The measurement of meaning

Economics Of Discrimination

Investors systematically deviate from rationality when making financial decisions, yet the mechanisms responsible for these deviations have not been identified. Using event-related fMRI, we examined whether anticipatory neural activity would predict optimal and suboptimal choices in a financial decision-making task. We characterized two types of deviations from the optimal investment strategy of a rational risk- neutral agent as risk-seeking mistakes and risk-aversion mistakes. Nucleus accumbens activation preceded risky choices as well as risk- seeking mistakes, while anterior insula activation preceded riskless choices as well as risk-aversion mistakes. These findings suggest that distinct neural circuits linked to anticipatory affect promote different types of financial choices, and indicate that excessive activation of these circuits may lead to investing mistakes. Thus, consideration of anticipatory neural mechanisms may add predictive power to the rational actor model of economic decision-making.

The Neural Basis of Financial Risk Taking

Professor Titmuss, an eminent English social theorist, believes that man is inherently altruistic and that the duty of government is to create that social and economic climate which best channels man's drive to work together for the common good. In support of this belief, he has written a book about the procurement, distribution, and transfusion of human blood, a medical topic which he employs as an illustrative social and economic microcosm. The conclusion he reaches is foregone: "The voluntary socialized system in Britain is economically, professionally, administratively and qualitatively more efficient than the mixed, commercialized, and individualistic American system" (Titmuss, R.M: "Why Give to Strangers?" Lancet 1 :123-125, 1971). As the book was written with a bias, so will it be read with bias. My own bias is that of an American and a blood-banker. I am only too conscious of many deficiencies in the American complex of arrangements—it isn't

The Gift Relationship: From Human Blood to Social Policy

This paper examines the information content of the forward-looking statements (FLS) in the Management Discussion and Analysis section (MD&A) of 10-K and 10-Q filings using a Naive Bayesian machine learning algorithm. I find that firms with better current performance, lower accruals, smaller size, lower market-to-book ratio, less return volatility, lower MD&A Fog index, and longer history tend to have more positive FLSs. The average tone of the FLS is positively associated with future earnings even after controlling for other determinants of future performance. The results also show that, despite increased regulations aimed at strengthening MD&A disclosures, there is no systematic change in the information content of MD&As over time. In addition, the tone in MD&As seems to mitigate the mispricing of accruals. When managers “warn” about the future performance implications of accruals (i.e., the MD&A tone is positive (negative) when accruals are negative (positive)), accruals are not associated with future returns. The tone measures based on three commonly used dictionaries (Diction, General Inquirer, and the Linguistic Inquiry and Word Count) do not positively predict future performance. This result suggests that these dictionaries might not work well for analyzing corporate filings.

The Information Content of Forward-Looking Statements in Corporate Filings-A Naïve Bayesian Machine Learning Approach: the information content of corporate filings

We investigate whether public opinion influences the level and structure of executive compensation. During 1992-2008 the negativity of press coverage of CEO pay varied significantly, with stock options being the most criticized pay component. We find that after more negative press coverage of CEO pay firms reduce option grants and increase less contentious types of pay such as salary, while overall compensation does not change. The reduction in option pay after increased press negativity is more pronounced when firms, CEOs and boards have stronger reputation concerns. Our within-firm, within-year identification shows the results cannot be explained by annual changes in accounting rules regarding executive compensation, stock market conditions, or pay mean-reversion.

Public Opinion and Executive Compensation

This paper shows that local institutional investors are effective monitors of corporate behavior. Firms with high local ownership have better internal governance and are more profitable. These firms are also less likely to manage their earnings aggressively or backdate options and are less likely to be targets of class action lawsuits. Further, managers of such firms exhibit a lower propensity to engage in "empire building" and are less likely to "lead the quiet life". Examining the local monitoring mechanisms, we find that local institutions are more likely to introduce shareholder proposals, increase CEO turnover, and reduce excess CEO pay.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID2042600_code56396.pdf?abstractid=1509172&type=2

Local Investors and Corporate Governance

Local investors and corporate governance

We show that CEOs of prestigious firms earn less. Total compensation is on average 8% lower for firms listed in Fortune's ranking of America's most admired companies. We suggest that CEOs are willing to trade off status and career benefits from working for a publicly admired company against additional monetary compensation. Our identification strategy is based on matched sample analyses, difference-in-differences regressions, and a regression discontinuity design. We perform several robustness checks and exclude many alternative explanations, including that firm prestige just proxies for better corporate governance, or for increased exposure of the pay-setting process to media attention.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID2626654_code596301.pdf?abstractid=2008877&mirid=1&type=2

The Impact of Firm Prestige on Executive Compensation

We show that name-induced stereotypes affect the investment choices of U.S. mutual fund investors. Managers with foreign-sounding names have about 10% lower annual fund flows and this effect is stronger among funds with investor clienteles more likely to be suspicious of foreigners. Foreign-name managers experience lower appreciation (greater decline) in flows following good (bad) performance. Following 9/11, flows to funds with managers with Middle-Eastern sounding names decline abnormally. In an experimental setting where skill differences are absent, individuals allocate 11% less money to an index fund managed by a foreign-name manager. This gap widens following the Boston marathon bombings.

Alexandra Niessen-Ruenzi

Papers

Public Opinion and Executive Compensation

Local Investors and Corporate Governance

Local investors and corporate governance

The Impact of Firm Prestige on Executive Compensation

What is in a Name? Mutual Fund Flows When Managers Have Foreign-Sounding Names