Confidence in belief and rational decision making


Economics and Philosophy

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

Mots clés : Confidence, Decision Under Uncertainty, Belief, Rationality

The standard, Bayesian account of rational belief and decision is often argued to be unable to cope properly with severe uncertainty, of the sort ubiquitous in some areas of policy making. This paper tackles the question of what should replace it as a guide for rational decision making. It defends a recent proposal, which reserves a role for the decision maker’s confidence in beliefs. Beyond being able to cope with severe uncertainty, the account has strong normative credentials on the main fronts typically evoked as relevant for rational belief and decision. It fares particularly well, we argue, in comparison to other prominent non-Bayesian models in the literature

Corporate Strategy, Conformism, and the Stock Market


Review of Financial Studies

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Départements : Finance, GREGHEC (CNRS)

Data abundance and asset price informativeness


Journal of Financial Economics

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Départements : Finance, GREGHEC (CNRS)

Mots clés : Asset Price Informativeness, Big Data, FinTech, Information Processing, Markets for Information, Contrarian and momentum trading

Information processing filters out the noise in data but it takes time. Hence, low precision signals are available before high precision signals. We analyze how this feature affects asset price informativeness when investors can acquire signals of increasing precision over time about the payoff of an asset. As the cost of low precision signals declines, prices are more likely to reflect these signals before more precise signals become available. This effect can ultimately reduce price informativeness because it reduces the demand for more precise signals (e.g., fundamental analysis). We make additional predictions for trade and price patterns

Demand-Side Strategy, Relational Advantage, and Partner-Driven Corporate Scope: The Case for Client-Led Diversification


Strategic Management Journal

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Départements : Stratégie et Politique d’Entreprise, GREGHEC (CNRS)

We advance research on corporate diversification by joining insights from the demand-side and relational views in strategy to offer a novel theory of client-led diversification. We propose that client-led diversification results from a combination of the customer-driven opportunities emphasized in the demand-side view and the creation of added value through relational assets that is a central tenet of the relational view. Furthermore, we hypothesize that suppliers’ client-specific knowledge, clients’ relational commitment to suppliers, and growth opportunities in clients’ markets (relative to the suppliers’ own markets) will magnify the client-led diversification effect. We test our hypotheses using a longitudinal dataset on patent law firms and their diversification into new domains of patent prosecution work for their corporate clients

Do stakeholder orientation and environmental pro-activity impact firm profitability?


Journal of Business Ethics

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Départements : Stratégie et Politique d’Entreprise, GREGHEC (CNRS)

Mots clés : Environmental proactivity, Firm profitability, Resource-based theory, Stakeholder orientation, Stakeholder theory

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

Family Firms in the Ownership Network: Clustering, Bridging, and Embeddedness


Entrepreneurship: Theory and Practice

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Départements : Stratégie et Politique d’Entreprise, GREGHEC (CNRS)

Mots clés : family firms, community, embeddedness, network

In this paper, we investigate family firms’ position in the intercorporate ownership network. Rooting our predictions in the Behavioral Agency Model and a Network analytical framework, we predict and find that family involvement decreases the likelihood of business group affiliation and of cross-group ties leading to a lower embeddedness within the overall network. We predict and find the opposite effect for community involvement. We use the complete longitudinal dataset of publicly listed firms’ corporate ownership ties in India (2001, 2005, and 2009). Theoretical and substantive contributions are to research on family businesses and to research on interorganizational networks

Firm Non-Market Capabilities and the Effect of Supranational Institutional Safeguards on the Location Choice of International Investments


Strategic Management Journal

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Départements : Stratégie et Politique d’Entreprise, GREGHEC (CNRS)

Mots clés : international investment location choice; non-market capabilities; political connections; supranational institutions; bilateral investment treaties

We investigate the extent to which firms rely on supranational institutional safeguards versus their non-market capabilities to offset the risks of investing abroad. We argue that firms with non-market capabilities are insensitive to supranational institutional safeguards when choosing the location of their international investments. We show that supranational agreements between an investor’s home and host nation, operationalized as Bilateral Investment Treaties (BITs), increase the likelihood of investment, but there is substantial firm heterogeneity with respect to this relationship. Firms with various forms of non-market capabilities are not sensitive to BITs, whereas other firms are more likely to invest under BITs. We advance the understanding of how firm non-market capabilities can substitute for supranational institutional arrangements in addressing risks associated with host country institutional weaknesses

Herding and Social Media Word-of-Mouth: Evidence from Groupon

X. LI, L. WU

MIS Quarterly

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Départements : Information Systems and Operations Management, GREGHEC (CNRS)

Mots clés : Herding, word-of-mouth, social media, interaction effect, complementarity

Modern online retailing practices provide consumers with new types of real-time information that can potentially increase demand. In particular, showing past product sales information can reduce uncertainty about product quality, inducing consumers to herd. This effect could be particularly salient for experience goods due to their inherent high uncertainty about product quality. Social media word-of-mouth (WOM) can increase product awareness as product information spreads via social media, increasing demand directly and also amplifying existing quality signals such as past sales. This study examines the mechanisms behind the strategy of facilitating herding and the strategy of integrating social media platforms to understand the potential complementarities between the two strategies. We conduct empirical analysis using data from which sells goods in a fast cycle format of “daily deals”. We find that facilitating herding and integrating social media platforms are complements in generating sales, supporting that it is beneficial to combine the two strategies on social media-driven platforms. Furthermore, we find that herding is more salient for experience goods, consistent with our hypothesized mechanisms, while the effect of social media WOM does not differ between experience goods and search goods

How Do Firm Political Connections Impact Foreign Acquisitions? The Effects of Decision Makers’ Political and Firm Embeddedness


Global Strategy Journal

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Départements : Stratégie et Politique d’Entreprise, GREGHEC (CNRS)

Mots clés : political connections, non-market strategies, foreign acquisitions, French firms, mental models

Research summary: We examine how firm political connections established through the political embeddedness of senior decision makers affect firms’ foreign acquisition strategy. We argue that such political embeddedness affects the mental models of decision makers and, in turn, influences their preferences for particular strategies. We propose that political embeddedness leads to the formation of mental models that favor foreign acquisition strategies. We further argue that the firm embeddedness of politically-embedded decision makers alters their mental models, thereby mitigating their inclination for such strategies. We find evidence consistent with our mental models explanation using a sample of foreign acquisitions made by French publicly-traded firms during the 2009-2014 period. Overall, this study contributes to a better understanding of the mechanisms through which political connections impact global strategy. Managerial summary: We investigate how firm political connections affect firms’ foreign acquisition strategies. We argue that when firms have top decision makers with close connections to the government, they will make more foreign acquisitions. We further argue that this inclination towards foreign acquisitions is primarily driven by non-executive board members, with politically-connected executives appearing to be more reluctant to engage in such strategies. We find evidence consistent with these ideas when examining foreign acquisitions made by French publicly-traded firms managed by graduates of the prestigious ENA government school, which trains many government and senior civil servants in France

How Much Do Means Tested Benefits Reduce the Demand for Annuities?


Journal of Pension Economics and Finance

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Départements : Finance, GREGHEC (CNRS)

Mots clés : Means-Tested Benefits, Occupational Pension, Annuity

We analyze the effect of means-tested benefits on annuitization decisions using an administrative dataset of pension wealth cash-out choices. Availability of means-tested payments creates an incentive to cash out pension wealth for low and middle income earners, instead of taking the annuity. Agents trade off the advantages from annuitization, receiving longevity risk insurance, to the disadvantages, giving up “free” wealth in the form of means-tested supplemental income. Our life-cycle model demonstrates that the availability of means-tested benefits substantially reduces the desire to annuitize especially for low and intermediate levels of pension wealth. In our empirical analysis we show that the model’s predicted fraction of retirees choosing the annuity is able to match the annuitization pattern of occupational pension wealth observed in Switzerland