Research Articles

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https://hdl.handle.net/20.500.14417/1726

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A model of managerial compensation, firm leverage and credit stimulus
(Elsevier, 2024-06) Gete, Pedro; Chakraborti, Rajdeep; Dahiya, Sandeep; Ge, Lei; Ministerio de Ciencia, Innovación y Universidades; Agencia Estatal de Investigación; https://ror.org/02jjdwm75
We study a model in which leverage and compensation are both choice variables for the firm and borrowing spreads are endogenous. First, we analyze the correlation between leverage and variable compensation. We show that allowing for endogenous compensation and leverage can explain the conflicting findings of the empirical literature. We uncover a new channel of complementarity between effort and leverage that induces a correlation sign opposite to what current theoretical models predict. Second, we study the dynamics of leverage and compensation design after a credit stimulus. We derive a set of new empirical predictions. For outward-shifts in credit supply, variable compensation is increasing in leverage growth. Moreover, variable compensation increases after the credit stimulus, especially for firms with low idiosyncratic risk.
A Quantitative Model of International Lending of Last Resort
(Elsevier, 2020-03) Gete, Pedro; Melkadze, Givi; Uribe, Martin; https://ror.org/02jjdwm75
We analyze banking crises and lending of last resort (LOLR) in a quantitative model of financial frictions with bank defaults. LOLR policies generate a tradeoff between financial fragility (due to more highly leveraged banks) and milder crises since the policies are effective once in a crisis. In the calibrated model, the crisis mitigation effect dominates the moral hazard problem and the economy is better off having access to a lender of last resort. We characterize the conditions under which pools of small economies can be sustainable LOLRs. In addition, we assess the ability of China - a country with ample reserves - to be a sustainable international LOLR.
A strategic sustainability model for global luxury companies in the management of CO2 emissions
(Springer, 2024) Rangel Pérez, Celia; López, Belén; Fernández, Manuel; https://ror.org/02jjdwm75
Luxury brands are at the forefront of sustainability efforts and carbon emission reductions to fight climate change. The goal of this paper is to analyze such climate change challenges in terms of cost efforts within large luxury conglomerates. In doing so,financial metrics have been gathered for the top 100 companies in the luxury sector and compared against CO2 emissions metrics with regressive methods. This enables the study of relationships between sustainability and finance to explore if sustainability is expensive and if sustainability is explained by costs,sales,taxes,or investment. Such works allow the setting of conclusions on financial and managerial decisions and,moreover,set a new framework of analysis based on financial variables and the positive or negative impact on CO2 emissions,such as which financial variables generate more CO2 emissions (luxury sales,capital investment and financial cost) and which help to reduce such emissions (cost of goods sold,general expenses and taxes). © The Author(s) 2024.
Activist Hedge Funds and Takeovers Their Effects on Employment and Performance
(Wiley, 2022-01) Goergen, Marc; Kuvandikov, Azimjon; Pendleton, Andrew; https://ror.org/02jjdwm75
This paper analyses the impact of activist hedge funds (AHFs) on post-merger workforce downsizing and operating performance. AHFs have been widely criticized for achieving short-term gains at the expense of other stakeholders, such as employees. The results show that AHF ownership and presence in acquiring firms is a significant determinant of post-merger employment reductions. There is little evidence that these mergers and acquisitions have better operating performance relative to other takeovers. However, there is a negative effect of AHF ownership on labour productivity. Overall, the results are consistent with the view that AHF involvement in takeovers does not lead to sustained gains in performance.
An Effective Metaheuristic for Bi-objective Feature Selection in Two-Class Classification Problem
(IOP Publishing Ltd, 2019) Núñez Letamendía, Laura; Lyubchenko, Alexander; Pacheco, Joaquín Antonio; Casado Yusta, Silvia ; https://ror.org/02jjdwm75
Feature selection is known as a very useful technique in machine learning practice as it may result in the development of more straightforward models with better accuracy. Traditionally, feature selection is considered as a single-objective problem, however, it can be easily formulated in terms of two objectives. The solving of such problems requires the application of appropriate multi-objective optimization methods that do not always offer equally good solutions even under the same conditions. This paper focuses on the development of a metaheuristic optimization approach for bi-objective feature selection problem in two-class classification. We consider the solving of this problem in terms of minimization of both misclassification error and feature subset size. For solving the considered problem, an adaptation of the Multi-Objective Adaptive Memory Programming (MOAMP) metaheuristic based on the tabu search strategy is proposed. Our MOAMP adaption has been utilized to obtain the sets of most relevant features for two real classification problems with two classes. Finally, using popular Pareto front quality indicators, the obtained results have been compared with the sets of non-dominated solutions derived by the well-known NSGA2 algorithm. The conducted research allows concluding about the ability of the MOAMP adaptation to get a better efficient frontier for the same number of objective function calls.
Are sustainable funds doing the talk and the walk? An ESG score analysis of fund portfolio holdings
(Elsevier Inc., 2024) Martinez Meyers, Susana; Ferrero Ferrero, Idoya; Muñoz Torres, Maria Jesus; Universitat Jaume I; Generalitat Valenciana; https://ror.org/02jjdwm75
Our paper contributes to the growing literature by conducting a comparative analysis between sustainable funds (SF) and conventional funds (CF) with a global geographical perspective. The paper aims to test if SF are true to their identity through a comparative and multi-regional perspective analysis of the funds' ESG performance and sustainability risk. The sample comprises 92 matched pairs of funds. Our research shows that self-labeled sustainable funds exhibit better ESG performance and sustainability risk scores than their pairs,indicating alignment with their identity and nature. Furthermore,the results also indicate that there are different ESG behaviors depending on the geographical areas of investment. In particular,funds with portfolios invested in Europe present a higher ESG performance than those invested in North America,and funds invested in Emerging Markets and Asia present a lower performance and higher risk than those in North America. This paper provides three main novelties: 1) multiregional perspective,2) different ESG score perspectives using different and complementary indicators of sustainable behavior based on risk and performance,and 3) a matching process starting with the same fund management company,geographical area of investment and investment category that help us isolate the issue of the use of ESG labels. The results of this paper open new insights and research avenues that connect sustainable investment with aspects like quality of information,fiduciary duty,and regulatory development. © 2024 The Authors
Capital Commitment and Performance: The Role of Mutual Fund Charges
(Cambridge University Press, 2022-11-02) Gómez, Juan Pedro; Porras Prado, Melissa; Zambrana, Rafael; Fundação para a Ciência e a Tecnologia; Social Sciences DataLab; POR Lisboa and POR Norte Social Sciences DataLab; Ministerio de Economía y Competitividad; Agencia Estatal de Investigación; European Regional Development Fund; Banco de España; Novo Banco; https://ror.org/02jjdwm75
We study how the scarcity of committed capital affects the equilibrium distribution of net alphas in the asset management industry. We propose a model of active portfolio management with different sales fee structures where committed capital is in short supply. In the model, a portfolio’s excess return is not fully appropriated by the money manager but shared with long-term investors. Empirically, we show that capital commitment allows funds to hold shares longer and take advantage of slow-moving arbitrage opportunities. Consistent with the model, funds with more committed capital generate higher value added, which, net of fees, accrues to long-term investors.
CEO and director compensation, CEO turnover and institutional investors: Is there cronyism in the UK?
(Elsevier, 2019-06) Goergen, Marc; Chen, Jie; Sau Leung, Woon; Song, Wei; https://ror.org/02jjdwm75
This paper provides new evidence that correlated abnormal compensation of CEOs and directors is symptomatic of agency problems associated with cronyism. We find that director abnormal compensation has a negative impact on the likelihood of CEO turnover and reduces the sensitivity of CEO turnover to poor stock performance. However, for firms with greater institutional ownership the adverse effects of director abnormal compensation are mitigated, and the negative impact of abnormal compensation on firm performance is reduced. These findings suggest that correlated abnormal compensation of CEOs and directors is likely associated with agency problems.
Chromerid genomes reveal the evolutionary path from photosynthetic algae to obligate intracellular parasites
(eLife Sciences Publications Ltd, 2015) Woo, Yong; Ansari, Hifzur; Otto, Thomas; Linger, Christen; Olisko, Martin; Michálek, Jan; Saxena, Alka; Shanmugam, Dhanasekaran; Tayyrov, Annageldi; Veluchamy, Alaguraj; Ali, Shajahan; Bernal, Alex; Campo, Javier del; Cihlár, Jaromir; Flegontov, Pavel; Gornik, Sebastian; Hajduskova, Eva; Horák, Ales; Janouskovec, Jan; Katris, Nicholas; Mast, Fred; Miranda Saavedra, Diego; Mourier, Tobias; Naeem, Raeece; Nair, Mridul; Panigrahi, Aswini; Rawlings, Neil; Padron Regalado, Eriko; Ramaprasad, Abhinay; Samad, Nadira; Tomcala, Ales; Wilkes, Jon; Neafsey, Daniel; Doerig, Christian; Bowler, Chris; Keeling, Patrick; Roos, David; Dacks, Joel; Templeton, Thomas; Waller, Ross; Lukes, Julius; Oborník, Miroslav; Pain, Arnab; https://ror.org/02jjdwm75
The eukaryotic phylum Apicomplexa encompasses thousands of obligate intracellular parasites of humans and animals with immense socio-economic and health impacts. We sequenced nuclear genomes of Chromera velia and Vitrella brassicaformis,free-living non-parasitic photosynthetic algae closely related to apicomplexans. Proteins from key metabolic pathways and from the endomembrane trafficking systems associated with a free-living lifestyle have been progressively and non-randomly lost during adaptation to parasitism. The free-living ancestor contained a broad repertoire of genes many of which were repurposed for parasitic processes,such as extracellular proteins,components of a motility apparatus,and DNA- and RNA-binding protein families. Based on transcriptome analyses across 36 environmental conditions,Chromera orthologs of apicomplexan invasion-related motility genes were co-regulated with genes encoding the flagellar apparatus,supporting the functional contribution of flagella to the evolution of invasion machinery. This study provides insights into how obligate parasites with diverse life strategies arose from a once free-living phototrophic marine alga. © Woo et al.
Climate risk in mortgage markets: Evidence from Hurricanes Harvey and Irma
(Wiley, 2024-02-27) Gete, Pedro; Tsouderou, Athena; Wachter, Susan; Ministerio de Ciencia e Innovación; Agencia Estatal de Investigación; https://ror.org/02jjdwm75
Using the Credit Risk Transfers (CRTs) issued by Fannie Mae and Freddie Mac, we study how, absent government intervention, mortgage markets would price hurricane risk. Currently, such risk is priced equally across locations even if it is location-specific. We hand collect a novel and detailed database to exploit CRTs' heterogeneous exposure to Hurricanes Harvey and Irma. Using a diff-in-diff specification, we estimate the reaction of private investors to hurricane risk. We use the previous results to calibrate a model of mortgage lending. We simulate hurricane frequencies and mortgage default probabilities in each US county to derive the market price of mortgage credit risk, that is, the implied guarantee fees (g-fees). Market-implied g-fees in counties most exposed to hurricanes would be 70% higher than inland counties.
Compensation contracts and fire sales
(Elsevier, 2015-06) Gete, Pedro; Gómez, Juan Pedro; Ministerio de Economía y Competitividad; https://ror.org/02jjdwm75
This paper analyzes the impact of remuneration practices on banks’ risk-taking in a model with fire sales externalities. When these externalities are not internalized by a bank's shareholders and executives, borrowing and fire sales are higher than the socially optimal level. Our analysis shows that plain-vanilla equity fails to internalize fire sales externalities. Deferred equity and long-term bonuses unrelated to short-term profits can restore social efficiency. Bail-in bonds can achieve efficiency at a smaller cost since they allow for state-contingent payments. It is not the level but the composition of variable compensation that determines the inefficiency. Excessive regulation may lead to suboptimal levels of risk-taking. Government guarantees reinforce the fire sales externalities and the need for regulation.
Credit Stimulus, Executive Ownership, and Firm Leverage
(INFORMS, 2021-12-14) Gete, Pedro; Chakraborti, Rajdeep; Dahiya, Sandeep; Ge, Lei; Ministerio de Ciencia, Innovación y Universidades; Agencia Estatal de Investigación; European Regional Development Fund; https://ror.org/02jjdwm75
We show that executive ownership is a significant driver of the demand for credit following credit expansion policies. Our focus on credit demand is in contrast to most studies that have focused on credit supply factors such as bank capital. Our identification exploits the large and unexpected Chinese credit expansion in 2008. This setting offers a unique advantage as in 2008 the Chinese government had almost complete control over the banking sector and it directed the banks to increase credit supply. Thus, in this setting, demand, rather than supply, largely drives the observed changes in firms’ borrowing. We provide extensive robustness tests to validate our results.
Dealing with Overleverage: Restricting Leverage vs. Restricting Variable Compensation
(SSRN, 2018-01-25) Gete, Pedro; Gómez, Juan Pedro; https://ror.org/02jjdwm75
We study policies that regulate executive compensation in a model that jointly determines executives' effort, compensation and firm leverage. The market failure that justifies regulation is that executives are optimistic about asset prices in states of distress. We show that shareholders propose compensation packages that lead to socially excessive leverage. Say-on-pay regulation does not reduce the incentives for leverage. Regulating the structure of compensation (but not its level) with a cap on the ratio of variable-to-fixed pay delivers the right leverage. However, it is more efficient to directly regulate leverage because restricting the variable compensation impacts managerial effort more than if shareholders are free to design compensation subject to a leverage constraint.
Digital platforms in the news industry: how social media platforms impact traditional media news viewership
(Taylor and Francis Ltd., 2024) Ren, Jie; Popovic, Ales; Sabnis, Gaurav; Nickerson, Jeffrey; Dong, Hang; National Science Foundation; https://ror.org/02jjdwm75
We examine how social media plays the role of an attention driver for traditional media. Social media attracts and channels attention to a topic. This attention triggers people to seek further information that is reported professionally in traditional media. Specifically,the volume of social media posts about a stock influences the attention to this stock the next day,proxied by the viewership of news articles on the same stock published the next day. We test this hypothesis in the stock market context because social media is less likely than traditional media to diffuse fundamental information in the stock market. Analysing stock-related news articles and stock-related social media posts from Sina Finance and Sina Weibo,we find that the social media post volume of a stock at time t-1 is associated with the traditional media viewership of the same stock at time t. This effect is amplified when social media sentiment about the stock is more intense or positive,and with an increase in the volume of verified social media posts about the stock. Our results provide evidence that social media platforms act as attention drivers,which differ from the information channel functions discussed in prior literature. © 2022 The Author(s). Published by Informa UK Limited,trading as Taylor & Francis Group.
Dispersed ownership and asset pricing: An unpriced premium associated with free float
(Elsevier, 2022-05-09) Hearn, Bruce; Filatotchev, Igor; Goergen, Marc; https://ror.org/02jjdwm75
We explore differences in the levels of dispersed ownership that lead to a returns-based free float hedging factor in addition to size, which augments the capital asset pricing model (CAPM) in explaining the cross-section of stock returns. Using the S&P 1500 stocks in the US between 1985 and 2023, the results support the advantages of free float within a three-factor CAPM including size over alternative models based on liquidity, book-to-market value, and momentum. We argue that this yields a useful means for hedging effectively against the risks associated with the fundamental underlying likelihood of expropriation in a specific firm based on its ownership structure.
Distributional Implications of Government Guarantees in Mortgage Markets
(Oxford University Press, 2017-07-20) Gete, Pedro; Zecchetto, Franco; Ministerio de Economía y Competitividad; https://ror.org/02jjdwm75
We analyze the removal of the credit-risk guarantees provided by the government-sponsored enterprises (GSEs) in a model with agents heterogeneous in income and house price risk. We find that wealth inequality increases, driven by higher mortgage spreads and housing rents. Housing holdings become more concentrated. Foreclosures fall. The removal benefits high-income households, while hurting low- and mid-income households (renters and highly leveraged mortgagors with conforming loans). GSE reform requires compensating transfers, sufficiently high elasticity of rental supply, or linking GSE reform with the elimination of the mortgage interest deduction.
Distributive/integrative negotiation strategies in cross-cultural contexts: a comparative study of the USA and Italy
(Cambridge University Press, 2021) Benetti, Sara; Caputo, Andrea; Ogliastri, Enrique; https://ror.org/02jjdwm75
Integrative and distributive negotiation strategies are a key paradigm of practice,teaching,and research. Are these US-formulated negotiation prototypes valid in the rest of the world? Adopting a cross-cultural view,we analyze a sample of 214 foreigners who detailed the negotiation behavior they faced in Italy (134) and in the United States (80). Implementing latent class analysis,we identify three clusters of negotiation prototypes. Our findings show how the Country is a predictor for cluster membership,and peculiar cultural traits of the two groups contribute to explain the differences in negotiation strategies. Three prototypes emerged: a typically distributive,an emotional integrative (mostly Italian),and an impersonal integrative (mostly American). Results show how the handling of emotions is a crucial part of the interaction for Italian negotiators,regardless of their orientation toward negotiation strategies,implying a cultural influence toward handling emotions in negotiations. © Cambridge University Press and Australian and New Zealand Academy of Management 2021. This is an Open Access article,distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0/),which permits unrestricted re-use,distribution,and reproduction in any medium,provided the original work is properly cited.
Do Markets Price CEOs Health Hazards? Evidence from the COVID-19 Pandemic
(World Scientific, 2023-01-20) Gómez, Juan Pedro; Mironov, Maxim; Ministerio de Ciencia, Innovación y Universidades; Agencia Estatal de Investigación; European Regional Development Fund; https://ror.org/02jjdwm75
We find evidence that markets anticipate the potential loss of firm value in the event of the CEO falling sick and eventually dying of COVID-19 in a sample of almost 3000 listed firms from across 137 regions in 10 European countries. First, we use soccer games as “super-spreader” events. The instrumented number of infected cases per capita in the region where company headquarters are located predicts a significant drop in stock returns during March and April 2020 for firms managed by CEOs with a higher probability of dying from COVID-19. Second, we show that the stock price of these firms increases significantly the day on which positive news on the development of COVID-19 vaccines are released in the market.
Do multiple credit ratings reduce money left on the table? Evidence from U.S. IPOs
(Elsevier, 2021-04) Goergen, Marc; Gounopoulos, Dimitrios; Koutroumpis, Panagiotis; https://ror.org/02jjdwm75
Using credit ratings as an uncertainty-reducing mechanism, we provide evidence of the beneficial impact of multiple credit ratings on reducing IPO underpricing and filing price revision. We find that the acquisition of multiple ratings in the pre-IPO period mitigates uncertainty more than the acquisition of a single rating. Multi-rated firms also have higher probabilities of survival than those with a single rating, whereas credit rating levels matter only for IPOs with more than one rating. The IPOs that are awarded the first rating on the borderline between investment and non-investment grades are more likely to seek an additional rating.
Does Gender Diversity Affect Renewable Energy Consumption?
(Elsevier, 2021-02) Goergen, Marc; Atif, Muhammad; Alam, Md Samsul; Hossain, Mohammed; https://ror.org/02jjdwm75
This paper examines the effect of board gender diversity on renewable energy consumption. Using a panel of 11,677 firm-year observations from the USA for 2008–2016, we find a positive relationship between board gender diversity and renewable energy consumption. Moreover, boards require two or more women for women to have a significant impact on renewable energy consumption, consistent with the critical mass theory. Further, we document that the positive impact of female directors on renewable energy consumption stems from female independent rather than Mfemale executive directors. Finally, we find a positive effect of the interaction between renewable energy consumption and board gender diversity on firm financial performance. Our findings are robust to different identification strategies and estimation techniques

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