The Performance Effect of Feedback Frequency and Detail: Evidence from a Field Experiment in Customer Satisfaction

This paper presents the results from a field experiment that examines the effects of nonfinancial performance feedback on the behavior of professionals working for an insurance repair company. We vary the frequency (weekly and monthly) and the level of detail of the feedback that the 800 professionals receive. Contrary to what we would expect if these professionals conformed to the model of the Bayesian decision maker, more (and more frequent) information does not always help improve performance. In fact, we find that professionals achieve the best outcomes when they receive detailed but infrequent (monthly) feedback. The treatment groups with frequent feedback, regardless of how detailed it is, perform no better than the control group (with monthly and aggregate information). The results are consistent with the information in the latest feedback report being most salient and professionals in the weekly treatments overweighting their most recent performance, hampering their ability to learn.     

Competition,Loan Rates,and Information Dispersion in Nonprofit and For‐Profit Microcredit Markets

We describe the competitive environment of microcredit markets globally and we study the effects of competition on loan rates of microfinance institutions (MFIs). We use a new database from rating agencies, covering 379 for‐profit and nonprofit MFIs in 67 countries over 2002–2008. Controlling for interest rate ceilings and other country‐specific factors, we first find that nonprofits are relatively insensitive to industry‐wide concentration changes, while for‐profits charge significantly lower rates in less concentrated markets. Second, we find spillover effects between the for‐profit and nonprofit segments. Third, we show that the effects of concentration are consistent with an information dispersion mechanism.     

Finance and the Business Cycle: International, Inter-Industry Evidence

By considering yearly production growth rates for several manufacturing industries in more than 100 countries during (roughly) the last 40 years, we show that industries that are more dependent on external finance are hit harder during recessions. The observed difference in the behavior of industries is larger when financial frictions are thought to be more prevalent, linking the result directly to the financial mechanism hypothesis. In particular, more dependent industries are more strongly affected in recessions when they are located in countries with poor financial contractibility, and when their assets are softer or less protective of financiers.     

Legal Traditions and Initial Endowments in Shaping the Path of Financial Development

This paper finds remarkable heterogeneity in the relationship between legal traditions and finance in former colonies. The effect of the British common law on financial development is conditioned by the level of initial endowments. In former colonies with low precolonial population density, the common law has promoted high financial development, but where endowments were abundant, this legal tradition has not worked well. In contrast, the effect of the French civil law on finance is invariant to endowments. British common law countries do not exhibit greater financial development levels than French civil law countries when endowments are sufficiently high.     

Hedging and liquidity

This article develops a model for evaluating alternative hedgingstrategies for financially constrained firms. A key advantageof the model is the ability to capture the intertemporal effectsof hedging on the firm's financial situation. We characterizethe optimal hedge. A wide range of alternative hedging strategiescan be specified and the model allows us to determine in eachcase if the hedging strategy raises or lowers firms value andby how much. We show that hedging firm value, hedging cash flowfrom operations and hedging sales revenue are not optimal. Thearticle highlights the fact that every hedging strategy comespackaged with a borrowing strategy which requires careful consideration.     

INNOVATION COMPLEMENTARITY AND SCALE OF PRODUCTION*

We present an econometrically feasible model that uses the information contained in the innovation profile of each firm to test for the existence of complementarity among production and innovation strategies. Our approach is able to distinguish between complementarity and correlation induced by unobserved heterogeneity. We apply the model to analyze the Spanish ceramic tile industry where the adoption of the single firing furnace in the 1980's facilitated the introduction of new product designs as well as opening new ways of organizing production. Our econometric results show that there is significant complementarity between product and process innovation. Small firms tend to be more innovative overall.     

Contract renegotiation and options in agency problems

This article discusses the ability of an agent and a principalto achieve the first-best outcome when the agent invests inan asset that has greater value if owned by the principal thanby the agent. When contracts can be renegotiated, a well-knowndanger is that the principal can hold up the agent, underminingthe agent's investment incentives. We begin by identifying acountervailing effect: Investment by the agent can increasehis value for the asset, thus improving his bargaining positionin renegotiation. We show that option contracts will achievethe first best whenever his threat-point effect dominates theholdup effect. Otherwise, achieving the first best is difficultand, in many cases, impossible.