Publications
Information Gathering Externalities in Product Markets. With Heski Bar-Isaac - (NYU-Stern) and Guillermo Caruana (CEMFI) - Journal of Industrial Economics (Forthcoming)
Search, Design and Market Structure. With Heski Bar-Isaac - (NYU-Stern) and Guillermo Caruana (CEMFI) - American Economic Review (Forthcoming)
The Vote is Cast: The Effect of Corporate Governance on Shareholder Value. With Maria Guadalupe - (Columbia University) and Mireia Gine (WRDS University of Pennsylvania). The Journal of Finance (Forthcoming)
Information Gathering and Marketing. With Heski Bar-Isaac - (NYU-Stern) and Guillermo Caruana (CEMFI) - Journal of Economics and Management Strategy (Volume 19, Number 2, Summer 2010, 375–401.)
Globalization and the Provision of Incentives Inside the Firm. With Maria Guadalupe - (Columbia University) - Winner of the Jaime Fernandez de Araoz prize 2007- Journal of Labor Economics - Volume 27, Number 2, April 2009
Executive Compensation and Competition in the Banking and Financial Sectors. With Maria Guadalupe - (Columbia University) - Journal of Banking and Finance Vol. 33, pp. 439-474, 2009
Financing Constraints and Fixed-Term Employment Contracts. With Andrea Caggese - (UPF) - The Economic Journal - Volume 11, Issue 553, November 2008
Trade Credit: Suppliers as Debt Collectors and Insurance Providers. - The Review of Financial Studies - Volume 20, Issue 2 March 2007
How Does Product Market Competition Shape Incentive Contracts? With Maria Guadalupe - (Columbia University) - Journal of the European Economic Association - Volume 3 Issue 5, September 2005
The Determinants of Corporate Debt Maturity in Spain. - Investigaciones Económicas - Volume XXIII (3), 351-392, 1999
Work in Progress
Financing Constraints, Firm Dynamics, Export Decisions, and Aggregate productivity. With Andrea Caggese - (UPF)
Locating inside the Salop circle: Demand rotations in a micro-founded model. With Heski Bar-Isaac - (NYU-Stern) and Guillermo Caruana (CEMFI)
Long Term Debt and Hidden Borrowing. With Heski Bar-Isaac - (NYU-Stern)
Shocks to the Cost of Borrowing and Capital Structure. With Claudio Gonzalez-Iturriaga- (UPF)
Book Chapters
Did Good Cajas Extend Bad Loans? Governance, Human Capital and Loan Portfolios. With Luis Garicano (LSE) - The Crisis of the Spanish Economy: Economic Analysis of the Great Recesion. (Samuel Bentolila, Michele Boldrin, Javier Diaz-Gimenez and Juan J. Dolado eds) Fedea 2010
Responsabilidad Social de las Empresas - in La Ley de Economía Sostenible y Las Reformas Estructurales. Manuel Bagues, Jesus Fernández-Villaverde, Luis Garicano eds. 2010
El Contrato de Descuento de Efectos: Como Transformar una Relación Comercial en una Garantía General - in Estudios de Derecho del Mercado Financiero - Universitat de Valencia 2010.
Trade Credit and its Role in Entrepreneurial Finance - With Emilia Garcia-Appendini (Bocconi) - in Handbook of Entrepreneurial Finance - Oxford University Press 2011.
Abstracts
Information Gathering Externalities in Product Markets
With Heski Bar-Isaac - (NYU-Stern) and Guillermo Caruana (CEMFI)
Journal of Industrial Economics (forthcoming)
Abstract : Goods and services vary along a number of dimensions independently. Customers can choose to acquire information to assess the quality of some dimensions and not others. Their choices affect firms’ incentives to invest in quality and so lead to indirect externalities in consumers’ choices. We illustrate these ideas in a simple model with a monopolist selling a product with two characteristics, investment in quality with stochastic realizations, and heterogeneous consumers. Consumers in choosing which information to acquire do not consider the effects on firm investment incentives and so there are indirect externalities in information gathering. Therefore, a fall in the cost of acquiring information, by changing the pattern of consumers’ information gathering and thereby firm investment, can paradoxically reduce consumer surplus, profits, and welfare. We briefly consider a number of potential extensions and in particular, highlight a benefit of diversity in tastes.
Search, Design and Market Strucure. With Heski Bar-Isaac - (NYU-Stern) and Guillermo Caruana (CEMFI)
American Economic Review (forthcoming)
Abstract : The Internet has made consumer search easier, with consequences for prices,
industry structure and the kinds of products offered. We explore these consequences in a rich but tractable model that allows for strategic design choices.
A polarized market structure results, where some firms choose designs aimed
at broad-based audiences, while others target narrow niches. Such an industry
structure can arise even when all firms and consumers are ex-ante identical.
We analyze the e¤ect of reduced search costs and …nd results consistent with
the reported prevalence of niche goods and the long-tail and superstar phenomena. In particular, the model suggests that long-tail e¤ects arise when
there is a wide range of potential designs, relative to vertical heterogeneity
among firms.
The Crisis of the Spanish Economy: Economic Analysis of the Great Recesion. (Samuel Bentolila, Michele Boldrin, Javier Diaz-Gimenez and Juan J. Dolado eds) Fedea 2010
Abstract: The lending behavior in the run up to the crisis and current non performing loan situation of different Savings and Loans in Spain (Cajas) has varied widely. However, neither formal governance institutions (e.g. the way the board is appointed) nor real governance (e.g. the actual composition of the board and the role played by political parties in it) are highly correlated with the composition of the loan book at the peak of the financial crisis (the size of the portfolios of real estate and individual loans) or with the performance of these loans (the amount of non performing loans in the crisis or the decrease in ratings). On the other hand, we find a clear and significant impact of the human capital of the Caja chairmen on the measures of loan book composition and performance. In particular, we find that (1) Cajas whose chairman was previously a political appointee have had very significantly worse loan performance; (2) Cajas whose chairman did not have postgraduate education have significantly worse performance; and (3) Cajas whose chairman had no banking experience had significantly worse performance.
The Vote is Cast: The Effect of Corporate Governance on Shareholder Value. With Maria Guadalupe - (Columbia University) and Mireia Gine (WRDS University of Pennsylvania)
The Journal of Finance (Forthcoming) - "Best Corporate Finance Paper" Financial Management Association European Meeting Award
Abstract: While the agency problem is at the heart of our understanding of how firms work, there is little causal evidence of the effect of corporate governance on shareholder value. This paper estimates the effect of corporate governance provisions on shareholders' value and long-term outcomes. We exploit the outcomes of S&P1500 shareholder votes in annual meetings using a regression discontinuity design to identify their effect on performance. We can identify a causal effect on stock returns, because the outcomes of votes around the majority threshold are random and unexpected by the stock market. Our results show that passing a corporate governance provision generates a 1.3% excess return on the day of the vote. This implies that the value of a governance provision is 2.8% of market value. We also find evidence of changes in investment behavior and some long-term performance improvements.
Information Gathering and Marketing
With Heski Bar-Isaac - (NYU-Stern) and Guillermo Caruana (CEMFI)
Journal of Economics and Management Strategy - Volume 19, Number 2, Summer 2010, 375–401.
Abstract : Consumers have only partial knowledge before making a purchase decision but can choose to acquire more detailed information. A firm can make it easier or harder for consumers to obtain information. We explore consumers’ information gathering and the firm’s integrated strategies for marketing, pricing and investment in quality. There are two key effects. First, a trade-off between targeting a broad, but ill-informed, audience and catering to a well-interested niche. Second, when the firm cannot commit to its investment in quality, the firm pricing and marketing policy needs to induce some consumers to actively gather information about product characteristics to convince all consumers that it has invested in product quality.
Globalization and the Provision of Incentives Inside the Firm.
With Maria Guadalupe - (Columbia University)
Winner of the Jaime Fernandez de Araoz prize 2007
Journal of Labor Economics - Volume 27, Number 2, April 2009
Abstract: This paper studies the effect of changes in foreign competition on the incentives faced by U.S. managers through wage structures, promotion profiles and job turnover. We use a panel of executives and measure foreign competition as import penetration. Using tariffs and exchange rates as instrumental variables, we estimate the causal effect of globalization on the labor market outcomes of these workers. We find that higher foreign competition leads to more incentive provision in a variety of ways. (i) It increases the sensitivity of pay to performance, (ii) it raises the return to a promotion and increases pay inequality among the top executives of the firm, with CEOs typically experiencing wage increases while lower rank executives see their wages fall, and (iii) it increases turnover and the probability of leaving the firm. Finally we show (iv) that higher foreign competition is also associated with a higher demand for talent at the top of the firm. These results indicate that increased foreign competition can explain some of the recent trends in compensation structures.
Executive Compensation and Competition in the Banking and Financial Sectors. With Maria Guadalupe - (Columbia University)
Journal of Banking and Finance Vol. 33, pp. 439-474, 2009
Abstract: This paper studies the effect of two deregulations that increased the extent of product market competition in financial sectors on the compensation packages that firms offer to their executives. We use a panel of US executives in the nineties and exploit the deregulation episodes in the banking and financial sectors as quasi-natural experiments. We provide difference in differences estimates of the effect of competition on (1) total pay, (2) estimated fixed pay and performance-pay sensitivities and (3) on the sensitivity of stock option grants. Our results indicate that a higher level of product market competition increases the total pay of executives. However, this is due to a change in the structure of compensation: while the fixed component of pay falls, the variable component increases, making pay more sensitive to firm performance.
Financing Constraints and Fixed-Term Employment Contracts.
With Andrea Caggese - (UPF)
The Economic Journal - Volume 11, Issue 553, November 2008
Abstract: The aim of this paper is to identify the effect of financing constraints on the employment decisions of firms. We present a theoretical model that determines the optimal use of fixed term and permanent contracts in the presence of financing constraints. We then estimate the effect of financing constraints on the dynamics of fixed-term employment contracts versus permanent employment contracts for a sample of Italian manufacturing firms. The results are consistent with the model and show that financially constrained firms tend to use a larger proportion of fixed term contracts, and that the relative volatility of fixed term employment versus permanent employment is higher among them. As a consequence, the volatility of total employment is also significantly higher for financially constrained firms than for financially unconstrained ones.
Trade Credit: Suppliers as Debt Collectors and Insurance Providers.
The Review of Financial Studies - Volume 20, Issue 2 March 2007
Abstract: There are two fundamental puzzles about trade credit: why does it appear to be so expensive, and why do input suppliers engage in the business of lending money? This paper provides a simultaneous answer to both questions analysing the interaction between the financial and the industrial aspects of the supplier-customer relationship. It examines how, in a context of limited enforceability of contracts, suppliers may have a comparative advantage over banks in lending to their customers because they hold the extra threat of stopping the supply of intermediate goods. Suppliers may also act as liquidity providers, providing insurance against liquidity shocks that may endanger the survival of their customer relationships. The relatively high implicit interest rates of trade credit result from the existence of insurance and default premiums. Moreover, these premiums are amplified whenever suppliers face a relatively high cost of funds. These effects are discussed empirically on a panel of UK firms.
How Does Product Market Competition Shape Incentive Contracts?
With Maria Guadalupe - (Columbia University)
Journal of the European Economic Association - Volume 3 Issue 5, September 2005
Abstract: This paper studies the effects of product market competition on the explicit compensation packages that firms offer to their CEOs, executives and workers. We use a large sample of both traded and non-traded UK firms and exploit a quasi-natural experiment associated to an increase in competition. The sudden appreciation of the pound in 1996 implied different changes in competition for sectors with different degrees of openness. We provide difference in differences estimates and our results show that a higher level of product market competition increases the performance pay sensitivity of compensation schemes, in particular for executives.
The Determinants of Corporate Debt Maturity in Spain.
Investigaciones Económicas - Volume XXIII (3), 1999, 351-392
Abstract: This paper is an empirical analysis of the relevance of different theoretical models associated with corporate debt maturity. The main findings that arise from the empirical evidence are that firms with higher growth opportunities shorten signifficantly the maturity of their debt, wich is consistent with agency models; also bigger firms and the ones with higher government participation tend to have a higher maturity. There is not clear evidence in favour of signalling models or models related to tax benefits.
Locating inside the Salop circle: Demand rotations in a micro-founded model. With Heski Bar-Isaac - (NYU-Stern) and Guillermo Caruana (CEMFI)
Abstract: We present a micro-founded model of design that leads to simple demand rotations. We present simple su¢ cient conditions that determine when design should be extreme (fully stan- dardized or fully tailored) or rather take intermediate positions.
Long Term Debt and Hidden Borrowing.
With Heski Bar-Isaac - (NYU-Stern)
Abstract: We consider borrowers with the opportunity to raise funds from a competitive banking sector that shares information about borrowers, and an alternative hidden lender. We highlight that the presence of the hidden lender restricts the contracts that can be obtained from the banking sector and that in equilibrium some borrowers obtain funds from both the banking sector and the (inefficient) hidden lender simultaneously. We further show that as the inefficiency of the hidden lender increases, total welfare decreases. By extending the model to examine a partially hidden lender, we further highlight the key role of information.
Financing Constraints, Firm Dynamics, Export Decisions, and Aggregate productivity.
Abstract: We develop a dynamic industry model where financing frictions affect the entry decisions of new firms in the home market, as well as the riskiness of operating firms. These two factors in turn determine a joint endogenous distribution of firms across productivity, volatility and financial wealth. We show that this endogenous distribution is crucial to understand export and productivity dynamics after a trade liberalization. In particular, the calibrated model predicts that financing frictions have an ambiguous effect on the number of firms starting to export. They reduce the ability of firms to finance the fixed costs necessary to start exporting, but they also change the distribution of domestic firms so that most of them find more profitable to access foreign markets. More importantly, the model predicts that financing constraints, even when they have a negligible net effect on the number of exporting firms, reduce the aggregate productivity gains induced by trade liberalization by 30% to 50%, because they distort the selection into export of the most productive firms. In the second part of the paper we verify the main predictions of the model with a rich dataset of Italian manufacturing firms for the period 1995-2003.
Shocks to the Cost of Borrowing and Capital Structure.
With Claudio Gonzalez-Iturriaga- (UPF)
Abstract: We use the imposition of a non remunerated reserve on short term borrowing in Chile in 1991 as a cuasi natural experiment to test the effects of an increase in the cost of short term borrowing on capital structure and investment. The differential impact of this regulatory measure across firms allows us to perform a difference in differences analysis. We find a drastic drop in short term borrowing of regulated firms that was almost completely offset by additional long term borrowing. The nature of the experiment allows us to isolate a clear causality from changes in the cost of funds to capital structure, solving some of the endogeneity problems present in preexisting literature.
vincente vincent cunyat cunat vicenete vincenete trade international finace finanzas corporativas credito comercial globalización incentivos empleo temporal empleo permanente contratos de incentivos competencia mercado de producto maria guadalupe heski bar-isaac andrea caggese
