Cahiers de recherche

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Départements : Finance

We study the dynamics of fund manager ownership for a sample of U.S. equity mutual funds from 2005 to 2011. We find that ownership changes positively predict changes in future risk-adjusted fund performance. A one-standard-deviation increase in ownership predicts a 1.6 percent increase in alpha in the following year. Fund managers who are required to increase their ownership by fund family policy show the strongest increase in alpha. They do so by increasing their trading activity in line with the view that higher ownership aligns interests of managers with those of shareholders and induces higher effort.

Mots clés : Mutual Funds, Fund Manager Ownership Changes, Fund Performance Predictability, Incentive Alignment, Superior Information

Départements : Finance, GREGHEC (CNRS)

We show that when corporate managers rely on the stock market as a source information, they are more likely to follow common strategies because this behavior enhances the informativeness of stock prices about their growth opportunities. Thus, the stock market induces conformity in strategic choices. Our theory predicts that this effect should be weaker for public firms. Consistent with this prediction, we observe empirically that firms differentiate their products more after going public. In line with our model, this pattern is stronger when managers are better informed or when the stock prices of a firm's peers are less informative

Mots clés : Conformism, Product Differentiation, Managerial Learning, Peers, Informational efficiency

Départements : Finance, GREGHEC (CNRS), Economie et Sciences de la décision

We examine whether industry structure of an economy can be affected by its banks’ lending policies. We use US interstate bank-entry deregulations to identify the effect of banking integration on states’ manufacturing sector compositions. We find that states’ under-specialized (with respect to the US) and external-finance-dependent industries grow faster upon entry of banks from states that are overspecialized in the same sectors. We observe growth for industry value added, gross operating surplus, and output per employee, but none for the number of employees, their compensation or wages. Our results are indicative of a banking channel shaping the states’ industrial landscape.

Mots clés : banking integration; industry structure; industrial specialization; economic convergence

Départements : Economie et Sciences de la décision, GREGHEC (CNRS), Finance

We introduce the model of Stochastic Revision Games where a finite set of players control a state variable and receive payoffs as a function of the state at a terminal deadline. There is a Poisson clock which dictates when players are called to choose of revise their actions. This paper studies the existence of Markov perfect equilibria in those games. We give an existence proof assuming some form of correlation

Départements : Finance, GREGHEC (CNRS)

Recent work has shown that where a firm is located matters for such things as dividend and investment policy, governance, liquidity, equity and debt issuance, and risk exposure. These effects seem to exist, in part, because of managements' desire to minimize agency problems related to monitoring and relationship building that vary as a function of firm distance from agents.We expand the current location literature by showing that firm location characteristics, not just distance per se, are important. We develop a geographical-based vibrancy index using important location characteristics from the Urban Economics literature that measure local economic health. We show that the vibrancy index not only predicts firm policy variables such as investment and leverage, but also predicts firm performance and firm value. The local effects are strong, adding up to a 50% increase in explanatory power above industry effects. Our results indicate that the local vibrancy of a firm headquarters is an important determinant of firm policies and profitability.

Mots clés : geography, firm location, vibrancy, firm characteristics, firm performance.

Départements : Finance, GREGHEC (CNRS)

Due to non-linear transaction costs, the financial performance of a trading strategy decreases with portfolio size. Using a dynamic trading model a la Garleanu and Pedersen (2013), we derive closed-form formulas for the performance-to-scale frontier reached by a trader endowed with a signal predicting stock returns. The decay with scale of the realized Sharpe ratio is slower for strategies that (1) trade more liquid stocks (2) are based on signals that do not fade away quickly and (3) have strong frictionless performance. For an investor ready to accept a Sharpe reduction by 30%, portfolio scale (measured in dollar volatility) is given by a simple formula that is a function of the frictionless Sharpe, a measure of price impact, and a measure of the speed at which the signal fades away. We apply the framework to four well-known strategies. Because stocks have become more liquid, the capacity of strategies has increased in the 2000s compared to the 1990s. Due to high signal persistence, the capacity of a "quality" strategy is an order of magnitude larger than the others and is the only one highly scalable in the mid-cap range

Mots clés : trading costs, asset pricing anomalies, asset management, arbitrage

Départements : Finance, GREGHEC (CNRS)

We review the extent literature on systemic risk, both theoretical and empirical, and connect it to recent regulatory debates and reforms. While we take stock of the achievements of this rapidly growing literature, we also point towards a gap between two approaches. The first one studies different sources of systemic risk in isolation, uses confidential data, and inspires targeted but heavy-handed regulatory tools. The second approach aims to produce global measures of systemic risk from market data, which are by design not directly connected to any particular theory, but could support a simpler and more efficient regulatory framework. Bridging this gap is a major avenue for future research on systemic risk, and will require both new encompassing theoretical models and improved data disclosure.

Mots clés : Banking, Macroprudential Regulation, Systemically Important Financial In- stitutions, Financial Crises, Too-Big-To-Fail

Départements : Finance

This paper computes the certainty equivalent of the United States Social Security in a calibrated life-cycle model when the stock and labor markets are cointegrated. In the baseline calibration, the certainty equivalent of current workers and retirees is found to be 37% lower at the national scale than the sum of expected cash flows discounted at the risk-free rate. The results suggest that the present value of pension entitlements and the transition cost to a funded system may be largely overestimated if not properly risk-adjusted.

Mots clés : Household finance, Social Security, Public liabilities, Portfolio choices

Départements : Finance, GREGHEC (CNRS)

This paper examines the effect of accounting quality on the degree of debt concentration (i.e., the tendency to rely predominantly on only a few types of debt) in corporate capital structures. Building on theoretical and empirical studies arguing that asymmetric information increases the renegotiation and bankruptcy costs associated with relying on multiple types of debt, we predict that lower quality accounting numbers induce firms to choose more concentrated debt structures. Measuring (low) accounting quality with the existence of material internal control weaknesses over financial reporting (ICWs), we find evidence consistent with our prediction: Firms choose more concentrated debt structures after experiencing ICWs. This effect is stronger for more severe ICWs (i.e., company-level rather than account specific ICWs). We find similar results using accounting restatements and audit quality as alternative measures of accounting quality.

Départements : 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.

Mots clés : Collateral; Entrepreneurship; Real estate