Bottom-Up Corporate Governance

A. Landier, J. Sauvagnat, D. Sraer, D. THESMAR

Review of Finance

janvier 2013, vol. 17, n°1, pp.161-201

Départements : Finance, GREGHEC (CNRS)

This article empirically relates the internal organization of a firm with decision making quality and corporate performance. We call “independent from the CEO” a top executive who joined the firm before the current CEO was appointed. In a very robust way, firms with a smaller fraction of independent executives exhibit (1) a lower level of profitability and (2) lower shareholder returns following large acquisitions. These results are unaffected when we control for traditional governance measures such as board independence or other well-studied shareholder friendly provisions. One interpretation is that “independently minded” top ranking executives act as a counter-power imposing strong discipline on their CEO, even though they are formally under his authority

Buying Beauty: On Prices and Returns in the Art Market

L. Renneboog, C. SPAENJERS

Management Science

janvier 2013, vol. 59, n°1, pp.36-53

Départements : Finance, GREGHEC (CNRS)

Mots clés : Art, Auctions, Hedonic regressions, Investments, Repeat-sales regressions, Sentiment

This paper investigates the price determinants and investment performance of art. We apply a hedonic regression analysis to a new data set of more than one million auction transactions of paintings and works on paper. Based on the resulting price index, we conclude that art has appreciated in value by a moderate 3.97% per year, in real U.S. dollar terms, between 1957 and 2007. This is a performance similar to that of corporate bonds'at much higher risk. A repeat-sales regression on a subset of the data demonstrates the robustness of our index. Next, quantile regressions document larger average price appreciations (and higher volatilities) in more expensive price brackets. We also find variation in historical returns across mediums and movements. Finally, we show that measures of high-income consumer confidence and art market sentiment predict art price trends

Competing mechanisms in a common value environment: A corrigendum



janvier 2013, vol. 81, n°1, pp.393-406

Départements : Finance

Credit Rating Industry: A Helicopter Tour of Stylized Facts and Recent Theories

D. Jeon, S. LOVO

International Journal of Industrial Organization

septembre 2013, vol. 31, n°5, pp.643-651

Départements : Finance, GREGHEC (CNRS)

Mots clés : Credit rating agencies; Reputation; Financial regulations; Conflicts of interest; Certification

The recent subprime crisis and the ongoing Euro zone crisis have generated an enormous interest in the credit rating industry not only among economists but also among average citizens. As a consequence, we have seen an explosion of the economic literature on the industry. The objective of this survey is to introduce readers to the key stylized facts of the credit rating industry and to the recent theoretical economic literature on this industry

Derivatives Clearing, Default Risk, and Insurance


Journal of Risk and Insurance

juin 2013, vol. 80, n°2, pp.373-400

Départements : Finance, GREGHEC (CNRS)

Using daily data on margins and variation margins for all clearing members of the Chicago Mercantile Exchange, we analyze the clearing house exposure to the risk of default by clearing members. We find that the major source of default risk for a clearing member is proprietary trading rather than trading by customers. Additionally, we show that extreme losses suffered by important clearing firms tend to cluster, which raises systemic risk concerns. Finally, we discuss how private insurance could be used to cover the loss from defaults by clearing members

Entrepreneurial Spawning and Firm Characteristics


Management Science

décembre 2013, vol. 59, n°12, pp.2790-2804

Départements : Finance, GREGHEC (CNRS)

Mots clés : spawning; spinoffs; spinouts; general and specialized resources; firm organization; organizational fit; firm size; focus; profitability; innovativeness; spawning dynamics

We analyze the implications of the decision to spawn or to retain a new product for the nature and evolution of the firm. In our model, a new product is spawned if the fit between the product and its parent firm organization is not adequate. We focus on the impact of the firm's history of spawning decisions on firm characteristics such as size, focus, profitability, and innovativeness, and analyze its role in shaping firm dynamics. In accordance with the empirical literature, our model predicts that older firms innovate less, spawn less, are more diversified and less profitable, and that firms with more valuable general or specialized resources innovate and spawn more. Echoing seemingly contradictory empirical findings, our model predicts that small, focused firms (large, diversified firms) innovate and spawn more, and are more profitable when sample heterogeneity is driven by the importance of organizational fit (the value of general resources)

Fear of appreciation


Journal of Development Economics

mars 2013, vol. 101, pp.233-245

Départements : Finance

Investor Horizons and Corporate Policies


Journal of Financial and Quantitative Analysis

décembre 2013, vol. 48, n°6, pp.1755-1780

Départements : Finance, GREGHEC (CNRS)

Mots clés : Investor horizons, Institutional investors, Investment, Financing, Payouts, Mispricing, Market timing

We study the effect of investor horizons on corporate behavior. We argue that longer investor horizons attenuate the effect of stock mispricing on corporate policies. Consistent with our argument, we find that when a firm is undervalued, greater long-term investor ownership is associated with more investment, more equity financing, and less payouts to shareholders. Our results do not appear to be explained by long-term investor self-selection, monitoring (corporate governance), or concentration (blockholdings). Our results are consistent with a version of market timing in which mispriced firms cater to the tastes of their short-term investors rather than their long-term investors

Liquidity Cycles and Make/Take Fees in Electronic Markets

T. FOUCAULT, O. Kadan, E. Kandel

The Journal of Finance

février 2013, vol. 68, n°1, pp.299-341

Départements : Finance, GREGHEC (CNRS)

Mots clés : Maker/Taker Pricing, Algorithmic Trading, Latency, Monitoring, Liquidity Externalities

We develop a model of trading in which the speed of reaction to trading opportunities for liquidity suppliers (makers) and liquidity demanders (takers) is endogenous. In choosing their speed of reaction, traders face a trade-o¤ between the benefit of being first to seize a profit opportunity and the cost of attention required to be first to seize this opportunity. The model provides an explanation for the widespread adoption of maker/taker pricing (the di¤erentiation of trading fees between makers and takers), and yields several implications regarding the e¤ects of algorithmic trading on liquidity, volume, and welfare. The trading intensities of makers and takers reinforce each other, highlighting a new form of liquidity externalities. We show that data on durations between trades and quotes could be used to identify these externalities

Merger waves following industry deregulation


Journal of Corporate Finance

juin 2013, vol. 21, pp.51-76

Départements : Finance, GREGHEC (CNRS)

Mots clés : Mergers; Acquisitions; Restructuring; Deregulation

Deregulation is endogenous. It is preceded by poor industry performance and is predictable with performance variables. These results imply that merger activity following deregulation should be systematically related to poor pre-deregulation industry performance. Consistent with this hypothesis, I find that post-deregulation mergers serve a contractionary role. Bidders and targets in post-deregulation mergers are poor performers prior to the merger and operate with significant excess capacity. Consistent with the hypothesis that post-deregulation mergers represent a form of exit, the frequency of cash and bankruptcy mergers is significantly higher following deregulation and the offer premium is significantly lower