Coller School of Management

Research

May 29th, 2017

Investment and Capital Structure of Partially Private Regulated Firms

We develop a model that examines the capital structure and investment decisions of regulated firms in a setting that incorporates two key institutional features of the public utilities sector in many countries: firms are partially owned by the state and regulators are not necessarily independent.

Among other things, we show that regulated firms issue more debt, invest more, and enjoy higher regulated prices when they face more independent regulators, are more privatized, and when regulators are more pro-firm. Moreover, regulatory independence, higher degree of privatization, and pro-firm regulatory climate are associated with higher social welfare.

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Research

May 29th, 2017

Expectations Management

This paper analyzes a manager's optimal expectations management strategy in a setting in which the manager provides forecast guidance to an analyst both privately and publicly.

Conventional wisdom suggests that managers use private communications with analysts and public earnings forecasts interchangeably to guide analysts' earnings forecasts downward toward lower earnings targets.

Our analysis shows that in markets with rational investors, private and public guidance play very different roles in managing expectations and that managers benefit from downward guidance only in their private communication with analysts. In their public forecasts they benefit from introducing an upward bias.

We explore how the effectiveness of the private and public channels in communicating information to analysts affects managers' incentive to engage in expectations management and provide a number of empirical predictions.

Among other results, we show how reducing private communication between managers and analysts (through means such as Regulation Fair Disclosure) can increase price efficiency, weaken managers’ motivation to engage in private, as well as public, expectations management, and increase managers' motivation to provide public disclosures.

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Research

May 14th, 2017

Saying no to the glow: Why consumers resist arrogant brands

In five studies, we demonstrate that when consumers experience a self-threat, they may avoid brands that convey arrogance in favor of a competing, non-arrogant alternative. Such avoidance, in turn, has positive implications for vulnerable consumers, as it helps them to restore their self-worth and feel better about themselves.

When natural disasters happen, the media’s role is to convey the cries of victim. Although donating to a good cause is an “incontrovertible part of the American consumer’s life” (Brooks, 2006), Winterich, Mittal and Ross (2009) assert that “though volitional, donations to domestic versus international causes seem to differ.” Part of the reason for these differential donations may be that victims of Sandy are seen as belonging to an in-group, whereas victims of the Japanese Tsunami are seen as belonging to an out-group (Cuddy, Rock, and , 2007; Kogut and Ritov, 2007). In addition, with the power of advertising, in-group and out-group donors perceive a different “need” to donate to the respective groups of victims (domestic vs. international). However, it is unclear the type of message that differentiates individual’s donation behavior. This study seeks to further the understanding of prosocial behavior by exploring the motivation behind donation, attitude towards helping others, one ethnic identity, and one’s attitude towards different types of donation ads (e.g. message) and their impact on charitable donation advertising effectiveness that is tied to one’s ethnic identity.

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Research

May 14th, 2017

Choosing between options associated with past and future regret

Highlights

People prefer products associated with missed rather than to-be-missed promotions.
People experience stronger regret and responsibility for missing future promotions.
The effect is lessened when the product is utilized before the promotion.
The effect is lessened when people know they will not encounter the future miss.
The effect is lessened when another person is responsible for the future miss.

People sometimes choose between options associated with already-missed and to-be-missed counterfactuals, or put differently, between past and future regret. We find that these objectively irrelevant associations systematically sway peoples’ choices. Results show participants prefer options associated with past promotions (Studies 1–3), and they experience more regret and feel more responsible for missing a future promotion (Studies 1 and 2). Study 2 also shows that participants’ preference for products associated with a past miss decreases when they know they will not encounter the future miss (promotion). Study 3 shows this preference also decreases when the product is utilized before the future miss becomes available. Finally, in a non-promotion context, Study 4 demonstrates that people distance themselves from a future miss when they are responsible for the miss but not when another person is responsible for it. These findings are related to regret, inaction inertia and the psychology of discounts.

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Research

May 29th, 2015

Conditional Persistence of Earnings Components and Accounting Anomalies

We suggest that the failure of investors to distinguish between an earnings component’s autocorrelation coefficient (unconditional persistence) and the marginal contribution of that component’s persistence to the persistence of earnings (conditional persistence) drives the post earnings-announcement drift, the post-revenue-announcement drift, and the accrual anomaly.

When the conditional persistence of revenue surprises is high (low) relative to its unconditional persistence, both the post-earnings-announcement drift and the post-revenue-announcement drift are high (low), because investors’ under-reaction to revenues and earnings is stronger when the persistence of revenue surprises is more strongly associated with the persistence of earnings surprises.

Also, the mispricing of accruals decreases substantially when the conditional persistence of accruals is high relative to its unconditional persistence, because investors’ overreaction to accruals is mitigated when the persistence of accruals is indeed most strongly associated with the persistence of earnings.

In general, our empirical findings suggest that investors’ misperception of conditional persistence is a driver behind the three anomalies that we study.

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Research

Oct 29th, 2014

The Role of Coordination Bias in Platform Competition

This paper considers platform competition in a two-sided market that includes buyers and sellers. One of the platforms benefits from a favorable coordination bias in the market, in that for this platform it is less costly than for the other platform to convince customers that the two sides will coordinate on joining it.

We find that the degree of the coordination bias affects the platform's decision regarding the business model (i.e., whether to subsidize buyers or sellers), the access fees, and the size of the platform.

A slight increase in the coordination bias may induce the advantaged platform to switch from subsidizing sellers to subsidizing buyers, or induce the disadvantaged platform to switch from subsidizing buyers to subsidizing sellers. Moreover, in such a case the advantaged platform switches from oversupplying to undersupplying sellers, and the disadvantaged platform switches from undersupplying to oversupplying sellers.

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