Showing papers by "HEC Paris published in 2005"

Border Crossing: Bricolage and the Erosion of Categorical Boundaries in French Gastronomy

Abstract: Sociological researchers have studied the consequences of strong categorical boundaries, but have devoted little attention to the causes and consequences of boundary erosion. This study analyzes the erosion of categorical boundaries in the case of opposing category pairs. The authors propose that categorical boundaries weaken when the borrowing of elements from a rival category by high-status actors triggers emulation such that the mean number of elements borrowed by others increases and the variance in the number of elements borrowed declines. It is suggested that penalties to borrowing in the form of downgraded evaluations by critics exist, but decline as the number of peers who borrow increases. The research setting is French gastronomy during the period from 1970 to 1997, when classical and nouvelle cuisines were rival categories competing for the allegiance of chefs. The results broadly support the authors' hypotheses, indicating that chefs redrew the boundaries of culinary categories, which critics ...

Limit Order Book as a Market for Liquidity

Abstract: We develop a dynamic model of an order-driven market populated by discretionary liquidity traders. These traders must trade, yet can choose the type of order and are fully strategic in their decision. Traders differ by their impatience: less patient traders demand liquidity, more patient traders provide it. Three equilibrium patterns are obtained - the pattern is determined by three parameters: the degree of impatience of the patient traders, which we model as the cost of execution delay in providing liquidity; their proportion in the population, which determines the degree of competition among the liquidity providers; and the tick size, which is the cost of the minimal price improvement. Despite its simplicity, the model generates a rich set of empirical predictions on the relation between market parameters, time to execution, and spreads. We argue that the economic intuition of this model is so basic, its main results must be robust in much more general models.

Performance of Private Equity Funds

Abstract: Using a dataset of 1328 mature private equity funds, we find that performance estimates found in previous research and used as industry benchmark are overstated. We show that in commonly used samples, accounting values reported by mature funds for non-exited investments are substantial and we provide evidence that these mostly represent living dead investments. We also document a bias towards better performing funds in these data. After correcting for sample bias and overstated accounting values, average fund performance changes from a slight overperformance to a substantial underperformance of 3% per year with respect to the S&P 500. Assuming a typical fee structure, we find that gross-of-fees these funds outperform by 3% per year. We conclude that the stunning growth in the amount allocated to this asset class cannot be attributed to genuinely high past net performance. We discuss several potentially misleading aspects of standard performance reporting and discuss some of the added benefits of investing in private equity funds as a first step towards an explanation for our results.

Consumer Segments Based on Attitudes Toward Luxury: Empirical Evidence from Twenty Countries

Abstract: This article proposes an international segmentation of consumers based on their attitudes toward luxury. We perform a two-stage empirical study with a data set that combines samples from 20 countries. We provide a substantive interpretation of the results to show that three attitude segments dominate in a Western cultural context. We discuss several directions for future research based on the findings.

Repeat Purchasing of New Automobiles by Older Consumers: Empirical Evidence and Interpretations:

Abstract: In a large empirical study, the authors find that older consumers, who constitute an important market segment, repurchase a brand more frequently when they buy a new car. Older consumers consider fewer brands, fewer dealers, and fewer models, and they choose long-established brands more often. To interpret the results, the authors rely on four age-related theoretical perspectives: biological aging, cognitive decline, socioemotional selectivity, and change aversion.

PLS regression, PLS path modeling and generalized Procrustean analysis: a combined approach for multiblock analysis

Abstract: A situation where J blocks of variables are observed on the same set of individuals is considered in this paper. A factor analysis logic is applied to tables instead of variables. The latent variables of each block should well explain their own block and, at the same time, the latent variables of same order should be as positively correlated as possible to improve interpretation. The paper first (1) reviews the main methods for multiblock analysis based on a criterion to be optimized, (2) describes the hierarchical PLS path modeling algorithm and (3) recalls that it allows one to recover some usual multiblock analysis methods. It is then supposed that the number of latent variables can be different from one block to another and that these latent variables are orthogonal. PLS regression and PLS path modeling are used for this situation. The relation between Horst's generalized canonical correlation analysis and generalized Procrustean analysis for this specific application is also studied. The approach is illustrated by an example from sensory analysis. Copyright © 2005 John Wiley & Sons, Ltd.

Disclosure and Determinants Studies: An Extension Using the Divisive Clustering Method (DIV)

Abstract: Past accounting research contains an extensive range of disclosure and determinants studies. But these studies have one major methodological drawback: the disclosure analysis is often restricted to determination of the disclosure index, i.e. the sum of disclosed items, weighted or unweighted. The disclosure profile (which reflects the structure of published information) is generally not part of the research design. The objective of this paper is to introduce a divisive (descendant) clustering method, which splits the sample into homogeneous sub-groups corresponding to disclosure patterns (or profiles), for clearer determination of the financial characteristics of each group. This methodology is illustrated by a study of disclosure on provisions by large French firms. The results show that the disclosure pattern is related to provision intensity, size, leverage and market expectation, but not to profit, return and industry. This new research method is a valuable complementary tool for expanding on disclosure and determinants studies, moving from disclosure levels to disclosure patterns.

The Ownership of Ratings

Abstract: Standard & Poor's provides corporate governance ratings to firms who can, upon learning those, decide to reveal them or not to the market. This paper identifies the circumstances under which such a simple ownership contract over ratings can emerge as the optimal arrangement. Firms hiding their ratings can only be an equilibrium outcome if they are sufficiently uncertain of their quality at the time of hiring a certification intermediary and if the decision to get a rating is not observable. For some distribution functions of firms' qualities, a competitive market is a necessary condition for this result to obtain. Competition between rating intermediaries will unambiguously lead to less information being revealed in equilibrium.

Using Capital Markets as Market Intelligence: Evidence from the Pharmaceutical Industry

Abstract: Financial theory posits that capital markets convey through stock prices their expectation of the firm's future performance. We use concepts from principal-agent theory and prospect theory to provide a theoretical explanation for the role stock price variation plays in managerial decision making. We then empirically investigate what specific decisions managers undertake in response to stock price variation. We perform our empirical analyses in the context of the pharmaceutical industry. We find that drug firms whose stock underperformed the industry react differently than drug firms with high-performing stocks. Specifically, laggards tend to implement more changes to their current product portfolio and distribution than high-performing firms. The more laggards underperform, the more they implement acquisitions aimed to produce immediate improvement in the firm's product portfolio. In contrast, drug firms whose stocks outperform the industry tend to make fewer changes to their current portfolio and distribution. Instead, they focus more on long-term research and development and marketing of existing products. We interpret these findings in light of industry key success factors.

Analyst Hype in Ipos: Explaining the Popularity of Bookbuilding

Abstract: The bookbuilding procedure for selling initial public offerings (IPO) to investors has captured significant market share from auction alternatives in recent years, despite the significantly lower costs related to the auction mechanism in terms of direct fees and initial underpricing. This article shows that in the French market, where the frequency of bookbuilding and auctions was approximately equal in the 1990s, the ostensible advantages to the issuer using bookbuilding were advertising-related benefits. Specifically, we find that book-built issues were more likely to be followed and positively recommended by the lead underwriters, as well as to receive "booster shots" after issuance if the shares had fallen. Even nonunderwriters' analysts appear to promote book-built issues more but only as a way of currying favor with the IPO underwriter for allocations of future deals. Yet we do not observe valuation or post-IPO return differentials that suggest these types of promotion have any value to the issuing firm. We conclude that underwriters using the bookbuilding procedure have convinced issuers of the questionable value of the advertising and promotion of their shares.

The Other January Effect

Abstract: "Streetlore" has touted the market return in January as a predictor of market returns for the remainder of the year since at least 1973. We systematically examine the predictive power of January returns over the period 1940-2003 and find that January returns have predictive power for market returns over the next 11 months of the year. The effect persists after controlling for macroeconomic/business cycle variables that have been shown to predict stock returns, the Presidential Cycle in returns, and investor sentiment and persists among both large and small capitalization stocks and among both value and glamour stocks. Additionally, we find that January has predictive power for two of the three premiums in the Fama-French (1993) three-factor model of asset pricing.

Cognition, persuasion and decision making in older consumers

Abstract: Older adults constitute a rapidly growing demographic segment, but relatively little is known about them within consumer contexts: how they process information, respond to persuasive messages, and make decisions. We discuss extant findings from consumer behavior and related disciplines (e.g., cognitive psychology, neuroscience, social psychology, gerontology) as they pertain to the effects of aging on consumer memory, persuasion and decision

Methods of Payment in Asset Sales: Contracting with Equity versus Cash

Abstract: We analyze intercorporate asset sales where equity is the means of payment, and compare the results to cash asset sales. Equity deals are value-enhancing for both buyers, 10%, and sellers, 3%, while cash sales generate seller returns of 1.9% and buyer returns that are not significant. Combined wealth gains are large for equity deals, but modest for cash deals. Equity-based asset sales are not a precursor to consolidations between buyers and sellers, and do not affect buyer openness to the takeover market. We conclude that the use of buyer equity conveys favorable information about the value of assets and buyers. A WELL-ACCEPTED TENET OF CORPORATE FINANCE THEORY and empirical research is that the issuance of equity reduces firm value. In this paper, we present evidence that challenges this widely held view about equity. Losses in firm value have been documented when equity is used as a means of payment for corporate transactions such as mergers and takeovers, as well as for seasoned equity offerings for corporate financing. Such negative effects on firm value are consistent with the theoretical work of Myers and Majluf (1984), which implies that within an asymmetric information framework, there is an adverse selection problem intrinsic to equity issuance. Our evidence about the favorable effects of equity is in the context of intercorporate asset sales. There are no theoretical models that focus explicitly on corporate asset sales. Instead, these transactions are typically viewed as a component of the broader merger and takeover literature, which concludes that, on average, targets of acquisitions sustain large wealth gains, acquirers gain little or no value, and the use of buyer equity as the means of payment is an unfavorable signal of value. Previous studies of asset sales document significant gains to sellers and few, if any, gains to buyers, but there has been no treatment of the effects of the means of payment. Our analysis focuses on the use of buyer equity as the means of payment in intercorporate asset sales, and we compare the results to cash asset sales. Our central finding is that the use of buyer equity to purchase operating assets generates significantly larger combined gains in wealth than

La construction du plafond de verre : le cas des femmes cadres à potentiel

Abstract: Les facteurs qui ont pese favorablement sur l’augmentation de la part des femmes dans les professions qualifi ees et parmi les cadres et les managers ne semblent pas etre les memes que ceux qui determinent l’acces aux spheres superieures du pouvoir organisationnel. Les femmes continuent d’etre de plus en plus rares a mesure que l’on s’eleve dans la hierarchie. Il ne suffi t plus alors de reconnaitre seulement des criteres objectifs de merite comme le diplome. Les organisations sont aussi des lieux ou se developpent des relations de pouvoir et des processus informels, souvent inegalitaires, qui determinent l’acces aux postes de pouvoir. Un certain nombre de regles qui sont donnees comme neutres sont en fait des regles masculines, historiquement calquees sur des modeles masculins. Face a ces modeles codes au masculin, l’article analyse les strategies et les comportements divers que les femmes adoptent en matiere de carriere, pour venir a bout des obstacles visibles et invisibles qui constituent ce « plafond de verre », qui les separe du sommet des hierarchies professionnelles et organisationnelles.

The roots of brand loyalty decline: An international comparison

Abstract: Brand loyalty is a marketers' Holy Grail. And so it always will be, writes this French academic. One of the reasons is that as long as they try to win consumers' loyalties by restricting choices, marketers will only succeed in encouraging consumers to try and experiment with as many brands as possible. Paradoxically, loyalty can best be obtained by allowing consumers to make as many choices as they wish to make.

What Does it Take to Sell Environmental Policy? An Empirical Analysis of Referendum Data

Abstract: We analyze the factors that influence the support for environmental policy proposals. Swiss referendum data show that proposals obtain more yes-votes if they do not restrict consumption possibilities directly, if they are endorsed by business associations, if environmental preferences are strong and economic conditions are favorable at the time of the referendum. Also, there are more pro-environmental votes in cantons with higher population density. On the other hand, yes-votes do not seem to depend on whether a proposal involves a tax or not.

Deregulating Network Industries: Dealing with Price-Quality Tradeoffs

Abstract: This paper examines the effects of introducing competition into monopolized network industries on prices and infrastructure quality. Analyzing a model with reduced-form demand, we first show that deregulating an integrated monopoly cannot simultaneously decrease the retail price and increase infrastructure quality. Second, we derive conditions under which reducing both retail price and infrastructure quality relative to the integrated monopoly outcome increases welfare. Third, we argue that restructuring and setting very low access charges may yield welfare losses, as infrastructure investment is undermined. We provide an extensive analysis of the linear demand model and discuss policy implications.

Gender Differences in Decision Satisfaction within Established Dyads: Effects of Competitive and Cooperative Behaviors

Abstract: The research develops and tests a model of gender differences on the effects of competition and cooperation on decision satisfaction. It was hypothesized and found that males' satisfaction is dependent on their ability to impose their preferences on their female counterpart within a mixed-gender dyad. In contrast, females' satisfaction is only affected by the degree to which dyad members behave cooperatively. The model is tested within the context of 76 mixed-gender dyads that are in an established relationship. The dyads are sampled from shoppers at a national retailer, and report on their decision-making process as they exit the store. A partial-least-squares (PLS) methodology is used to test for differences in the effects of cooperative and competitive behaviors on males' and females' satisfaction with a dyadic decision.

Making Sense of Bolkestein-Bashing: Trade Liberalization Under Segmented Labor Markets

Abstract: Trade liberalization is often met with sharp opposition. Recent examples include the so-called 'Bolkestein' directive, which allows service providers from a given EU member to temporarily work in another member country. One way to view such a reform is that it simply widens the range of goods that are tradable. This kind of reform is analyzed in a two-country Dornbusch-Fischer-Samuelson style model, where labor cannot relocate to another sector upon a non-expected increase in the range of goods that can be traded. The effect of liberalization on the terms of trade tend to favor the poorer country (the 'East'), if (as assumed) the most sophisticated goods are tradable before reform. Second, under ex-post liberalization, there exists a class of workers in the West who are harmed because they face competition from Eastern workers and cannot relocate to other activities. But if the East's economy is relatively small, their wage losses are not very large. Things are different, however, if there exist asymmetries in labor market institutions, such that upon reform, labor can relocate in the East but not in the West. Some workers in the West can then experience very large wage losses. Thus, rigid labor markets in the West magnify opposition to reform there.