, pre-determined rounding rules. We document an increase in supplier-awarded trade credit (by about 1.3 [0.4] percent of the cost of goods sold [assets]) in response to a rounding-induced 1-point surge in these scores, which have a 0-100 range. In the cross-section, we find that this effect holds mainly when: (i) trade debtors fall within the “inconclusive region” of a key traditional financial health metric; (ii) uncertainties about trade debtors’ future earnings and future cash flows are high; (iii) there is no previous debtor-supplier relationship; and (iv) debtors have strong negotiation power. Overall, our evidence suggests that suppliers use alternative data to mitigate uncertainties about trade debtors’ prospects