HEC Paris

About: HEC Paris is a education organization based out in Jouy-en-Josas, France. It is known for research contribution in the topics: Market liquidity & Entrepreneurship. The organization has 584 authors who have published 2756 publications receiving 104467 citations. The organization is also known as: Ecole des Hautes Etudes Commerciales & HEC School of Management Paris.

How to connect strategy research with broader issues that matter

Abstract: The financial crisis and its various episodes, the persistent use of child labour by multinational corporations, the global sex trade with its horrible implications, environmental destruction exemplified by BP’s accident in the Gulf of Mexico, drugs and their globally organized production and sales, Fukushima and the risks of contemporary energy policies, dictatorships and oppression sustained by military and economic power in North Korea and Syria. These are major strategic issues of global relevance that need to be better understood – and dealt with. What they and many others have in common is that they are all about the strategic management of complex, intertwined organizational structures and processes. Furthermore, both their causes and consequences are organizational, and they usually involve an economic dimension that greatly influences various actors’ interests and manoeuvres. These crises have been addressed by economists, political scientists, sociologists, psychologists, military experts and others, but with few exceptions strategy scholars have kept silent. There are of course reasons (or excuses) for why this is the case: strategic management scholarship is considered to have its place in explaining firm behaviour and industrial dynamics, in-depth research takes time which often prevents researchers from being able to comment on crises as they happen, academic publishing practices prolong these processes (it gets years to publish a paper), we as scholars can provide explanations, but the practitioners seldom understand them, the media are not used to using strategy scholars as experts, and so on. In this essay, we don’t buy these excuses at face value. Our message is simple: strategy scholars should be bold enough to look beyond the management of business firms to address contemporary issues of broader societal relevance. Relevance is a key question for management scholars in general and strategy scholars in particular. While there are different views on what relevance means (Augier and March, 2007), most have been concerned about the lack of ability of management research to provide knowledge that is useful for managerial practice (McGahan, 2007; Walsh et al., 2007). For example, Hambrick (1994: 15) famously criticized management research for developing into an ‘incestuous, closed loop of scholarship’. More recently, Walsh (2011) provides an overview of the presidential addresses in recent years that all seem to indicate that management research has failed in its quest 452827 SOQ10310.1177/1476127012452827Vaara and DurandStrategic Organization 2012

A Global Equilibrium Asset Pricing Model with Home Preference

Abstract: We develop a global equilibrium asset pricing model assuming that investors suffer from foreign aversion, a preference for home assets based on familiarity. Using a utility formulation inspired by regret theory, we derive closed-form solutions. When the degree of foreign aversion is high in a given country, investors place a high valuation on domestic equity, which results in a lower expected return. Thus, the model generates the simple prediction that a country’s degree of home bias and the expected return of its domestic assets should be inversely related. Our predicted relation between the degree of home bias and a country’s expected return has the opposite sign predicted by models that assume some form of market segmentation. Using IMF portfolio data we find that expected returns are negatively related to home bias.

Forward Guidance and Heterogeneous Beliefs

Abstract: We analyze the eects of forward guidance policy when agents have heterogeneous beliefs about its macroeconomic impact. Using survey expectations, we rst document that forward guidance lowered disagreement about future short term interest rates to historically low levels while it did not impact disagreement about future ination and consumption growth. We introduce in an otherwise standard New-Keynesian model the possibility that agents have heterogenous beliefs on policies and fundamentals. We show that agreement on the future path of interest rates is consistent with disagreement on the length of the trap when agents also disagree on the nature - delphic or odyssean of forward guidance. We also show that such type of heterogeneous beliefs can strongly alter the optimal forward guidance policy compared to the predictions of an equivalent model with homogenous beliefs in the central bank’s commitment. In some cases, forward guidance can even be detrimental compared to status-quo.

Stochastic equity volatility related to the leverage effect: I Equity volatility behaviour

Abstract: We propose a general framework to model equity volatility for a firm financed by equity and additional non-equity sources of funds. The stochastic nature of equity volatility is endogenous, and comes from the impact of a change in the value of the firm's assets on the financial leverage. We first present the basic model, which is an extension of the Black-Scholes model, to value corporate securities. Second, we show for the first time in the option literature, that instantaneous equity volatility is a solution of a partial differential equation similar to Black-Scholes', although it is non-linear and in general does not have any analytical solution. However, analytical approximations for equity volatility are proposed for different capital structures: (1) equity and debt, (2) equity and warrants, and (3) equity, debt and warrants. They are shown to be very accurate.

Competition and the cost of debt

Abstract: This paper empirically shows that the cost of bank debt is systematically higher for firms that operate in competitive product markets. Using various proxies for product market competition, and reductions of import tariff rates to capture exogenous changes to a firm's competitive environment, I find that competition has a significantly positive effect on the cost of bank debt. Moreover, the analysis reveals that the effect of competition is greater in industries in which small firms face financially strong rivals, in industries with intense strategic interactions between firms, and in illiquid industries. Overall, these findings suggest that banks price financial contracts by taking into account the risk that arises from product market competition.