ISB-CAF Summer Research Conference, 2022

Summary of selected papers

1. Social impact of regulation-induced CSR

- By Vidhi Chhaochharia (University of Miami), Rik Sen (University of New South Wales) & Jing Xu (University of Technology Sydney)

This paper explores the empirical question ‘Does CSR spending in education impact schools?’ The study finds a significant positive impact of CSR spending on elementary schools but also found that spending by firms may not be a suitable alternative to government activities aimed at reducing regional inequalities. The study observes from collected data that a $ 1 million expenditure in education-related CSR led to a 138-student year enrollment hike at the targeted schools.


2. Foreign influence in US Politics

- By Marco Grotteria (London Business School), Max Miller (University of Pennsylvania) and S. Lakshmi Naaraayanan (London Business School)

The research provides large sample evidence of foreign influence on US politics. It shows that meetings between foreign countries and legislators affect US government resource allocation for countries and firms. The paper hypothesizes a) foreign countries most intensely lobby for trade and the economy, b) meetings are positively related to legislators' lawmaking effectiveness and past employment connections and unrelated to any political ideology, and c) foreign countries maintain connections with all legislators even after they depart from committees that are important in allocating public resources.


3. Capital Quality, Productivity and Financial Constraints: Evidence from India

- By Poorya Kabir (National University of Singapore) and Seyed Mansouri (Columbia Business School)

This paper cited novel evidence that reduced financial constraints increase physical capital quality and thus productivity. The researchers used project-level investment and Capex datasets from industry in India to measure physical capital quality. This paper finds physical capital quality is an important determinant of productivity and output quality, and that a firm’s choice of physical capital quality depends on the availability of financing.


4. Institutional Corporate Bond Pricing

- By Lorenzo Bretscher (University of Lausanne), Lukas Schmid (USC Marshall School of Business), Ishita Sen (Harvard Business School), Varun Sharma (London Business School)

This paper estimates an equilibrium demand-based corporate bond pricing model linking institutional holdings to bond characteristics. The researchers estimate credit quality migration pricing implications, mutual fund fragility, monetary policy tightening, and a tapering of the Fed’s corporate credit facility. The model predicts substantial disruptions in bond prices through shifts in institutional demand and identifies the composition of institutional demand as an important variable for corporate bond pricing.


5. Smokestacks and the Swamp

- By Emilio Bisetti (Hong Kong University of Science and Technology), Stefan Lewellen (Pennsylvania State University), Arkodipto Sarkar, Xiao Zhao

This paper examines if politicians’ partisan ideologies bear any effect on firms’ industrial pollution decisions. Looking at U.S. congressional elections, the researchers find plants increase pollution and invest less in abatement after Republican wins.  They would also shift emissions away from areas represented by Democrats. The findings show costs to rise and market valuation ratios decline for firms whose representation becomes more Democratic, suggesting politicians’ ideological demands can be privately costly. Pollution-related illnesses were seen to spike around plants in Republican districts, suggesting that firms’ pass-through of politicians’ ideologies can have real consequences for local communities.


6. Liquidity Derivatives

- By Matteo Bagnara and Ruggero Jappeli (Leibniz Institute of Financial Research SAFE, Goethe University, Frankfurt)

Investors price market liquidity risk. Yet, there are no financial claims contingent on liquidity.  Earlier research suggested that introducing liquidity derivatives improves financial stability by mitigating liquidity spirals. The research proposes a contract to hedge uncertainty over future transaction costs.  The paper simulates liquidity option prices for a panel of NYSE stocks from 2000 to 2020. These contracts reduce returns exposure to liquidity factors.  Their prices provide a novel illiquidity measure reflecting cross-sectional commonalities. Finally, the stock returns are found significantly spread along the simulated prices.


7. Smart (Phone) Investing? A within investor-time analysis of new technologies and trading behaviour

- By Ankit Kalda (Indiana University), Benjamin Loos (Technical University of Munich), Alessandro Previtero (Indiana University), Andreas Hackethal (Goethe University)

The paper analyses transaction-level data from two German banks, to study the effects of smartphones on investor behaviour. The researchers compared trades by the same investor in the same month across different platforms. Their findings show that smartphones increase the purchase of riskier, lottery-type, non-diversifying assets, and of past winners and losers.  On average, investors did not offset these trades on other platforms. They find assets purchased via smartphones deliver lower risk-return ratios and caution against the use of smartphones as the key technology to increase access to financial markets.


8. Remotely Productive: The Efficacy of Remote Work for Executives

- By Ran Duchin (Boston College) and Denis Sosyura (Arizona State University)

This paper studies the efficacy of remote working arrangements between CEOs and firms. It found Long-distance CEOs to underperform on parameters like operating performance, firm valuation, insider reviews, and announcement return to CEO departures. The effects are found to be stronger when the CEO lives further away. The underperformance of long-distance CEOs is related to short-termism, loss of information and consumption of leisure, such as recreational boats and beach homes, finds the researchers of this paper.