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.
Adoption of New Technology Vaccines
(SAGE Publications, 2023-11-29) Zimmermann, Laura; Somasundaram, Jeeva; Saha, Barsha; Agencia Estatal de Investigación; European Regional Development Fund; https://ror.org/02jjdwm75
Extensive research has examined the diffusion of innovations for products that can be trialed, and where the most adverse outcome, if a product fails, is a financial loss. However, less research has explored consumer responses to innovations in highly uncertain contexts characterized by health losses, lack of trialability, and the opportunity to free ride on other's adoption. This research focuses on vaccine decision making as a unique case within such contexts and extends the findings to other domains. Four studies (Ntotal = 1,796; five supplementary studies, Ntotal = 643) test the propositions of a formal model that incorporates uncertainty and others' choices into the adoption decision. The results show that consumers are surprisingly averse to products that are described as employing a new technology (e.g., mRNA technology) and require an “efficacy premium” to compensate for higher perceived uncertainty. However, considerable heterogeneity exists due to individual differences in technology readiness, trust in government, and risk attitudes. Notably, despite the prominent threat of free riding, a social proof nudge (communicating increasing population adoption) effectively reduces aversion to new technology. In this context, social proof information does not merely drive conformity or social learning, but instead increases adoption of new technology by alleviating perceived uncertainty.
Awakenings: An authentic leadership development program to break the glass ceiling
(MDPI AG, 2021) Martínez Martínez, Miryam; Molina López, Manuel ; Cabo, Ruth Mateos de; González Pérez, Susana; Izquierdo, Gregorio; Gabaldón, Patricia; Federación Española de Enfermedades Raras; Agencia Estatal de Investigación; Universidad San Pablo - CEU; https://ror.org/02jjdwm75
Companies are vital agents in achieving the United Nations’ Sustainable Development Goals. One key role that businesses can play in achieving the 5th Sustainable Development Goal on gender equality is implementing training programs for their women executives so they can reach top corporate leadership positions. In this paper,we test the effectiveness of an Authentic Leadership Development (ALD) program for women executives. By interviewing 32 participants from this ALD program and building on authentic leadership theory,we find that this program lifts women participants’ self-efficacy perception,as well as their self-resolution to take control of their careers. The driver for both results is a reflective thinking process elicited during the program that leads women to abandon the stereotype of a low status role and lack of self-direction over time. Through the relational authenticity developed during the program,women participants develop leadership styles that are more congenial with their gender group,yet highly accepted by the in-group leader members,which enhances their social capital. After the program,the women participants flourished as authentic leaders,were able to activate and foster their self-esteem and social capital,and enhanced their agency in career advancement,increasing their likelihood of breaking the glass ceiling. © 2021 by the authors. Licensee MDPI,Basel,Switzerland.
Can firms avoid tough patent examiners through examiner-shopping? Strategic timing of citations in USPTO patent applications
(John Wiley and Sons Ltd, 2022) Barber, Benjamin; Diestre, Luis; National University of Singapore; University of Groningen; London Business School; Agencia Estatal de Investigación; https://ror.org/02jjdwm75
Research summary: We claim that,because patent citations influence examiner selection,firms disclose citations strategically to influence which examiner is assigned to their application (“examiner-shopping”). Specifically,firms are more likely to cite patents reviewed by “lenient” examiners in their original information disclosure statement (IDS) (sent before the examiner has been selected),and delay citations to patents reviewed by “tough” examiners to subsequent IDS (sent once the examiner has been selected). We propose this strategy will be implemented by those firms who benefit the most (firms that face patent thickets and are developing high strategic-stakes technologies) but only when the costs are low (when firms face a low probability of patent litigation). We find support to our theory in a sample of 9,763 United States patent and trademark office (USPTO) patent applications during 2000 to 2006. Managerial summary: We find that firms facing patent thickets and developing high strategic stakes technologies try to get more “lenient” examiners to increase the probability of patent approval. The cost of this strategy is that “lenient” examiners usually grant weaker patents that are more likely to be litigated and invalidated. Firms overcome this by using “examiner-shopping” mainly in fields where litigation is relatively infrequent. This behavior has relevant implications: fields where property rights are rarely challenged tend to become “denser” and populated by weaker patents. Our study's discussion of the limitations within the United States patent and trademark office (USPTO) that seem to provide the opportunity to implement “examiner-shopping” strategies provides a path to address this from a policy standpoint. © 2022 The Authors. Strategic Management Journal published by John Wiley & Sons Ltd.
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.
Catch Up with the Good and Stay Away from the Bad: CEO Decisions on the Appointment of Chief Sustainability Officers
(Wiley, 2023-05-03) Wang, Taiyuan; Fu, Yingzhu; Rui, Oliver; Castro, Julio de; Agencia Estatal de Investigación; https://ror.org/02jjdwm75
Why do some chief executive officers (CEOs) appoint chief sustainability officers (CSOs) for their firms while others do not? We answer this question by examining CEOs' attention allocation to competition for stakeholders' approval, which can be triggered by both industry peers' corporate social responsibility (CSR) and corporate social irresponsibility (CSiR). An increase in peers' CSR triggers CEOs' attention allocation by observing that peers have improved and thus pose a competitive threat to their own firms. An increase in peers' CSiR triggers CEOs' attention allocation by perceiving that stakeholders will demand more for sustainability and thus place higher sanctions on their own firms in the future. CEOs' attention allocated to industry peers' CSR and CSiR, in turn, can increase their perceived importance and urgency of appointing CSOs for their firms to ‘catch up with the good’ (responsible peers) and to ‘stay away from the bad’ (irresponsible peers). We also theorize the moderating roles of CEOs' motivational attributes, such that predominantly prevention-focused CEOs are more (less) likely to appoint CSOs as peers increase CSR (CSiR), and future-oriented CEOs are more (less) likely to appoint CSOs as peers increase CSiR (CSR).
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.
Contingencies in the effects of job-based pay dispersion on employee attitudes
(John Wiley and Sons Inc, 2023) Kepes, Sven; Jokela, Markus; Tenhiälä, Aino; Academy of Finland; Agencia Estatal de Investigación; https://ror.org/02jjdwm75
When does pay dispersion elicit positive or negative employee attitudes? A review of the pay dispersion literature indicates a controversy around this vital question and suggests that numerous contingency factors moderate the effects of pay dispersion. In an empirical study of four Finnish companies consisting of 141 work units,we examine contingencies in attitudinal reactions to job-based pay dispersion among blue-collar workers. Based on archival pay data matched with employee survey responses (n = 536),we find that perceptions of pay basis legitimacy,task interdependence,and an individual's pay standing within the work unit explain the strength and direction of the relation between job-based pay dispersion and employee attitudes (i.e.,work engagement and organizational commitment). Our findings have implications for the design of pay systems and contribute to a better appreciation of the complexities underlying employee attitudinal responses to pay dispersion. © 2023 The Authors. Human Resource Management published by Wiley Periodicals LLC.
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.
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.
Estimating the COVID-19 cash crunch: Global evidence and policy
(Elsevier, 2020-04) Gómez, Juan Pedro; De Vito, Antonio; Trombetta, Marco; Ministerio de Economía y Competitividad; Agencia Estatal de Investigación; European Regional Development Fund; https://ror.org/02jjdwm75
In this paper, we investigate how the COVID-19 health crisis could affect the liquidity of listed firms across 26 countries. We stress-test three liquidity ratios for each firm with full and partial operating flexibility in two simulated distress scenarios corresponding to drops in sales of 50% and 75%, respectively. In the most adverse scenario, the average firm with partial operating flexibility would exhaust its cash holdings in about two years. At that point, its current liabilities would increase, on average, by eight times, suggesting that the average firm would have to resort to the debt market to prevent a liquidity crunch. Moreover, about 1/10th of all sample firms would become illiquid within six months. Finally, we study two different fiscal policies, tax deferrals and bridge loans, that governments could implement to mitigate the liquidity risk. Our analysis suggests bridge loans are more cost-effective to prevent a massive cash crunch.
Expectations and the housing boom and bust. An open economy view
(Elsevier, 2020-09) Gete, Pedro; Banco de España; CaixaBank; Ministerio de Economía y Competitividad; Agencia Estatal de Investigación; European Regional Development Fund; https://ror.org/02jjdwm75
I show that both before and after the Great Recession, housing dynamics strongly correlate with current account dynamics, both across and within countries. In a benchmark DSGE model of housing markets, housing price-to-rent ratios are counterfactual if the transmission channel from housing to the current account is only through the consumption effects from relaxed borrowing constraints. Utilizing a model with enough reallocation of labor between construction and tradable goods resolves the problem. In this model, using survey data on housing price expectations generates dynamics of housing variables and the current account consistent with the data. However, interest rate dynamics are counterfactual.
Fragmenting Consumer Law Through Data Protection and Digital Market Regulations: The DMA, the DSA, the GDPR, and EU Consumer Law
(Springer Nature Link, 0025-02-24) Elizalde, Francisco de; Comisión Europea; Agencia Estatal de Investigación ; https://ror.org/02jjdwm75
The paper assesses the impact of EU digital legislation on general consumer law. To that end, it addresses the Digital Markets Act and the Digital Services Act in their interaction with the General Data Protection Regulation, as the legal instruments of economic characteristics that seem to confront consumer law more straightforwardly. The main claim that the paper makes is that they fragment consumer law by altering its bases and afecting its principal horizontal provisions, namely, the Unfair Commercial Practices Directive (UCPD, 2005) and the Unfair Contract Terms Directive (UCTD, 1993). The transformation arises from the assumption, by the digital regulations, of the competition concern for market structure and business size while ignoring the nuances among the users of digital services. The societal aims of the EU’s digital policy are also relevant, particularly those concerning personal data. Overall, the digital laws frame a regulation of private relationships that does not pivot on consumption while afecting consumers. Consumer law could be gradually giving way to EU digital private law.
Hiring Temps but Losing Perms? Temporary Worker Inflows and Voluntary Turnover of Permanent Employees
(IE University, 2022-08-19) Elvira, Marta; Visintin, Stefano; Bonet, Rocío; Ministerio de Economía y Competitividad; Agencia Estatal de Investigación; European Regional Development Fund; https://ror.org/02jjdwm75
This article investigates the effect of hiring temporary workers on the voluntary turnover of permanent employees. It argues that inflows of temporary workers erode the working conditions of permanent employees, prompting their voluntary departure. Using a unique panel dataset of individual-level monthly payroll data over an eight-year period in a sample of Spanish companies, a positive association between temporary worker inflows and the voluntary turnover of permanent workers is found. The results are robust to diverse specifications and are strongest for firms in non-manufacturing sectors and for firms that hire proportionally more low-skilled workers, contexts where the hiring of temporary workers may be more disruptive for permanent employees. Since the hiring of temporary workers is unlikely to threaten the employment of permanent employees in the dual labour market of Spain, the results indicate serious disruption costs associated with temporary hiring in organisations
How mortality salience hurts brands with different personalities
(Elsevier B.V., 2024) Landgraf, Polina; Yang, Haiyang; Stamatogiannakis, Antonios; Agencia Estatal de Investigación; Ivey Business School; Western University; https://ror.org/02jjdwm75
From deadly disease outbreaks to crimes and terrorism,consumers often experience mortality salience (MS). This research examines how MS-inducing events impact brand evaluations. We propose that under MS,consumers avoid experiencing change. Because consumers perceive brands with an exciting personality to be more closely associated with the notion of change than brands with other types of personality,the onset of MS is more likely to hurt the evaluations of exciting brands than those of other brands. Study 1,a large-scale secondary data study,showed that the 9/11 terror attacks degraded consumers’ evaluations of exciting brands but not of other types of brands. Subsequent studies demonstrated causality and the underlying mechanism. In Study 2,experimentally inducing MS decreased evaluations of an exciting brand but not of a control brand. Using a process-by-moderation approach,Study 3 showed that manipulating consumers’ perception of the extent to which an exciting brand was associated with the notion of change moderated the negative impact of MS on brand evaluations. Studies 4a-4b demonstrated that consumers’ tendency to avoid experiencing change mediated the detrimental effect of MS on the evaluations of an exciting brand but not of a control brand. These findings add to the literature on branding and offer practical insights for brand management during crises. © 2024 The Authors
Micro Entry Theory Understanding the Drivers and Effects of the Entry of Micro Players in the Context of Digital Platforms
(Wiley, 2023-08-07) Silva, Maria Rosario; Gerwe, Oksana; Agencia Estatal de Investigación; https://ror.org/02jjdwm75
Digital platforms have facilitated the entry into the market of micro players, a subcategory of specialists formed by individuals offering products and services on a very small scale. This study builds on previous research on micro players' entry, to formalize, validate, and expand a theory of micro entry that helps to explain the market dynamics when micro players use digital platforms to enter the market. We (1) examine how macro-economic conditions influence the entry of micro players and specialists and (2) investigate the differential effects of the entry of micro players and specialists on the generalists' performance. Our setting is the accommodation industry in Spain, in which generalists are represented by dominant hotels and micro players and specialists by occasional and regular operators who entered the market through Airbnb. We find that the entry of micro players into the market through digital platforms is driven by high unemployment rates and platform legitimacy, factors that do not similarly influence the entry of specialists. Additionally, the results show that the entry of specialists decreases generalists' performance, while micro players' entry is complementary.
My kind of people: Political polarization, ideology and firm location
(John Wiley and Sons Ltd, 2024) Barber, Benjamin; Blake, Daniel J.; Agencia Estatal de Investigación; https://ror.org/02jjdwm75
Research Summary: With increased political polarization,Americans are displaying more animus across,and affinity within,ideological identity groups. We argue this dynamic incentivizes firms to minimize ideological misalignments across their workforce by locating new establishments in areas that are ideologically proximate to their current operations. We further argue that the desire to minimize ideological distance to new establishments is stronger in knowledge-intensive industries and young organizations. We find support for these arguments through the analysis of over 220,000 new establishment openings from 2009 to 2014. Critically,we find the effect of ideological distance on location is stronger when societal polarization is high. Our theory,and findings,contribute to several literatures and advance our understanding of the impact of polarization on strategy. Managerial Summary: Being a liberal or a conservative is central to many Americans' identity. As political polarization rises,individuals increasingly trust and favor others who share their ideological identity,while distrusting and avoiding those that do not. This study investigates how these societal trends affect where firms choose to locate new facilities. Because social ties and trust across workers support collaboration,resource-sharing and organizational performance,we argue that managers will seek ideological alignment within their firms by locating new establishments in areas that are ideologically proximate to existing operations. Analysis of over 220,000 new establishment openings from 2009 to 2014 supports this contention,and shows that the tendency to avoid ideologically distant locations is stronger when societal polarization is higher. © 2023 The Authors. Strategic Management Journal published by John Wiley & Sons Ltd.
Peer Versus Pure Benchmarks in the Compensation of Mutual Fund Managers
(Cambridge University Press, 2023-11-06) Evans, Richard; Ma, LinLin; Gómez, Juan Pedro; Tang, Yuehua; Ministerio de Economía y Competitividad; Agencia Estatal de Investigación; European Regional Development Fund; National Natural Science Foundation of China ; https://ror.org/02jjdwm75
We examine the role of peer (e.g., Lipper manager indices) versus pure (e.g., S&P 500) benchmarks in fund manager compensation. We model their impact on manager incentives and then test those predictions using novel data. We find that 71% of managers are compensated based on peer benchmarks. Consistent with the model, peer-benchmarked fund managers exhibit higher effort generating higher gross performance and collect higher fee income. Analyzing advisors’ choice between benchmark types, we show that peer-benchmarking advisors cater to more sophisticated and performance-sensitive investors, and are more likely to sell through direct channels, consistent with investor heterogeneity and market segmentation.
Power can increase but also decrease cheating depending on what thoughts are validated
(Academic Press Inc., 2024) Lamprinakos, Grigorios; Stavraki, Maria; Briñol, Pablo; Magrizos, Solon; Petty, Richard; Santos, David; University of Birmingham; Agencia Estatal de Investigación; https://ror.org/02jjdwm75
Prior research has shown that power is associated with cheating. In the present research,we showcase that higher power can increase but also decrease cheating,depending on the thoughts validated by the feelings of power. In two experiments,participants were first asked to generate either positive or negative thoughts about cheating. Following this manipulation of thought direction,participants were placed in either high or low power conditions. After the two inductions,cheating was measured using different paradigms – assessing cheating intentions in relationships (Study 1) and over reporting performance for monetary gain (Study 2). Relative to powerless participants,those induced to feel powerful showed more reliance on the initial thoughts induced. Consequently,the effect of the direction of the thoughts on cheating was greater for participants with high (vs. low) power. Specifically,high power increased cheating only when initial thoughts about cheating were already favorable but decreased cheating when it validated unfavorable cheating relevant thoughts. © 2023 The Authors
Procedural Pay Transparency, Motivational Climate, and Employee Outcomes
(SAGE Publications Inc., 2024) Chung, David Jinwoo; Tae Youn, Park; Tenhiälä, Aino; Agencia Estatal de Investigación; https://ror.org/02jjdwm75
As most previous research on pay transparency focused on individual- or organizational-level dynamics,we have limited understanding of the impact of pay transparency on culture or climate within an organization. This study investigates how procedural pay transparency is associated with the motivational climate in work units within organizations. One might argue that,in the presence of pay transparency,employees may further engage in social comparisons to learn about how they are doing relative to their peers,which leads to an increased performance climate,where success is defined based on relative performance. However,the findings from this study suggest that procedural pay transparency is positively associated with mastery climate instead,that is,a work unit climate where success is defined based on learning,growth,and effort. Furthermore,the results suggest that procedural pay transparency is meaningfully related to sorting and motivational effects through its impact on mastery climate. © 2023 SAGE Publications.

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