Finance Commons^™

Female Politicians And Corruption In Rural India, Somdeep Chatterjee, Shiv Hastawala, Elisa Taveras

School of Economics and Finance Faculty Publications

This paper leverages random assignment of female quotas for leadership positions on Indian village councils to assess its causal effect on corruption. Since the mid-1990s, India has mandated that at least one third of village council chief positions be randomly reserved for women. Using data from the Rural Economic and Demographic Survey (REDS) 2006, we find that an additional term reserved for a female head as opposed to just a single one reduces both the occurrence and bribe amounts paid to the local government by households. This reduction is also observed in bribes paid to other local officials suggesting downstream …

Can Correction Messages Reduce The Spread Of Fake News On Social Media? The Impact Of Information Updates On The Effectiveness Of Corrections, Kelvin K. King, Diego Escobari

School of Economics and Finance Faculty Publications

Although government agencies and fact-checking organizations issue correction messages to mitigate misinformation dissemination on social media, their efforts have been largely ineffective. Drawing on Information Manipulation Theory (IMT) and information extracted from over 84 million tweets, we examine the impact of correction messages and explore how different information updates affect their effectiveness. Our empirical approach differentiates between subpopulations of correction messages. The results support the existence of two distinct types: correction messages that significantly mitigate the spread of fake news—a 1 percent increase in “effective” messages decreases the spread of fake news by 0.89 percent; and those that amplify the …

The Cultural Role Of Rice Cultivation In Female Workforce Participation In India, Gautam Hazarika

School of Economics and Finance Faculty Publications

Rice and wheat are India's staple cereal crops and there is significant regional variation in the suitability to the cultivation of each. Both are so-called ‘plough-positive’ crops, whose cultivation is benefited by ploughing. It has previously been argued that the ancient adoption of the plough, a heavy implement better suited to handling by men, was a factor in the evolution of cultural norms prescribing a domestic role for women in society (Boserup, 1970). This study contends that rice is an anomalous plough-positive crop in that its cultivation, highly labor-intensive, has traditionally required much female labor. This, it is argued, may …

Price Exuberance And Contagion Across Housing Markets: Evidence From Us Metropolitan Areas, Md Shahedur R. Chowdhury, Damian S. Damianov, Diego Escobari

School of Economics and Finance Faculty Publications

Contagion occurs when cross-market correlation increases because of a shock to one market. Identifying shocks as episodes of house price exuberance, we provide evidence for contagion effects among the largest metropolitan markets in the US. We find that changes in income, interest rates, and unemployment also create contagion effects. These empirical findings are consistent with a model in which shocks to house prices and economic variables relaxes households down payment constraints and increases household mobility and housing demand. These effects are established in an equilibrium framework in which house prices and household choices are determined endogenously, and we account for …

Robust Contracts In Common Agency, Keler Marku, Sergio Ocampo, Jean-Baptiste Tondji

School of Economics and Finance Faculty Publications

Business activities often involve a common agent managing a variety of projects on behalf of investors with potentially conflicting interests. The extent of the agent's actions is also often unknown to investors, who have to design contracts that provide incentives to the manager despite this lack of crucial knowledge. We consider a game between several principals and a common agent, where principals know only a subset of the actions available to the agent. Principals demand robustness and evaluate contracts on a worst-case basis. This robust approach allows for a crisp characterization of the equilibrium contracts and payoffs and provides a …

Bundling In Advance Sales: Theory And Evidence From Round-Trip Versus Two One-Way Tickets*, Diego Escobari, Paan Jindapon, Nicholas G. Rupp

School of Economics and Finance Faculty Publications

We theoretically derive an optimal price for a bundle of two goods that are sold in advance to risk-averse buyers. The theory predicts that a round-trip ticket is less expensive than two one-way tickets when demands for the outbound and the inbound are uncertain and positively correlated. Using a unique airlines dataset, we find evidence that is consistent with the theory; round-trip bundle discounts exist and they are larger for passengers who buy early in advance, stay on a Saturday night, and have higher valuations. We also find that the bundle discounts decrease with competition.

Gender Equity In Labor Market Opportunities And Aggregate Technical Efficiency: A Case Of Equity Promoting Efficiency, Gautam Hazarika, Maroula Khraiche, Levent Kutlu

School of Economics and Finance Faculty Publications

This study applies a panel data stochastic frontier analysis to country data towards examining the effect of gender equity in labor market opportunities upon efficiency in the production of GDP. It finds that aggregate technical efficiency is improved by a widening of women’s labor market opportunities as indicated by a rise in their share of employment, but that this effect is dampened by patriarchal cultural norms whose strength is measured by the proportion of the population tracing its ancestry to ethnic groups who adopted the plough as an agricultural implement. That aggregate technical efficiency rises in women’s share of employment …

Environmental Policy And Audit Pricing, Monika K. Rabarison, Ibrajim Siraj, Bin Wang

School of Economics and Finance Faculty Publications

This paper examines the effect of environmental policy stringency (EPS) on audit pricing. By exploiting the exogenous variation in environmental policies across 26 countries, we find that firms in countries with more stringent environmental policies incur lower audit fees. The inverse association is more pronounced in common law countries, in countries with a higher level of public enforcement of regulations and in countries with more investor protection. The lower audit fees are also more prominent for firms that are followed by more analysts and firms that have a greater institutional ownership. Furthermore, we find that firms in countries with strong …

Hubris Or Talent? Estimating The Role Of Overconfidence In Chinese Households’ Investment Decisions, Jing Xu, Maroula Khraiche, Xi Mao, Xuan Wang

School of Economics and Finance Faculty Publications

We document the extent to which overconfidence in one’s financial literacy (FL overconfidence) plays a role in households’ reported financial risk aversion and their actual investment behavior, using data from the China Household Finance Survey. We measure FL overconfidence by estimating the gap between people’s self-reported financial literacy and their objectively measured financial knowledge. Our results indicate that FL overconfidence is negatively associated with self-reported financial risk aversion. Additionally, FL overconfidence is positively associated with the likelihood of having a brokerage account, holding risky financial instruments (other than just stock), and a proportion of assets allocated towards risky assets. We …

Late-Arriving Votes And Electoral Fraud: A Natural Experiment And Regression Discontinuity Evidence From Bolivia, Diego Escobari, Gary A. Hoover

School of Economics and Finance Faculty Publications

This paper uses a unique data set and a natural experiment to test if electoral fraud can exist in late-arriving votes. On the night of the 2019 Bolivian elections, the official vote counting system that was expected to publish the results real-time, suddenly stopped. When it resumed, the results had flipped. We estimate several difference-in-differences specifications using a 2016 referendum and the votes of other political parties. We find that the extent of the fraud is 2.51% of the valid votes, sufficient to change the outcome of the election. Our results are robust to polling-station-level shocks common across 2019 and …

Entrepreneurship, Resource Rents And Institutions, André Varella Mollick, Lu Sui

School of Economics and Finance Faculty Publications

The resource curse hypothesis supposes that rents generated by resource booms create opportunities for rent-seeking activities, which weaken innovation and economic development due to the potentially adverse effects in competitive markets. The quality of institutions is an important channel to transform society from a rent-seeking economy to an entrepreneurial economy. We address in this paper these channels by examining necessity, opportunity, productive and innovative measures of entrepreneurship. Using annual data from 2002 to 2017, we estimate the relationship between entrepreneurship and natural resource rents for 60 countries. Allowing for measures of institutions (corruption, government policies, and cultural and social norms) …

Endogenous Immigration Policy In A Stylized Political Economy, Armando R. Lopez-Velasco

School of Economics and Finance Faculty Publications

The following sections are included:

• Introduction

• A Political Economic Model of Immigration

  • The economic environment

  • Preferences of the old

  • Preferences of the young

  • Types of equilibria

• Applications and Extensions

  • Aging

  • The model under periodic fertility rates: Baby booms and baby busts

  • Immigration and dynamic efficiency

• Conclusions

• References

• Appendix

  • The indirect utility function of the young as a function of wt, Rt+1 and bt+1

  • Proof that b t + 1 R t + 1 is given by τ ( 1 − α ) α s t

  • Derivation of the young agent’s indirect utility function (Equation …

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An Econometric Modeling Of Price Support: The Bitcoin Case, Levent Kutlu

School of Economics and Finance Faculty Publications

In technical analysis, price support plays an important role. In line with the stochastic frontier analysis, we present a formal model to estimate the bottom price support for a stock or cryptocurrency. As an example, we examine Bitcoin's bottom price.

The Effect Of Covid-19 Uncertainty On Corporate Default Risk: International Evidence, Md Ismail Haidar, Md Showaib Rahman Sarker, André Varella Mollick

School of Economics and Finance Faculty Publications

This paper investigates the effect of COVID-19 uncertainty on corporate default risk using an international sample of firms from 71 countries. We document that corporate default risk increases with higher COVID-19 uncertainty, even after controlling for a wide range of firmlevel and country-level characteristics. The effect is weaker for firms in highly religious adherence countries, stronger for firms in developed countries, and for firms geographically closer to China and Italy. Further, the effect is weaker for highly innovative firms and less financially constrained firms. Our findings are robust to propensity score matching and entropy balancing methods to address selection bias, …

Study On The Effectiveness Of Environmental Regulations And Its Spatial Spillover In China’S High-Quality Human Habitat Cities, Chuansheng Wu, Weixuan Fan, Lingling Qi, Levent Kutlu

School of Economics and Finance Faculty Publications

High-quality human habitat cities in developing countries are facing new urban environmental problems as a result of the significant resource footprints of wealthy urban populations in the process of rapid urbanization. These areas are desperate for solutions to the coexistence of old and new pollutants, as well as inorganic and organic compounds. The authors of this study propose a comprehensive framework and methods for evaluating the effectiveness of environmental regulation in high-quality human habitat cities for a state-of-the-art path of improving environmental governance and optimizing environmental policies in these regions. This paper aims to analyze the effectiveness of environmental regulation …

A Snapshot Of Immigration Flows Into The Us, Armando R. Lopez-Velasco

School of Economics and Finance Faculty Publications

No abstract provided.

Supermajority Politics: Equilibrium Range, Policy Diversity, Utilitarian Welfare, And Political Compromise, Aseem Mahajan, Roland Pongou, Jean-Baptiste Tondji

School of Economics and Finance Faculty Publications

Highlights

• We study static and dynamic supermajoritarian economies with totally ordered policy spaces.

• We count equilibria in the core and the largest consistent set under single-peaked preferences.

• We assess the depth of policy diversity across similar supermajoritarian political economies.

• We analyze how supermajority rules affect utilitarian welfare and political compromise.

• We find that majority rule maximizes both utilitarian welfare and political compromise under uncertainty.

Abstract

The standard Bowen model of political competition with single-peaked preferences (Bowen, 1943) predicts party convergence to the median voter’s ideal policy, with the number of equilibrium policies not exceeding two. This result assumes majority rule …

Climate Change And Corporate Cash Holdings: Global Evidence, Siamak Javadi, Abdullah Al Masum, Mohsen Aram, Ramesh P. Rao

School of Economics and Finance Faculty Publications

Using data from 41 countries, we provide novel empirical evidence that firms’ cash holdings are positively associated with their climate change exposure. This evidence is robust to different model specifications and survives a battery of tests to ease concerns related to spurious correlation and omitted variable bias. Using the release of the Stern Review as an exogenous shock to climate change awareness, we show that this association becomes significantly stronger after the release of the Review and particularly so for firms with higher exposure to regulatory and transition risk dimensions of climate change as well as financially constrained firms. Overall, …

Optimal Interventions In Networks During A Pandemic, Roland Pongou, Guy Tchuente, Jean-Baptiste Tondji

School of Economics and Finance Faculty Publications

We develop a model of optimal lockdown policy for a social planner who balances population health with short-term wealth accumulation. The unique solution depends on tolerable infection incidence and social network structure. We then use unique data on nursing home networks in the US to calibrate the model and quantify state-level preference for prioritizing health over wealth. We also empirically validate simulation results derived from comparative statics analyses. Our findings suggest that policies that tolerate more virus spread (laissez-faire) increase state GDP growth and COVID-19 deaths in nursing homes. The detrimental effects of laissez-faire policies are more potent for nursing …

Calculating Efficiency For Spatial Autoregressive Stochastic Frontier Model, Levent Kutlu

School of Economics and Finance Faculty Publications

When there are efficiency spillovers, we can use a spatial autoregressive stochastic frontier model to estimate total (spillover-corrected) efficiencies.Glass et al. (2016) provide a formula for total efficiency in this context, which is an approximation. We provide the exact formula for the spillover-corrected efficiency. Moreover, we derive total, direct, and indirect marginal effects of environmental variables on spillover-corrected efficiency.

The Effect Of Corruption Control On Efficiency Spillovers, Levent Kutlu, Xi Mao

School of Economics and Finance Faculty Publications

We examine the effect of corruption control on efficiency and its implications for efficiency spillovers by a stochastic frontier model. Our dataset covers 102 countries from 1996 to 2014. We find a positive relationship between corruption control and efficiency. If neighboring countries have difficulty in handling corruption, the country would be negatively affected by its neighbors' corruption through efficiency spillovers. We then compare the efficiency differences across countries for three time periods: 1996–2002, 2002–2008, and 2008–2014. On average, technical efficiencies slightly increased in the second period compared to the first period. In the third period, the efficiencies declined, particularly in …

Executive Compensation And The Potential For Additional Efficiency Gains: Evidence From The Indian Manufacturing Sector, Levent Kutlu, Usha Nair-Reichert

School of Economics and Finance Faculty Publications

We examine the relationship between executive compensation and technical efficiency. We highlight heterogeneity in this relationship, identify opportunities for within-sector efficiency gains, and the channels through which such gains occur. Previous research mainly focuses on excessive executive compensation that does not reflect firm performance. We develop unique measures for executive overcompensation and undercompensation, and account for endogeniety. Using firm-level data for the Indian chemical, textile, and pharmaceutical sectors during 2004–2015, we conclude that the median firm overcompensates and large firms undercompensate their executives. Overcompensation decreases firms’ profits as increased executive costs outweigh the benefits of efficiency gains. Firms in the …

Systematic And Idiosyncratic Risks Of The U.S. Airline Industry, Rafiqul Bhuyan, André Varella Mollick, Md Ruhul Amin

School of Economics and Finance Faculty Publications

Understanding the risky nature of the airline industry has received attention in the tourism literature from separate angles. Although the systematic risk of the airline industry has been examined before, idiosyncratic risk has largely been ignored. This study fills this gap in the tourism literature by investigating the effect of passengers’ air travel on systematic and idiosyncratic risks of the U.S. airline industry. Using historical air travel data and utilizing both OLS and fixed-effect models, this paper documents negative relationships between the occupancy of airline seats and idiosyncratic risks for 21 U.S. airline companies. This negative effect of occupancy is …

Social Security As Markov Equilibrium In Olg Models: Clarifications And New Insights, Armando R. Lopez-Velasco

School of Economics and Finance Faculty Publications

Forni (2005) is the first author to study the politico-economic sustainability of pay-as-you-go social security in the canonical 2-period OLG model that uses Cobb-Douglas production and logarithmic utility under Markovian voting strategies. This paper (1) shows that equilibria can only exist if the economy in absence of social security is dynamically inefficient, (2) derives the exact parametric conditions that lead to existence of equilibria, (3) shows that among all the admissible arbitrary constants that produce a Markov perfect equilibrium, the maximum constant in such set produces the only equilibrium that can solve dynamic inefficiency and produces a single steady state. …

Foreign Ownership And Productivity, Jian Xu, Yu Liu, Hussein Abdoh

School of Economics and Finance Faculty Publications

This study examines the impact of foreign ownership on firm productivity in private firms, employing the World Bank Enterprise Survey (WBES) dataset, which includes over 120, 000 firms from 139 countries. We find strong and robust evidence that foreign ownership is positively related to firm productivity. We then explore possible channels through which foreign ownership could impact firm productivity. Firms with foreign ownership are more likely to engage in innovation, telecommunication, and labor cost reduction, and less likely to face financial constraints. Moreover, the foreign-productivity relationship is more pronounced in medium/large firms than in small firms. Countries with medium institutional …

A Principal-Agent Approach For Estimating Firm Efficiency: Revealing Bank Managerial Behavior, Levent Kutlu, Emmanuel Mamatzakis, Mike G. Tsionas

School of Economics and Finance Faculty Publications

We consider agency-theory-based structural and reduced form models of bank performance. In the structural models, we take into account the managerial decision-making processes, and reveal underlying managerial efforts and thereby managerial behavior. In an empirical application, we estimate performance of Eurozone banks using our novel structural and reduced form approaches by Markov Chain Monte Carlo techniques. Our findings show, for the first time, that bank underperformance persists in the Eurozone whereas considerable variability across Member States exists. Our agency-theory-based structural modeling would favor cooperation of all interested parties and towards higher financial integration.

Residual State Ownership, Foreign Ownership And Firms' Financing Patterns, Yu Liu, Jian Xu

School of Economics and Finance Faculty Publications

Would different types of ownerships affect each other's effect on firm behavior? We investigate the effect of residual state ownership, foreign ownership, and the interaction between the two on firms' financing patterns, employing the World Bank Enterprise Survey (WBES) dataset, which covers over 130 thousand firms in 139 economies from 2006 to 2017. We find that neither firms with residual state ownership only nor firms with foreign ownership only are positively related with external finance. In comparison, firms with both state and foreign ownerships are associated with higher external finance. The coefficient of the state-foreign interaction is both statistically and …

Heterogeneous Decision-Making And Market Power: An Application To Eurozone Banks, Levent Kutlu, Robin C. Sickles, Mike G. Tsionas, Emmanuel Mamatzakis

School of Economics and Finance Faculty Publications

We provide a structural model wherein the decision-makers are payoff maximizers in a general game theoretic setting in which heterogeneity is formally factored into the decisions of the players. The decision-makers are allowed to have different groups; and parameters are the same within each group but they differ across group. Using insights from our treatment of heterogeneous and strategic decision-making, we estimate the conducts (market powers) of Eurozone banks for years 2002–2015. We find that Eurozone banks are fairly competitive. However, banks in peripheral countries have more market power compared to the core of Eurozone.

Laissez-Faire, Social Networks, And Race In A Pandemic, Roland Pongou, Guy Tchuente, Jean-Baptiste Tondji

School of Economics and Finance Faculty Publications

We study the effects of race, network centrality, and policies that tolerate some level of virus spread (laissez-faire) on COVID-19 deaths in nursing homes in the United States. Our analysis uses unique data on nursing home networks and calibration-based estimates of states' preferences for health relative to short-term economic gains. Our findings suggest that laissez-faire policies increase deaths. Nursing homes with a larger share of Black residents experience more deaths, but they are less vulnerable to laissez-faire policies, especially when not central in social networks. Our findings highlight significant interactions between COVID-19 policies, race, and network structure among US seniors.

Covid-19 And Its Impact On Minority-Owned Banks, Salvador Contreras, Amit Ghosh

School of Economics and Finance Faculty Publications

Employing a difference-in-differences framework, we examine the effect of COVID-19 on various performance metrics of minority-owned banks relative to peer banks. We find little evidence of worsening performance of minority-owned banks, except for Asian-owned banks. In some instances, minority banks show improved performance. We find a decline in nonperforming single-family residential loans for Hispanic-owned banks. Moreover, minority banks have disbursed more Paycheck Protection Program (PPP) loans than their matched non-minority counterparts. Their resilient performance indicates that minority banks are well positioned to aid in the ongoing economic recovery.