Social and cultural issues in finance
| Authors | Cronqvist |
| Journal | Journal of Financial and Quantitative Analysis |
| Year | 2018 |
| Type | Published Paper | Literature Review Paper |
| Keywords | Social networks, social capital, social preferences, financial decision, asset pricing, corporate governance |
| URL | https://www.cambridge.org/core/journals/journal-of-financial-and-quantitative-analysis/virtual-special-issues/jfqa-virtual-issue-2 |
| Tags | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) | Manager / Firm Behavior | Propagation of Noise / Undesirable Outcomes | Social Network Structure | Social Transmission Biases | Theory |
The promises and pitfalls of robo-advising
| Authors | D'Acunto, Prabhala, Rossi |
| Journal | Review of Financial Studies |
| Year | 2018 |
| Type | Published Paper |
| Abstract | We study the introduction of a wealth-management robo-adviser that constructs portfolios tailored to investors' holdings and preferences. Adopters are similar to non-adopters in terms of demographics and prior interactions with human advisers but tend to be more active and have greater assets under management. Investors adopting robo-advising experience diversification benefits. Ex ante undiversified investors increase stock holdings and hold portfolios with less volatility and better returns. Already well-diversified investors hold fewer stocks, yet see some reduction in volatility, and trade more after adoption. All investors increase attention based on online account logins. We find that adopters exhibit declines in prominent behavioral biases, including the disposition, trend chasing, and rank effect. Our results emphasize the promises and pitfalls of robo-advising tools, which are becoming ubiquitous all over the world. |
| Keywords | Investment decisions, technological innovation, portfolio management, behavioral biases |
| URL | https://academic.oup.com/rfs/article/32/5/1983/5427774?login=true |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) |
Historical antisemitism, ethnic specialization, and financial development
| Authors | D'Acunto, Prokopczuk, Weber |
| Journal | Review of Economic Studies |
| Year | 2018 |
| Type | Published Paper |
| Abstract | Historically, European Jews have specialized in financial services while being the victims of antisemitism. We find that the present-day demand for finance is lower in German counties where historical antisemitism was higher, compared to otherwise similar counties. Households in counties with high historical antisemitism have similar saving rates but invest less in stocks, hold lower saving deposits, and are less likely to get a mortgage to finance homeownership after controlling for wealth and a rich set of current and historical covariates. Present-day antisemitism and supply-side forces do not fully explain the results. Households in counties where historical antisemitism was higher distrust the financial sector more-a potential cultural externality of historical antisemitism that reduces wealth accumulation in the long run. |
| Keywords | Cultural economics, cultural finance, intergenerational transmission of norms, stereotypes, household finance, history & finance. |
| URL | https://doi.org/10.1093/restud/rdy021 |
| Tags | Archival Empirical | Evolutionary Finance | Financing- and Investment Decisions (Individual) |
Is fraud contagious? Coworker influence on misconduct by financial advisors
| Authors | Dimmock, Gerken, Graham |
| Journal | Journal of Finance |
| Year | 2018 |
| Type | Published Paper |
| Abstract | Using a novel data set of U.S. financial advisors that includes individuals' employment histories and misconduct records, we show that coworkers influence an individual's propensity to commit financial misconduct. We identify coworkers' effect on misconduct using changes in coworkers caused by mergers of financial advisory firms. The tests include merger-firm fixed effects to exploit the variation in changes to coworkers across branches of the same firm. The probability of an advisor committing misconduct increases if his new coworkers, encountered in the merger, have a history of misconduct. This effect is stronger between demographically similar coworkers. |
| URL | https://doi.org/10.1111/jofi.12613 |
| Tags | Archival Empirical | Propagation of Noise / Undesirable Outcomes |
Headline salience, managerial opportunism, and over-and underreactions to earnings
| Authors | Huang, Nekrasov, Teoh |
| Journal | The Accounting Review |
| Year | 2018 |
| Type | Published Paper |
| Abstract | Limited attention theory predicts that higher salience of earnings news implies a stronger immediate market reaction to earnings news and a weaker post-earnings announcement drift (PEAD) or reversal (PEAR). Using a new measure, SALIENCE, defined as the number of quantitative items in an earnings press release headline, we find strong evidence consistent with salience effects. Higher SALIENCE is associated with stronger announcement reaction and subsequent PEAR. Managers are more likely to choose higher SALIENCE before selling shares in the post-announcement period and when earnings are high, but less persistent, and to choose lower SALIENCE before stock option grants. The results are robust to using residual salience and an extended set of control variables. The findings are consistent with managers opportunistically headlining positive financial information in the earnings press release to incite over-optimism in investors with limited attention. |
| URL | https://doi.org/10.2308/accr-52010 |
| Tags | Archival Empirical | Manager / Firm Behavior | Media and Textual Analysis |
What happens in vegas stays on TripAdvisor? A theory and technique to understand narrativity in consumer reviews
| Authors | Laer, Escalas, Ludwig, Hende |
| Journal | Journal of Consumer Research |
| Year | 2018 |
| Type | Published Paper |
| Abstract | Many consumers base their purchase decisions on online consumer reviews. An overlooked feature of these texts is their narrativity: the extent to which they tell a story. The authors construct a new theory of narrativity to link the narrative content and discourse of consumer reviews to consumer behavior. They also develop from scratch a computerized technique that reliably determines the degree of narrativity of 190,461 verbatim, online consumer reviews and validate the automated text analysis with two controlled experiments. More transporting (i.e., engaging) and persuasive reviews have better-developed characters and events as well as more emotionally changing genres and dramatic event orders. This interdisciplinary, multimethod research should help future researchers (1) predict how narrativity affects consumers' narrative transportation and persuasion, (2) measure the narrativity of large digital corpora of textual data, and (3) understand how this important linguistic feature varies along a continuum. |
| Keywords | Automated text analysis, computational linguistics, consumer reviews, narrative persuasion, narrative transportation, storytelling |
| URL | https://doi.org/10.1093/jcr/ucy067 |
| Tags | Archival Empirical | Consumer Decisions | Media and Textual Analysis | Theory |
Teachers teaching teachers: The role of workplace peer effects in financial decisions
| Authors | Maturana, Nickerson |
| Journal | Review of Financial Studies |
| Year | 2018 |
| Type | Published Paper |
| Abstract | This paper studies the role of workplace peers in the transmission of information pertinent to an important household financial decision: the mortgage refinancing choice. Exploiting commonalities in teaching schedules of school teachers in Texas to identify peer groups, we find that refinancing activity among teachers' peers increases their likelihood of refinancing by 20.7%. The effect of peers increases with the potential savings realized upon refinancing and is stronger among younger teachers. Peers also affect teachers' choice of lender. Overall, our findings suggest that peer interactions greatly reduce a household's cost of acquiring and processing financial information. |
| URL | https://doi.org/10.1093/rfs/hhy136 |
| Tags | Archival Empirical | Financing- and Investment Decisions (Individual) |
The geography of financial misconduct
| Authors | Parsons, Sulaeman, Titman |
| Journal | Journal of Finance |
| Year | 2018 |
| Type | Published Paper |
| Abstract | Financial misconduct (FM) rates differ widely between major U.S. cities, up to a factor of 3. Although spatial differences in enforcement and firm characteristics do not account for these patterns, city-level norms appear to be very important. For example, FM rates are strongly related to other unethical behavior, involving politicians, doctors, and (potentially unfaithful) spouses, in the city. |
| URL | https://doi.org/10.1111/jofi.12704 |
| Tags | Archival Empirical | Propagation of Noise / Undesirable Outcomes |
The geography of financial misconduct
| Authors | Parsons, Sulaeman, Titman |
| Journal | Journal of Finance |
| Year | 2018 |
| Type | Published Paper |
| Abstract | Financial misconduct (FM) rates differ widely between major U.S. cities, up to a factor of 3. Although spatial differences in enforcement and firm characteristics do not account for these patterns, city-level norms appear to be very important. For example, FM rates are strongly related to other unethical behavior, involving politicians, doctors, and (potentially unfaithful) spouses, in the city. |
| Keywords | Corporate corruption, financial misconduct, peer effects, political fraud, white collar misconduct |
| URL | https://doi.org/10.1111/jofi.12704 |
| Tags | Archival Empirical | Manager / Firm Behavior | Theory |
Humblebragging: A distinct-and ineffective-self-presentation strategy
| Authors | Sezer, Gino, Norton |
| Journal | Journal of Personality and Social Psychology |
| Year | 2018 |
| Type | Published Paper |
| Abstract | Self-presentation is a fundamental aspect of social life, with myriad critical outcomes dependent on others' impressions. We identify and offer the first empirical investigation of a prevalent, yet understudied, self-presentation strategy: humblebragging. Across 9 studies, including a week-long diary study and a field experiment, we identify humblebragging-bragging masked by a complaint or humility-as a common, conceptually distinct, and ineffective form of self-presentation. We first document the ubiquity of humblebragging across several domains, from everyday life to social media. We then show that both forms of humblebragging-complaint-based or humility-based--are less effective than straightforward bragging, as they reduce liking, perceived competence, compliance with requests, and financial generosity. Despite being more common, complaint-based humblebrags are less effective than humility-based humblebrags, and are even less effective than simply complaining. We show that people choose to deploy humblebrags particularly when motivated to both elicit sympathy and impress others. Despite the belief that combining bragging with complaining or humility confers the benefits of each strategy, we find that humblebragging confers the benefits of neither, instead backfiring because it is seen as insincere. |
| Keywords | Humblebragging, impression management, self-presentation, interpersonal perception, sincerity |
| URL | https://doi.org/10.1037/pspi0000108 |
| Tags | Experimental / Survey-Based Empirical | Social Transmission Biases |
The spread of true and false news online
| Authors | Vosoughi, Roy, Aral |
| Journal | Science |
| Year | 2018 |
| Type | Published Paper |
| Abstract | We investigated the differential diffusion of all of the verified true and false news stories distributed on Twitter from 2006 to 2017. The data comprise ~126,000 stories tweeted by ~3 million people more than 4.5 million times. We classified news as true or false using information from six independent fact-checking organizations that exhibited 95 to 98% agreement on the classifications. Falsehood diffused significantly farther, faster, deeper, and more broadly than the truth in all categories of information, and the effects were more pronounced for false political news than for false news about terrorism, natural disasters, science, urban legends, or financial information. We found that false news was more novel than true news, which suggests that people were more likely to share novel information. Whereas false stories inspired fear, disgust, and surprise in replies, true stories inspired anticipation, sadness, joy, and trust. Contrary to conventional wisdom, robots accelerated the spread of true and false news at the same rate, implying that false news spreads more than the truth because humans, not robots, are more likely to spread it. |
| URL | https://doi.org/10.1007/978-981-16-3398-0_15 |
| Tags | Archival Empirical | Media and Textual Analysis | Propagation of Noise / Undesirable Outcomes | Social Transmission Biases |
Information networks: Evidence from illegal insider trading tips
| Authors | Ahern |
| Journal | Journal of Financial Economics |
| Year | 2017 |
| Type | Published Paper |
| Abstract | This paper exploits a novel hand-collected data set to provide a comprehensive analysis of the social relationships that underlie illegal insider trading networks. I find that inside information flows through strong social ties based on family, friends, and geographic proximity. On average, inside tips originate from corporate executives and reach buy-side investors after three links in the network. Inside traders earn prodigious returns of 35% over 21 days, with more central traders earning greater returns, as information conveyed through social networks improves price efficiency. More broadly, this paper provides some of the only direct evidence of person-to-person communication among investors. |
| URL | https://www.sciencedirect.com/science/article/abs/pii/S0304405X17300570 |
| Tags | Archival Empirical | Investment Decisions (Institutional) | Propagation of Noise / Undesirable Outcomes |
CEO tournaments: A cross-country analysis of causes, cultural influences, and consequences
| Authors | Burns, Minnick, Starks |
| Journal | Journal of Financial and Quantitative Analysis |
| Year | 2017 |
| Type | Published Paper |
| Abstract | Using a cross-country sample, we examine the chief executive officer (CEO) tournament structure (measured alternatively as the ratio and the difference of pay between the CEO and other top executives within a firm). We find the tournament structure to vary systematically with firm and country cultural characteristics. In particular, firm size and the cultural values of power distance, fair income differences, and competition are significantly associated with variations in tournament structures. We also establish support for the primary implication of tournament theory in that tournament structure tends to be positively related to firm value, even after controlling for endogeneity. |
| Keywords | CEO tournament structure, cultural values, firm decisions, firm values |
| URL | https://doi.org/10.1017/S0022109017000163 |
| Tags | Archival Empirical | Manager / Firm Behavior |
Moral incentives in credit card debt repayment: Evidence from a field experiment
| Authors | Bursztyn, Fiorin, Gottlieb, Kanz |
| Journal | Journal of Political Economy |
| Year | 2017 |
| Type | Published Paper |
| Abstract | We study the role of morality in debt repayment, using an experiment with the credit card customers of a large Islamic bank in Indonesia. In our main treatment, clients receive a text message stating that "non-repayment of debts by someone who is able to repay is an injustice." This moral appeal decreases delinquency by 4.4 percentage points from a baseline of 66 percent and reduces default among customers with the highest ex ante credit risk. Additional treatments help benchmark the effects against direct financial incentives and rule out competing explanations, such as reminder effects, priming religion, and provision of new information. |
| Keywords | Moral norm, financial behavior, field experiment |
| URL | https://doi.org/10.1086/701605 |
| Tags | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) |
Corporate environmental policy and shareholder value: Following the smart money
| Authors | Fernando, Sharfman and Uysal |
| Journal | Journal of Financial and Quantitative Analysis |
| Year | 2017 |
| Type | Published Paper |
| Abstract | We examine the value consequences of corporate social responsibility through the lens of institutional shareholders. We find a sharp asymmetry between corporate policies that mitigate the firm's exposure to environmental risk and those that enhance its perceived environmental friendliness ("greenness"). Institutional investors shun stocks with high environmental risk exposure, which we show have lower valuations, as predicted by risk management theory. These findings suggest that corporate environmental policies that mitigate environmental risk exposure create shareholder value. In contrast, firms that increase greenness do not create shareholder value and are also shunned by institutional investors. |
| Keywords | Corporate environmental policy, CSR, shareholder value, institutional investors, firm value |
| URL | https://doi.org/10.1017/S0022109017000680 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Investment Decisions (Institutional) | Manager / Firm Behavior |
Tweeting as a marketing tool: A field experiment in the TV industry
| Authors | Gong, Zhang, Zhao, Jiang |
| Journal | Journal of Marketing Research |
| Year | 2017 |
| Type | Published Paper |
| Abstract | Many businesses today have adopted tweeting as a new form of product marketing. However, whether and how tweeting affects product demand remains inconclusive. The authors explore this question using a randomized field experiment on Sina Weibo, the top tweeting website in China. The authors collaborate with a major global media company and examine how the viewing of its TV shows is affected by (1) the media company's tweets about its shows, and (2) recruited Weibo influentials' retweets of the company tweets. The authors find that both company tweets and influential retweets increase show viewing, but in different ways. Company tweets directly boost viewing, whereas influential retweets increase viewing if the show tweet is informative. Meanwhile, influential retweets are more effective than company tweets in bringing new Weibo followers to the company, which indirectly increases viewing. The authors discuss recommendations on how to manage tweeting as a marketing tool. |
| Keywords | Tweet, social media marketing, social media return on investment, field experiment, television |
| URL | https://doi.org/10.1509/jmr.14.0348 |
| Tags | Archival Empirical | Consumer Decisions | Manager / Firm Behavior | Media and Textual Analysis |
Trust busting: The effect of fraud on investor behavior
| Authors | Gurun, Stoffman, Yonker |
| Journal | Review of Financial Studies |
| Year | 2017 |
| Type | Published Paper |
| Abstract | We study the importance of trust in the investment advisory industry by exploiting the geographic dispersion of victims of the Madoff Ponzi scheme. Residents of communities that were exposed to the fraud subsequently withdrew assets from investment advisers and increased deposits at banks. Additionally, exposed advisers were more likely to close. Advisers who provided services that can build trust, such as financial planning advice, experienced fewer withdrawals. Our evidence suggests that the trust shock was transmitted through social networks. Taken together, our results show that trust plays a critical role in the financial intermediation industry. |
| Keywords | Social trust, investor behaviors, investment decisions, social networks, financial intermediaries |
| URL | https://doi.org/10.1093/rfs/hhx058 |
| Tags | Archival Empirical | Financing- and Investment Decisions (Individual) | Propagation of Noise / Undesirable Outcomes | Social Network Structure |
Social capital and debt contracting: Evidence from bank loans and public bonds
| Authors | Hasan, Hoi, Wu and Zhang |
| Journal | Journal of Financial and Quantitative Analysis |
| Year | 2017 |
| Type | Published Paper |
| Abstract | We find that firms headquartered in U.S. counties with higher levels of social capital incur lower bank loan spreads. This finding is robust to using organ donation as an alternative social capital measure and incremental to the effects of religiosity, corporate social responsibility, and tax avoidance. We identify the causal relation using companies with a social-capital-changing headquarters relocation. We also find that high-social-capital firms face loosened nonprice loan terms, incur lower at-issue bond spreads, and prefer public bonds over bank loans. We conclude that debt holders perceive social capital as providing environmental pressure that constrains opportunistic firm behaviors in debt contracting. |
| Keywords | Social capital, bank loan cost, firm's financing decisions, debt contracting, investors' decisions |
| URL | https://doi.org/10.1017/S0022109017000205 |
| Tags | Archival Empirical | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) | Manager / Firm Behavior |
It doesn't hurt to ask: Question-asking increases liking
| Authors | Huang, Yeomans, Brooks, Minson, Gino |
| Journal | Journal of Personality and Social Psychology |
| Year | 2017 |
| Type | Published Paper |
| Abstract | Conversation is a fundamental human experience that is necessary to pursue intrapersonal and interpersonal goals across myriad contexts, relationships, and modes of communication. In the current research, we isolate the role of an understudied conversational behavior: question-asking. Across 3 studies of live dyadic conversations, we identify a robust and consistent relationship between question-asking and liking: people who ask more questions, particularly follow-up questions, are better liked by their conversation partners. When people are instructed to ask more questions, they are perceived as higher in responsiveness, an interpersonal construct that captures listening, understanding, validation, and care. We measure responsiveness with an attitudinal measure from previous research as well as a novel behavioral measure: the number of follow-up questions one asks. In both cases, responsiveness explains the effect of question-asking on liking. In addition to analyzing live get-to-know-you conversations online, we also studied face-to-face speed-dating conversations. We trained a natural language processing algorithm as a "follow-up question detector" that we applied to our speed-dating data (and can be applied to any text data to more deeply understand question-asking dynamics). The follow-up question rate established by the algorithm showed that speed daters who ask more follow-up questions during their dates are more likely to elicit agreement for second dates from their partners, a behavioral indicator of liking. We also find that, despite the persistent and beneficial effects of asking questions, people do not anticipate that question-asking increases interpersonal liking. |
| URL | https://doi.org/10.1037/pspi0000097 |
| Tags | Experimental / Survey-Based Empirical | Social Transmission Biases |
Social screens and systematic investor boycott risk
| Authors | Luo, Balvers |
| Journal | Journal of Financial and Quantitative Analysis |
| Year | 2017 |
| Type | Published Paper |
| Abstract | We model the pricing implications of screens adopted by socially responsible investors. The model reproduces the empirically observed abnormal return to sin stock and implies a premium for systematic investor boycott risk that affects targeted as well as nontargeted firms. The investor boycott premium is not displaced by litigation risk, measures of neglect effect, illiquidity, industry momentum, or concentration. The investor boycott risk factor is useful in explaining mean returns across industries, and its premium varies with the relative wealth of socially responsible investors and the business cycle. |
| Keywords | Socially responsible investing, sin stocks, boycott risk premium, stock returns |
| URL | https://doi.org/10.1017/S0022109016000910 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Theory |