Socioeconomic status and learning from financial information
| Authors | Miu, Kuhnen |
| Journal | Journal of Financial Economics |
| Year | 2017 |
| Type | Published Paper |
| Abstract | The majority of lower socioeconomic status (SES) households in the U.S. and Europe do not have stock investments, which is detrimental to wealth accumulation. Here, we examine one explanation for this puzzling fact, namely, that economic adversity may influence how people learn from financial information. Using experimental and survey data from the U.S. and Romania, we find that lower SES individuals form more pessimistic beliefs about the distribution of stock returns and are less likely to invest in stocks when these investments are likely to have good outcomes. SES-related differences in pessimism may help explain variation in investments across households. |
| Keywords | Socioeconomic status, learning, beliefs, household finance, stock market participation |
| URL | https://doi.org/10.1016/j.jfineco.2017.03.002 |
| Tags | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) |
How language shapes word of mouth's impact
| Authors | Packard, Berger |
| Journal | Journal of Marketing Research |
| Year | 2017 |
| Type | Published Paper |
| Abstract | Word of mouth affects consumer behavior, but how does the language used in word of mouth shape that impact? Might certain types of consumers be more likely to use certain types of language, affecting whose words have more influence? Five studies, including textual analysis of more than 1,000 online reviews, demonstrate that compared to more implicit endorsements (e.g., "I liked it," "I enjoyed it"), explicit endorsements (e.g., "I recommend it") are more persuasive and increase purchase intent. This occurs because explicit endorsers are perceived to like the product more and have more expertise. Looking at the endorsement language consumers actually use, however, shows that while consumer knowledge does affect endorsement style, its effect actually works in the opposite direction. Because novices are less aware that others have heterogeneous product preferences, they are more likely to use explicit endorsements. Consequently, the endorsement styles novices and experts tend to use may lead to greater persuasion by novices. These findings highlight the important role that language, and endorsement styles in particular, plays in shaping the effects of word of mouth. |
| Keywords | Word of mouth, language, persuasion, consumer knowledge, social perception |
| URL | https://doi.org/10.1509/jmr.15.0248 |
| Tags | Archival Empirical | Consumer Decisions | Media and Textual Analysis | Social Transmission Biases |
Corporate risk culture
| Authors | Pan, Siegel, Wang |
| Journal | Journal of Financial and Quantitative Analysis |
| Year | 2017 |
| Type | Published Paper |
| Abstract | We examine the formation and evolution of corporate risk culture, that is, the preferences toward risk and uncertainty shared by a firm's leaders, as well as its effect on corporate policies. We document persistent commonality in risk attitudes inside firms, which arises through the selection of leaders with similar preferences and is rooted in the founders' risk attitudes. Changes in corporate risk culture over time affect corporate investment policies, whereas cross-sectional differences in founders' risk attitudes, that is, firms' initial risk culture, contribute to differences across firms in persistent firm policies, such as research and development intensity. |
| Keywords | Risk preferences, risk attitudes, firm's leader, corporate policies, corporate culture |
| URL | https://doi.org/10.1017/S0022109017000771 |
| Tags | Archival Empirical | Evolutionary Finance | Manager / Firm Behavior |
Does online word-of-mouth increase demand? (and how?) Evidence from a natural experiment
| Authors | Seiler, Yao, Wang |
| Journal | Marketing Science |
| Year | 2017 |
| Type | Published Paper |
| Abstract | We leverage a temporary block of the Chinese microblogging platform Sina Weibo due to political events to estimate the causal effect of online word-of-mouth content on product demand in the context of TV show viewership. Based on this source of exogenous variation, we estimate an elasticity of TV show ratings (market share in terms of viewership) with respect to the number of relevant comments (comments were disabled during the block) of 0.016. We find that more postshow microblogging activity increases demand, whereas comments posted prior to the show airing do not affect viewership. These patterns are inconsistent with informative or persuasive effects and suggest complementarity between TV consumption and anticipated postshow microblogging activity. |
| Keywords | Microblogging, advertising, social media, word of mouth |
| URL | https://pubsonline.informs.org/doi/abs/10.1287/mksc.2017.1045?casa_token=lxxq5FpqeeYAAAAA:wXJbLLGEETzSUvKZeU-YY5LI26G3TkYo9IMD1j6sOlCDOgwPNrrscJ-3k5Nj5Cm9pe5mi7ArVvpq |
| Tags | Archival Empirical | Consumer Decisions | Media and Textual Analysis |
Narrative economics
| Authors | Shiller |
| Journal | American Economic Review |
| Year | 2017 |
| Type | Published Paper | Literature Review Paper |
| Abstract | This address considers the epidemiology of narratives relevant to economic fluctuations. The human brain has always been highly tuned toward narratives, whether factual or not, to justify ongoing actions, even such basic actions as spending and investing. Stories motivate and connect activities to deeply felt values and needs. Narratives "go viral" and spread far, even worldwide, with economic impact. The 1920-1921 Depression, the Great Depression of the 1930s, the so-called Great Recession of 2007-2009, and the contentious political-economic situation of today are considered as the results of the popular narratives of their respective times. Though these narratives are deeply human phenomena that are difficult to study in a scientific manner, quantitative analysis may help us gain a better understanding of these epidemics in the future. |
| Keywords | Narrative, social psychology, social epidemics, economic behaviors |
| URL | https://www.aeaweb.org/articles?id=10.1257%2Faer.107.4.967&msclkid=bd5677ccaa8411ec80ac1e25c5639856 |
| Tags | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Media and Textual Analysis | Propagation of Noise / Undesirable Outcomes |
Sharing with friends versus strangers: How interpersonal closeness influences word-of-mouth valence
| Authors | Dubois, Bonezzi, Angelis |
| Journal | Journal of Marketing Research |
| Year | 2016 |
| Type | Published Paper |
| Abstract | How does interpersonal closeness (IC)--the perceived psychological proximity between a sender and a recipient--influence word-of-mouth (WOM) valence? The current research proposes that high levels of IC tend to increase the negativity of WOM shared, whereas low levels of IC tend to increase the positivity of WOM shared. The authors hypothesize that this effect is due to low versus high levels of IC triggering distinct psychological motives. Low IC activates the motive to self-enhance, and communicating positive information is typically more instrumental to this motive than communicating negative information. In contrast, high IC activates the motive to protect others, and communicating negative information is typically more instrumental to this motive than communicating positive information. Four experiments provide evidence for the basic effect and the underlying role of consumers' motives to self-enhance and protect others through mediation and moderation. The authors discuss implications for understanding how WOM spreads across strongly versus weakly tied social networks. |
| Keywords | Word of mouth, word-of-mouth valence, interpersonal closeness, self-enhancement, social media |
| URL | https://doi.org/10.1509/jmr.13.0312 |
| Tags | Consumer Decisions | Experimental / Survey-Based Empirical | Media and Textual Analysis | Social Network Structure |
Estimating peer effects in networks with peer encouragement designs
| Authors | Eckles, Kizilcec, Bakshy |
| Journal | Proceedings of the National Academy of Sciences of the United States of America |
| Year | 2016 |
| Type | Published Paper |
| Abstract | Peer effects, in which the behavior of an individual is affected by the behavior of their peers, are central to social science. Because peer effects are often confounded with homophily and common external causes, recent work has used randomized experiments to estimate effects of specific peer behaviors. These experiments have often relied on the experimenter being able to randomly modulate mechanisms by which peer behavior is transmitted to a focal individual. We describe experimental designs that instead randomly assign individuals' peers to encouragements to behaviors that directly affect those individuals. We illustrate this method with a large peer encouragement design on Facebook for estimating the effects of receiving feedback from peers on posts shared by focal individuals. We find evidence for substantial effects of receiving marginal feedback on multiple behaviors, including giving feedback to others and continued posting. These findings provide experimental evidence for the role of behaviors directed at specific individuals in the adoption and continued use of communication technologies. In comparison, observational estimates differ substantially, both underestimating and overestimating effects, suggesting that researchers and policy makers should be cautious in relying on them. |
| Keywords | Social interactions, social networks, causal inference, experimental design |
| URL | https://doi.org/10.1073/pnas.1511201113 |
| Tags | Archival Empirical | Experimental / Survey-Based Empirical | Media and Textual Analysis |
Corporate finance policies and social networks
| Authors | Fracassi |
| Journal | Management Science |
| Year | 2016 |
| Type | Published Paper |
| Abstract | This paper shows that managers are influenced by their social peers when making corporate policy decisions. Using biographical information about executives and directors of U.S. public companies, we define social ties from current and past employment, education, and other activities. We find that more connections two companies share with each other, more similar their capital investments are. To address endogeneity concerns, we find that companies invest less similarly when an individual connecting them dies. The results extend to other corporate finance policies. Furthermore, central companies in the social network invest in a less idiosyncratic way and exhibit better economic performance. |
| Keywords | Corporate finance, policy decisions, social networks, capital investments |
| URL | https://doi.org/10.1287/mnsc.2016.2433 |
| Tags | Archival Empirical | Manager / Firm Behavior |
Peer pressure: Social interaction and the disposition effect
| Authors | Heimer |
| Journal | The Review of Financial Studies |
| Year | 2016 |
| Type | Published Paper |
| Abstract | Social interaction contributes to some traders' disposition effect. New data from an investment-specific social network linked to individual-level trading records builds evidence of this connection. To credibly estimate causal peer effects, I exploit the staggered entry of retail brokerages into partnerships with the social trading web platform and compare trader activity before and after exposure to these new social conditions. Access to the social network nearly doubles the magnitude of a trader's disposition effect. Traders connected in the network develop correlated levels of the disposition effect, a finding that can be replicated using workhorse data from a large discount brokerage. |
| URL | https://econpapers.repec.org/article/ouprfinst/v_3a29_3ay_3a2016_3ai_3a11_3ap_3a3177-3209..htm |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) | Propagation of Noise / Undesirable Outcomes | Social Network Structure | Social Transmission Biases |
The value of crowdsourced earnings forecasts
| Authors | Jame, Johnston, Markov, Wolfe |
| Journal | Journal of Accounting Research |
| Year | 2016 |
| Type | Published Paper |
| Abstract | Crowdsourcing-when a task normally performed by employees is out-sourced to a large network of people via an open call-is making inroads into the investment research industry. We shed light on this new phenomenon by examining the value of crowdsourced earnings forecasts. Our sample includes 51,012 forecasts provided by Estimize, an open platform that solicits and reports forecasts from over 3,000 contributors. We find that Estimize forecasts are incrementally useful in forecasting earnings and measuring the market's expectations of earnings. Our results are stronger when the number of Estimize contributors is larger, consistent with the benefits of crowdsourcing increasing with the size of the crowd. Finally, Estimize consensus revisions generate significant two-day size-adjusted returns. The combined evidence suggests that crowdsourced forecasts are a useful supplementary source of information in capital markets. |
| Keywords | Analyst, forecast, earnings response coefficients, crowdsourcing |
| URL | https://onlinelibrary.wiley.com/doi/abs/10.1111/1475-679X.12121 |
| Tags | Archival Empirical | Manager / Firm Behavior |
Banks and development: Jewish communities in the Italian Renaissance and current economic performance
| Authors | Pascali |
| Journal | Review of Economics and Statistics |
| Year | 2016 |
| Type | Published Paper |
| Abstract | Are differences in local banking development long lasting? Do they affect economic performance? I answer these questions by relying on a historical development that occurred in Italian cities during the Renaissance. A change in Catholic doctrine led to the development of modern banks in cities hosting Jewish communities. Using Jewish demography in 1500 as an instrument, I provide evidence of extraordinary persistence in the level of banking development across Italian cities and substantial effects of local banks on per capita income. Additional firm-level analyses suggest that banks exert large effects on aggregate productivity by reallocating resources toward more efficient firms. |
| Keywords | Banking development, religion, Jewish, economic productivity, long-lasting differences |
| URL | https://doi.org/10.1162/REST_a_00481 |
| Tags | Archival Empirical | Investment Decisions (Institutional) |
Social networks and parental behavior in the intergenerational transmission of religion
| Authors | Patacchini, Zenou |
| Journal | Quantitative Economics |
| Year | 2016 |
| Type | Published Paper |
| Abstract | We analyze the intergenerational transmission of the strength of religion focusing on the interplay between family and social influences. We find that parental investment in transmitting religious values and peers' religiousity are complements. The relative importance of these socialization factors depends on the religiosity of the parents. |
| Keywords | Religion, cultural transmission, social networks |
| URL | https://onlinelibrary.wiley.com/doi/abs/10.3982/QE506 |
| Tags | Archival Empirical | Social Network Structure | Theory |
The positivity bias and prosocial deception on facebook
| Authors | Spottswood, Hancock |
| Journal | Computers in Human Behavior |
| Year | 2016 |
| Type | Published Paper |
| Abstract | Can the positivity bias, observed across various Social Network Sites (SNSs), predict the use of prosocial lies in a SNS such as Facebook? The positivity bias may be a product of politeness norms (i.e., positive face concern) that have influenced communication phenomena before these sites existed. In addition, positive face concern may also be affected by unconscious cues or primes that promote prosocial behavior on Facebook. We conducted an online experiment using current Facebook users to examine how positive face concern and surveillance primes affect prosocial lying in public and private Facebook contexts. Although positive face concern and publicness predicted the use of prosocial lying, positive face concern was not affected by the publicness and surveillance primes did not affect positive face concern or the use of prosocial lies in our study. This hints towards the nuance of positive face concern and the potential limitations of surveillance primes on prosocial lying behavior. |
| Keywords | Facebook, deception, positive face, surveillance primes |
| URL | https://doi.org/10.1016/j.chb.2016.08.019 |
| Tags | Experimental / Survey-Based Empirical | Media and Textual Analysis | Social Transmission Biases |
The effect of providing peer information on retirement savings decisions
| Authors | Beshears, Choi, Laibson, Madrian, Milkman |
| Journal | Journal of Finance |
| Year | 2015 |
| Type | Published Paper |
| Abstract | Using a field experiment in a 401(k) plan, we measure the effect of disseminating information about peer behavior on savings. Low-saving employees received simplified plan enrollment or contribution increase forms. A randomized subset of forms stated the fraction of age-matched coworkers participating in the plan or age-matched participants contributing at least 6% of pay to the plan. We document an oppositional reaction: the presence of peer information decreased the savings of nonparticipants who were ineligible for 401(k) automatic enrollment, and higher observed peer savings rates also decreased savings. Discouragement from upward social comparisons seems to drive this reaction. |
| URL | https://doi.org/10.1111/jofi.12258 |
| Tags | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) |
Religion and stock price crash risk
| Authors | Callen, Fang |
| Journal | Journal of Financial and Quantitative Analysis |
| Year | 2015 |
| Type | Published Paper |
| Abstract | This study examines whether religiosity at the county level is associated with future stock price crash risk. We find robust evidence that firms headquartered in counties with higher levels of religiosity exhibit lower levels of future stock price crash risk. This finding is consistent with the view that religion,as a set of social norms, helps to curb bad-news-hoarding activities by managers. Our evidence further shows that the negative relation between religiosity and future crash risk is stronger for riskier firms and for firms with weaker governance mechanisms measured by shareholder takeover rights and dedicated institutional ownership. |
| Keywords | Religion, social norms, stock crash, corporate governance |
| URL | https://doi.org/10.1017/S0022109015000046 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Manager / Firm Behavior |
Suspense and surprise
| Authors | Ely, Frankel, Kamenica |
| Journal | Journal of Political Economy |
| Year | 2015 |
| Type | Published Paper |
| Abstract | We model demand for noninstrumental information, drawing on the idea that people derive entertainment utility from suspense and surprise. A period has more suspense if the variance of the next period's beliefs is greater. A period has more surprise if the current belief is further from the last period's belief. Under these definitions, we analyze the optimal way to reveal information over time so as to maximize expected suspense or surprise experienced by a Bayesian audience. We apply our results to the design of mystery novels, political primaries, casinos, game shows, auctions, and sports. |
| URL | https://www.journals.uchicago.edu/doi/full/10.1086/677350 |
| Tags | Consumer Decisions | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) | Manager / Firm Behavior | Social Transmission Biases | Theory |
Do better-connected CEOs innovate more?
| Authors | Faleye, Kovacs and Venkateswaran |
| Journal | Journal of Financial and Quantitative Analysis |
| Year | 2015 |
| Type | Published Paper |
| Abstract | We present evidence suggesting that chief executive officer (CEO) connections facilitate investments in corporate innovation. We find that firms with better-connected CEOs invest more in research and development and receive more and higher quality patents. Further tests suggest that this effect stems from two characteristics of personal networks that alleviate CEO risk aversion in investment decisions. First, personal connections increase the CEO's access to relevant network information, which encourages innovation by helping to identify, evaluate, and exploit innovative ideas. Second, personal connections provide the CEO with labor market insurance that facilitates investments in risky innovation by mitigating the career concerns inherent in such investments. |
| Keywords | CEO, corporate innovation, risk attitudes, social networks, investment decisions |
| URL | https://doi.org/10.1017/S0022109014000714 |
| Tags | Archival Empirical | Manager / Firm Behavior | Social Network Structure |
Corporate policies of republican managers
| Authors | Hutton, Jiang and Kumar |
| Journal | Journal of Financial and Quantitative Analysis |
| Year | 2015 |
| Type | Published Paper |
| Abstract | We demonstrate that personal political preferences of corporate managers influence corporate policies. Specifically, Republican managers who are likely to have conservative personal ideologies adopt and maintain more conservative corporate policies. Those firms have lower levels of corporate debt, lower capital and research and development (R&D) expenditures, less risky investments, but higher profitability. Using the 9/11 terrorist attacks and Sept. 2008 Lehman Brothers bankruptcy as natural experiments, we demonstrate that investment policies of Republican managers became more conservative following these exogenous uncertainty-increasing events. Furthermore, around chief executive officer (CEO) turnovers, including CEO deaths, firm leverage policy becomes more conservative when managerial conservatism increases. |
| Keywords | Political ideology, manager's behaviors, corporate policy |
| URL | https://doi.org/10.1017/S0022109014000702 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Experimental / Survey-Based Empirical | Manager / Firm Behavior |
Social interaction at work
| Authors | Hvide, Ostberg |
| Journal | Journal of Financial Economics |
| Year | 2015 |
| Type | Published Paper |
| Abstract | Stock market investment decisions of individuals are positively correlated with those of coworkers. Sorting of unobservably similar individuals to the same workplaces is unlikely to explain this pattern, as evidenced by the investment behavior of individuals who move between plants. Purchases made under stronger coworker purchase activity are not associated with higher returns. Moreover, social interaction appears to drive the purchase of within-industry stocks. Overall, we find a strong influence of coworkers on investment choices, but not an influence that improves the quality of investment decisions. |
| Keywords | Individual investors, peer effects, social interaction, investment decisions, stock selection |
| URL | https://doi.org/10.1016/j.jfineco.2015.06.004 |
| Tags | Archival Empirical | Financing- and Investment Decisions (Individual) | Propagation of Noise / Undesirable Outcomes |
Success in global venture capital investing: Do institutional and cultural differences matter?
| Authors | Nahata, Hazarika, Tandon |
| Journal | Journal of Financial and Quantitative Analysis |
| Year | 2015 |
| Type | Published Paper |
| Abstract | We analyze the impact of institutional and cultural differences on success in global venture capital (VC) investing. In both developed and emerging economies, superior legal rights (and enforcement) and better developed stock markets significantly enhance VC performance. Remarkably, cultural distance between countries of the portfolio company and its lead investor positively affects VC success. Further analysis reveals that cultural differences create incentives for rigorous ex ante screening, improving VC performance. Finally, local VC participation enhances success and mitigates foreign VCs' "liability of foreignness," albeit only in developed economies. Our findings follow from analyzing VC investments in nearly 10,000 companies across 30 countries. |
| Keywords | VC investing, cultural differences, institutional differences, stock market development, international evidence |
| URL | https://doi.org/10.1017/S0022109014000568 |
| Tags | Archival Empirical | Investment Decisions (Institutional) |