DYNAMIC HEDGE FUND STYLE ANALYSIS WITH ERRORS‐IN‐VARIABLES

We revisit the traditional return‐based style analysis in the presence of time‐varying exposures and errors‐in‐variables (EIV). We apply a benchmark selection algorithm using the Kalman filter and compute the estimated EIV of the selected benchmarks. We adjust them by subtracting their EIV from the initial return series to obtain an estimate of the true uncontaminated benchmarks. Finally, we run the Kalman filter on these adjusted regressors. Analyzing EDHEC alternative index styles, we show that this technique improves the factor loadings and allows more precise identification of the return sources of the considered hedge fund strategy.     

A reduced form model of default spreads with Markov-switching macroeconomic factors

We examine the ability of observed macroeconomic factors and the possibility of changes in regime to explain the proportion of yield spreads caused by the risk of default in the context of a reduced form model. For this purpose, we extend the Markov-switching risk-free term structure model of Bansal and Zhou (2002) to the corporate bond setting and develop recursive formulas for default probabilities, risk-free and risky zero-coupon bond yields as well as credit default swap premia. The model is calibrated with consumption, inflation, risk-free yields and default data for Aa, A and Baa bonds from the 1987 to 2008 period. We find that our macroeconomic factors are linked with two out of three sharp increases in the spreads during this sample period, indicating that the spread variations can be related to macroeconomic undiversifiable risk.     

Incremental impact of venture capital financing

This paper investigates the differences in the return generating process of venture capital (VC)-backed firms and their peers that operate without VC financing. Using a unique hand-picked database of 990 VC-backed Belgian firms and a complete population of Belgian small and medium-sized enterprises (SMEs), we focus on the extent to which the presence of a VC investor affects the sensitivity of a firm’s returns to the changes in the capital structure, in the operating cycle, and in the industry dynamics. The differences may stem from the (self-) selection of better companies into VC portfolios, from the venture capitalists’ (VCs) value-adding activities, and/or from both. We examine these factors in the context of a complex simulation procedure which allows separating selection from value-adding when traditional approaches are difficult to implement. Our results indicate that VC-backed firms are able to extract more rent from the changing industry conditions and from the optimizations in their capital structure. The presence of VCs in the firm’s equity seems to have only a marginal effect on the operating cycle efficiency. Overall, the results are suggestive of the value-adding being the main driver of the VC-backed firm’s performance.     

Value creation by knowledge‐based ecosystems: evidence from a field study

A growing number of research and development‐driven companies are located in knowledge‐based ecosystems. Value creation by these ecosystems draws on the dynamics of single firms (interacting and partnering) as well as the ecosystem at large. Drawing on a field study of a Dutch high‐tech campus, two key sources of value creation are identified: (1) facilitation of the innovation process for individual companies and (2) creation of an innovation community. Furthermore, the coevolution of the ecosystem's business model with firm‐level business models explains why technology‐based firms join, stay in, or leave the ecosystem at a certain point in time. A remarkable finding is that ecosystem managers have to deliberately facilitate exit routes for companies that no longer fit the ecosystem in order to enhance and reinforce its business model. As such, this study suggests a dynamic capability perspective on knowledge‐based ecosystems that need to develop a business model at the ecosystem level to create sufficient innovative capacity and entrepreneurial fitness.     

Optimal income taxation with tax avoidance and endogenous labour supply

I determine the optimal income tax schedule when individuals both choose endogenously their labour supply and have the possibility of avoiding paying taxes. Considering a convex concealment cost function, I propose a formula for the optimal marginal tax rate, that generalizes the formula of the standard Mirrlees model to the case of tax avoidance. I also show that the results obtained by Casamatta (2021) in the fixed income case hold true when labour supply is endogenous: with a low enough marginal cost of avoidance, it is optimal to let some taxpayers, located in the interior of the skill distribution, avoid taxes.     

Alliances Between Corporate and Fair Trade Brands: Examining the Antecedents of Overall Evaluation of the Co-branded Product

This research investigates the potential for a “fair” co-branding operation. A major corporate brand is fictitiously allied with a Fair Trade labelling organization brand. The sample for the study is composed of 540 respondents, representative of the French population. By considering commercial brands and Fair Trade labels as dissimilar in terms of customers’ perceived Fair Trade orientations, this article studies (1) how this lack of similarity impacts perceived congruence between both entities (i.e. perceived relevancy and expectancy of the alliance) and (2) how prior brand attitudes and congruence influence customers’ evaluation of the co-branded product. The results of this research demonstrate that: (1) Consumer prior brand attitudes toward the partner brands influence very little customers’ evaluation. (2) Perceived similarity of the partner brands has a strong influence toward congruence of the co-branding operation. Results also indicate that congruence (measured as relevancy and expectancy) has a strong influence upon customers’ evaluation. (3) An inverted U-shaped relationship exists between perceived similarity and relevancy of the alliance, and between expectancy and customers’ evaluation. The results obtained through the test of a partial least square model, and inverted U-shaped hypothesis, represent a new insight into co-branding theory. The high discursive power of fair co-branding is a key issue: the corporate brand provides the alliance with its leading position, while the Fair Trade brand provides the ethical attribute.