The impact of experience on risk taking, overconfidence, and herding of fund managers: Complementary survey evidence

Empirical research has shown that inexperienced fund managers yield significantly higher returns than their more experienced colleagues. If the portfolios of inexperienced are not more risky, this result would contradict the hypothesis of market efficiency. Therefore, it is an important question whether inexperienced fund managers tend to taker higher risks. Higher risk taking may be explained by a higher degree of overconfidence, less herding behavior, or a lower degree of risk aversion. Since the results concerning the relationship between experience and risk taking in previous studies are rather contradictory we provide complementary survey evidence of 117 German fund managers which can improve our understanding in this field. In line with the results of previous studies, we find that herding is decreasing with experience while the evidence concerning risk taking and overconfidence is mixed. Nevertheless, our results provide some support for the hypothesis that inexperienced managers do indeed take higher risks.     

Fueling fiscal interactions: commodity price shocks and local government spending in Colombia

This paper explores fiscal interactions in a developing country. We analyze whether public expenditures in neighboring municipalities influence local spending decisions within a comprehensive set of expenditure categories. Our analysis is based on panel data covering the universe of Colombian municipalities from 2000 to 2010. We offer a quasi-experimental identification strategy exploiting exogenous variation in municipalities’ exposure to changes in the world market price of oil, depending on the municipalities’ endowment with oil resources and controlling for municipality fixed effects. While we find evidence of strong spatial autocorrelation of total local public spending as well as in almost all expenditure categories, the quasi-experimental approach reveals that there are no significant causal fiscal interaction effects between municipalities. This highlights the importance of using additional sources of exogenous variation for the identification of fiscal interactions. In the developing country context, our findings suggest that fiscal decentralization policies do not lead to a race to the bottom in local public expenditures.     

Exploring the Persuasiveness of Accounting Numbers in the Framing of ‘Performance’ – A Micro-Level Analysis of Performance Review Meetings

Based on a micro-level analysis of performance review meetings and drawing on an interactional framing perspective, this paper analyses the role of accounting numbers as ‘framing devices’ in discussions about performance. Analyzing interactions between superiors and subordinates, we examine how and why these two groups of actors mobilize different accounting numbers to make claims about performance and try to persuade the other party. Our interest is with the choice of accounting numbers and how they come to be seen as persuasive. The main theoretical argument developed in this paper is that whether a specific accounting number or indicator comes to be seen as persuasive or not in a particular situation is both a matter of how legitimate the underlying indicator is to the actors involved as well as whether they regard the signal it provides, i.e. the actual outcome on this particular indicator, as salient when compared to the actual outcomes on alternative indicators. Taken together, our findings suggest that persuasiveness is not an ‘objective’ quality of accounting numbers, but a situated achievement that results from interactive alignments between different actors with potentially competing interests.     

Catching Up or Falling Behind in European Agriculture: The Case of Milk Production

The paper explores and analyses the catching up and falling behind processes in the European dairy sector over the period 2004–2011, using a stochastic metafrontier multiple output distance function for 24 EU Member States. The metafrontier estimates reveal considerable productivity differences in milk production across the EU at the regional (NUTS‐2) level. Milk yield per cow is the highest in the old Member States, especially in those regions located in the northwest of the EU, while the lowest productivity is observed in Eastern Europe. The same structure was found for both the TFP (Total Factor Productivity) levels and TFP growth. Moreover, the results for technical change suggest that farm sizes are not optimal in many regions in Central and Eastern Europe from a dynamic perspective. The comparative analysis suggests that in the new compared to the old Member States, fewer farms could benefit from the movement of the frontier. Moreover, there are no signs that poorly performing farms are catching up with the best performing farms in the EU regions/countries.     

International strategy’s effects on retailers’ local implementation and performance

Retailers dynamically expand abroad and strategically seek local performance because their business is local. However, knowledge of the contribution of retail firms’ international strategies to subsidiaries’ local performance is limited. Based on the prominent I/R strategy framework, the authors conceptualize integration/responsiveness as the transfer/local generation of firm-specific advantages and analyze (direct and indirect) paths of varying degrees of I/R via local implementation decisions to performance. Because retailers’ firm-specific advantages have a limited geographic reach, different successful paths are expected in close and distant countries. Empirically, a survey based on face-to-face-interviews with 126 retail CEOs and expansion managers, partial least squares structural equation modelling and bootstrapping-based mediation analyses were conducted. The results reveal only indirect paths of international strategy to local performance through local standardization/centralization. Unique insights into the paths of firm? strategy to subsidiary performance emerge, such as important tradeoffs between superior paths in close countries.     

Investors' carbon risk exposure and their potential for shareholder engagement

This article examines the exposure to and management of carbon risks of different investor types. Considering the dual role as portfolio manager and partial owner, we analyze carbon risk for investors both in terms of exposure to portfolio values and in terms of responsibility as shareholder of carbon-intensive firms. We show that among various investor types, the preference for holding carbon-intensive stocks differs substantially, even when considering traditional investment decision parameters. In particular, it is governments whose portfolio values are most threatened by a carbon risk exposure of 49%, but at the same time, they prefer larger ownership shares in polluting firms. In contrast, individual investors, investment advisors, and mutual funds avoid holding stakes in these firms, while revealing only a moderate exposure of their assets to carbon risk. In view of the Paris Agreement, which includes the consistent steering of financial flows towards a low carbon transformation of the economy, our study provides policymakers with important implications regarding the coverage and effects of respective regulations. By identifying the ownership structures of carbon-intensive firms and respective owners' portfolio compositions, we also offer implications for further research on portfolio decarbonization and shareholders' influence of corporate carbon management.     

Do institutional investors drive corporate social responsibility? International evidence

This paper assesses whether shareholders drive the environmental and social (E&S) performance of firms worldwide. Across 41 countries, institutional ownership is positively associated with E&S performance with additional tests suggesting this relation is causal. Institutions are motivated by both financial and social returns. Investors increase firms’ E&S performance following shocks that reveal financial benefits to E&S improvements. In cross section, investors increase firms’ E&S performance when they come from countries with a strong community belief in the importance of E&S issues, but not otherwise. As such, these institutional investors transplant their social norms regarding E&S issues around the world.     

Supporting New Product Launches With Social Media Communication and Online Advertising: Sales Volume and Profit Implications

The question of how important firms’ investments in digital communication formats are for the commercial success of new products remains unexplored in the product innovation management literature. Drawing on reactance theory, the authors examine the extent to which investments in social media communication and online advertising are related to the sales volume and profits of new products within six months of being launched. Using dyadic survey data, an analysis of new products launched by 122 consumer durable goods firms reveals that sales volume and profits of new products are associated with (1) social media communication in a positive but diminishing shape, and (2) online advertising in an inverted U‐shape. Further analyses show that those curvilinear relationships are steeper for social media communication and flatter for online advertising at respective (1) higher levels of customer product involvement and (2) lower levels of product superiority. The results imply that there is an optimal level of investment in social media communication and online advertising, with the optimum dependent on a new product’s consumer involvement and superiority levels.     

Collateral and its substitutes in emerging markets’ lending

Due to opaque information and weak enforcement in emerging loan markets, the need for collateral is high, whereas borrowers lack adequate assets to pledge as collateral. How is this puzzle solved? We find for a representative sample from Northeast Thailand that indeed most loans do not include any tangible assets as collateral. Instead, lenders enforce collateral-free loans through third-party guarantees and relationship lending, but also through modifying loan terms, such as reducing loan size. Guarantees are the relatively most important substitute, they reduce collateral requirements independently of relationship lending and they are more often used by formal financial institutions.     

European asset swap spreads and the credit crisis

We examine time-varying behaviour and determinants of asset swap (ASW) spreads for 23 iBoxx European corporate bond indexes from January 2006 to January 2009. The results of a Markov switching model suggest that ASW spreads exhibit regime-dependent behaviour. The evidence is particularly strong for Financial and Corporates Subordinated indexes. Stock market volatility determines ASW spread changes in turbulent periods, whereas stock returns tend to affect spread changes in calm periods. While market liquidity affects spreads only in turbulent regimes the level of interest rates is an important determinant of spread changes in both regimes. Finally, we identify stock returns, lagged ASW spread levels, and lagged volatility of ASW spreads as major drivers of the regime shifts. The results are robust in the extended sample (January 2006 to October 2013) that includes a post-crisis period.