Labor reactions to credit deterioration: Evidence from LinkedIn activity
| Authors | Gortmakers, Jeffers, Lee |
| Year | 2021 |
| Type | Working Paper |
| Abstract | We examine worker reactions to firms' credit deterioration using anonymized networking activity on LinkedIn. In the weeks immediately following a negative credit event, connection activity increases at affected firms across the credit rating distribution, pointing to costs beyond those originating from bankruptcy. Heightened networking activity is associated with contemporaneous and future departures, especially at highly-rated firms. Other negative events like missed earnings and equity sell recommendations do not trigger similar reactions. Overall, our results indicate that the latent build-up of connections triggered by credit deterioration represents a source of fragility for firms. |
| Keywords | Network formation, credit ratings, credit deterioration, labor & finance |
| URL | https://ssrn.com/abstract=3456285 |
| Tags | Archival Empirical |
Social networks and market reactions to earnings news
| Authors | Hirshleifer, Peng, Wang |
| Year | 2021 |
| Type | Working Paper |
| Abstract | Using social network data from Facebook, we show that earnings announcements made by firms located in counties with higher investor social network centrality attract more attention from both retail and institutional investors. For such firms, the immediate price and volume reactions to earnings announcements are stronger, and post-announcement drift is weaker. Such firms have lower post-announcement persistence of return volatility but higher persistence in investor attention and trading volume. These effects are stronger for small firms, firms with poor analyst and media coverage, and for stocks with salient returns. Our evidence suggests a dual role of social networks-they facilitate the incorporation of public information into prices, but also trigger persistent excessive trading. |
| Keywords | Social networks, investor attention, earnings announcement, information diffusion, disagreement |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3824022 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) | Media and Textual Analysis | Propagation of Noise / Undesirable Outcomes | Social Network Structure |
The rise of Reddit: How social media affects retail investors and short-sellers' roles in price discovery
| Authors | Hu, Jones, Zhang, Zhang |
| Year | 2021 |
| Type | Working Paper |
| Abstract | Using 2020-2021 data from social media platform Reddit, we examine connections among stock prices, retail trading, short-selling and social media activity. Higher Reddit traffic, more positive tone, and higher Reddit connectedness predict higher returns, greater and more positive retail order flow, and lower shorting flows the next day. Social media information content is distinct from retail order and shorting information content. Higher Reddit traffic, more positive tone, more disagreement and higher Reddit connectedness increase shorting flow's information content. Robinhood 50 stocks are more affected by social media activity, with stronger links among retail order flow, shorting flows and future returns. |
| Keywords | Social media, short selling, intraday trading, retail investors |
| URL | https://ssrn.com/abstract=3807655 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Media and Textual Analysis |
The salience of entrepreneurship: Evidence from online business
| Authors | Huang, Lin, Liu, Manso |
| Year | 2021 |
| Type | Working Paper |
| Abstract | We study the psychological bias underlying the decision to become an entrepreneur in the online business context. Using entrepreneurs affiliated with Taobao Marketplace, the worldâÂÂs largest online shopping platform, as our sample, we find that people who observe the emergence of successful stores in their neighborhood are more likely to become online entrepreneurs. Relying on the Taobao store rating system and detailed geographical information for identification, we find that in rural areas of China, an increase in the online rating (upgrade event) of a store leads to a significant increase in the number of new stores within a 0.5-km radius. This effect increases with the magnitude of the upgrade event, decreases with physical distance from the focal store and is robust to a wide range of rigorous model specifications. However, such decisions to enter the market may be suboptimal, as entrants whose entrepreneurs are motivated by these upgrade events underperform relative to their peers in terms of sales and have a higher probability of market exit. Overall, our results are most consistent with salience theories of choice and cannot be explained by regional development or rational learning. |
| Keywords | Entrepreneurship, peer effect, salience theory, availability heuristic |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3843524 |
| Tags | Archival Empirical | Experimental / Survey-Based Empirical | Propagation of Noise / Undesirable Outcomes | Social Network Structure |
The impact of restricting labor mobility on corporate investment and entrepreneurship
| Authors | Jeffers |
| Year | 2021 |
| Type | Working Paper |
| Abstract | This paper examines how labor frictions affect investment rate and new firm entry. Using matched employee-employer data from LinkedIn, I first show that increases in the enforceability of non-compete agreements lead to widespread declines in employee departures across seniority levels, driven by workers in knowledge-intensive occupations. Investment rates at existing firms increase, especially for firms that employ more skilled workers. This comes at the expense of new firm entry, which declines substantially in knowledge-intensive sectors. The results suggest that labor frictions play an important role in investment decisions, and that NCs may factor into slowing business dynamism. |
| Keywords | Labor mobility, entrepreneurship, investment, non-competes, human capital |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3040393 |
| Tags | Archival Empirical | Investment Decisions (Institutional) | Manager / Firm Behavior | Media and Textual Analysis |
CEO social media presence and insider trading
| Authors | Li, Liang, Tang |
| Year | 2021 |
| Type | Working Paper |
| Abstract | Prior research finds that online social media usage may lower self-control and encourage indulgent behavior in laboratory subjects. We find that corporate CEOs show similar tendencies: CEOs with online social media presence are more likely to succumb to lower self-control and abuse their information advantage to profit from unethical insider trades. Specifically, CEOs' social media presence strongly predicts their insider trading activity in terms of incidence, intensity (amount and frequency), and profitability. We further find that the effect is driven by insider buys (not by sells) and is more pronounced for opportunistic buys which tend to contain more material non-public information. |
| Keywords | Insider trading, social media, CEO misconduct, business ethics |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3909886&dgcid=ejournal_htmlemail_behavioral:experimental:finance:(editor%27s:choice):ejournal_abstractlink |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Manager / Firm Behavior | Propagation of Noise / Undesirable Outcomes | Social Network Structure |
Economic narratives and market outcomes: A semi-supervised topic modeling approach
| Authors | Mai, Pukthuanthong |
| Year | 2021 |
| Type | Working Paper |
| Abstract | We employ sLDA to extract the narratives discussed by Shiller (2019) from 7 million NYT articles over 150 years. The estimation addresses look-ahead bias and changes in semantics. Panic and the narrative index positively predict market return and negatively predict volatility. Panic presents time-varying risk aversion. The narrative predictability increases recently at both market and portfolio and monthly and daily intervals. The narrative index constructed from 2 million WSJ articles over 130 years retains its predictive power, but Stock Bubble emerges as a negative market predictor. Media customizes their narratives to their readers, having a diverse effect on the market. |
| Keywords | Narratives, LDA, topic modeling, predictability, textual analysis, history |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3990324 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Media and Textual Analysis |
Folklore
| Authors | Michalopoulos, Xue |
| Year | 2021 |
| Type | Working Paper |
| Abstract | Folklore is the collection of traditional beliefs, customs, and stories of a community passed through the generations by word of mouth. We introduce to economics a unique catalogue of oral traditions spanning approximately 1,000 societies. After validating the catalogue's content by showing that the groups' motifs reflect known geographic and social attributes, we present two sets of applications. First, we illustrate how to fill in the gaps and expand upon a group's ethnographic record, focusing on political complexity, high gods, and trade. Second, we discuss how machine learning and human-classification methods can help shed light on cultural traits, using gender roles, attitudes towards risk, and trust as examples. Societies with tales portraying men as dominant and women as submissive tend to relegate their women to subordinate positions in their communities, both historically and today. More risk-averse and less entrepreneurial people grew up listening to stories where competitions and challenges are more likely to be harmful than beneficial. Communities with low tolerance towards antisocial behavior, captured by the prevalence of tricksters getting punished, are more trusting and prosperous today. These patterns hold across groups, countries, and second- generation immigrants. Overall, the results highlight the significance of folklore in cultural economics, calling for additional applications. |
| URL | https://www.nber.org/system/files/working_papers/w25430/w25430.pdf |
| Tags | Archival Empirical |
Game stops not yet. Investors' behavior in the post-pandemic times
| Authors | Milovidov |
| Year | 2021 |
| Type | Working Paper | Literature Review Paper |
| Abstract | The first twenty years of the 21st century were a period of transformation and change in the development models of the financial market. One of the strongest in the history world financial crises of 2007-2008 ended the post-deregulation model. Transition to the new financial market model turned out to be largely unpredictable, complex, and spontaneous, unlike the previous periods, without the purposeful participation of state regulators. An objective but random reason for this course of events was the COVID-19 pandemic. Pandemic has distorted the effect of the loose monetary policy, which caused building the grounds for a new financial market model. The post-pandemic model of the financial market is still in the early stages of formation, and it is too early to talk about all its properties and elements. However, as seen from current events and processes, the essential factor of the new financial market model formation is a gamification of investors' behavior. The author believes this behavioral model requires much more attention of researches than that in nowadays scientific literature. |
| Keywords | Financial market, investors' behavior, household finance, monetary policy, personal savings, post-pandemic, emotional communities, wallstreetbets, attention-induced trading, gamification |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3905795 |
| Tags | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Social Network Structure |
Game on: Social networks and markets
| Authors | Pedersen |
| Year | 2021 |
| Type | Working Paper |
| Abstract | I present closed-form solutions for prices, portfolios, and beliefs in a model where four types of investors trade assets over time: naive investors who learn via a social network, "fanatics" possibly spreading fake news, rational short-term investors, and long-term investors. I show that fanatic and rational views dominate over time due to echo-chamber effects, and their relative importance depends on their following by influencers. Securities markets exhibit social network spillovers, large effects of influencers and thought leaders, bubbles, bursts of high volume, price momentum, fundamental momentum, and reversal. The model sheds new light on the GameStop event, historical bubbles, and asset markets more generally. |
| Keywords | Echo chambers, networks, influencers, fake news, social media, bubbles, asset prices, belief formation |
| URL | http://dx.doi.org/10.2139/ssrn.3794616 |
| Tags | Financing- and Investment Decisions (Individual) | Propagation of Noise / Undesirable Outcomes | Social Network Structure | Theory |
Social ties and peer effects in crowdfunding markets
| Authors | Peng, Zhang |
| Year | 2021 |
| Type | Working Paper |
| Abstract | We identify the crucial role social networks play in crowdfunding markets. Investors are 50% more likely to fund projects that their social network peers support and are 11.2% more likely to fund projects from regions to which they have strong social ties, given a one standard deviation change in the variables. Peer effects complement platform design choices and the effect of social ties, and social ties transmit information about economic conditions in project locations. Further, the investor-level effects aggregate and affect project funding successes. Our findings suggest that social networks increase investor awareness, disseminate information, and have real impacts on capital allocations. |
| Keywords | Social network, peer effects, social learning, fintech, crowdfunding, platform design |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3747375 |
| Tags | Archival Empirical | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) | Social Network Structure |
Partisan return gap: The polarized stock market in the time of a pandemic
| Authors | Sheng, Sun, Wang |
| Year | 2021 |
| Type | Working Paper |
| Abstract | Using two proxies for investors' political affiliation, we document sharp differences in stock returns between firms likely dominated by Democratic investors (blue stocks) and those dominated by Republican investors (red stocks) during the COVID pandemic. Red stocks have 20 basis points higher risk-adjusted returns than blue stocks on COVID news days (Partisan Return Gap). Lockdown policies, COVID cases, industry and firm fundamentals only explain at most 25% of the return gap. Polarized political beliefs about COVID, revealed through people's social distancing behaviors and their Stock-Twits, contribute to about 40% of the return gap beyond the fundamental channel. Our paper provides partisanship as a novel aspect in understanding abnormal stock returns during the pandemic. |
| Keywords | Partisanship, stock returns, pandemic, COVID-19, political polarization, political finance, social finance |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3809575 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) | Social Network Structure |
CEO partisan bias and management earnings forecast bias
| Authors | Stuart, Wang, Willis |
| Year | 2021 |
| Type | Working Paper |
| Abstract | Political science research finds that individuals exhibit partisan bias, which results in unduly favorable economic expectations when their partisanship aligns with that of the US president. We examine whether partisan bias is present in management earnings forecasts, where CEOs have strong incentives to provide high-quality forecasts. We find that firms with CEOs whose partisanship aligns with that of the US president issue more optimistically biased management earnings forecasts than CEOs whose partisanship is unknown or not aligned with that of the US president. Our results suggest that CEOs fall prey to partisan bias, which results in suboptimal forecasting behavior. In cross-sectional analyses, we find that this forecast over-optimism is attenuated when CEOs are of higher ability. Additionally, we find that investors fail to discount the news in forecasts issued by CEOs whose partisanship aligns with that of the US president and that post-forecast abnormal returns are lower for these firms. |
| Keywords | Political bias, cognitive bias, management earnings forecasts, voluntary disclosure |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2902088 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Manager / Firm Behavior |
Community membership and reciprocity in lending: Evidence from informal markets
| Authors | Tomy, Moerman |
| Year | 2021 |
| Type | Working Paper |
| Abstract | We study how wholesalers assess credit risk and extend trade credit to retailers in informal economies where market institutions, such as financial reporting systems, auditing, and courts, are nonexistent or function poorly. Using the setting of a large market in India, we find that community membership plays a strong role in the access to credit. Wholesalers are more likely to provide trade credit and to offer less restrictive credit terms to within-community retailers, and are more lenient when these retailers default. Our findings suggest that an indirect reciprocity mechanism explains within-community credit flows, as evidenced by wholesalers with low endowments, those with greater within-community information flows about them, and those facing income shocks being more likely to provide preferential lending to their community retailers. The importance of the indirect reciprocity mechanism is further supported by evidence on the help traders receive from their community members following the COVID-19-related income shock. |
| Keywords | Trade credit, informal economies, lending, reciprocity, India, Iewduh, community enforcement, asymmetric information |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3773160&dgcid=ejournal_htmlemail_chicago:booth:famamiller:working:paper:series_abstractlink |
| Tags | Archival Empirical | Theory |
Entrepreneurial spillovers across coworkers
| Authors | Wallskog |
| Year | 2021 |
| Type | Working Paper |
| Abstract | Using large-scale administrative data, I track the employment and entrepreneurship of over forty million Americans and investigate entrepreneurial spillovers across coworkers, based on the idea that individuals who start their own firms learn institutional knowledge and entrepreneurial skills that they may teach others. I find that an individual whose current coworkers have more prior entrepreneurship experience is more likely to become an entrepreneur themself within the next five years, and these spillovers are strongest among workers with similar jobs and demographics. Furthermore, an individual is more likely to become a successful entrepreneur if those coworkers were themselves successful entrepreneurs. To quantify the role of these spillovers, I build a structural model of entrepreneurship and learning and estimate that the aggregate entrepreneurship rate would be 10% lower in the absence of learning. |
| URL | https://wallskog.su.domains/files/wallskog_jmp.pdf |
| Tags | Archival Empirical | Manager / Firm Behavior | Productivity Spillovers |
Investor attention or investor sentiment: How does social media react to ESG?
| Authors | Zhang, Xu, Hong |
| Year | 2021 |
| Type | Working Paper |
| Abstract | The ESG (environmental, social, and governance) practice has become very important in contemporary business and it is believed to have a significant impact on firm value. However, there still lacks a consensus on the underlying mechanism connecting ESG and firm value. We argue that ESG can impact firm value through two possible channels:investor attention and investor sentiment. Exploiting user-generated content from a popular online investment community (Seeking Alpha) and ESG ratings from a professional database (Sustainalytics), we run a fixed-effect panel regression and find an overall positive relationship between ESG ratings and investor attention but no relationship between ESG ratings and investor sentiment. We then conduct an event-study analysis, in which we classify changes in ESG ratings as upgrade events and downgrade events and find that the significant relationship between ESG and investor attention still holds for the downgrade events but not for the upgrade ones. We conduct various robustness checks, on both ESG and investor attention, to rule out potential effects of other factors, such as firm size, debt, intangible assets, and profitability. Our further mechanism analysis reveals that the effect of ESG ratings on investor attention is driven by the social and governance factors rather than the environmental factors. Our work makes both theoretical and practical contributions by identifying the channel through which ESG affects firm value in the age of social media. |
| Keywords | ESG, investor attention, investor sentiment, social media, online investment communities |
| URL | https://ssrn.com/abstract=3905195 |
| Tags | Archival Empirical | Media and Textual Analysis |
Social networks and credit supply and demand
| Authors | Allen, Peng, Shan |
| Year | 2020 |
| Type | Working Paper |
| Abstract | Social networks are associated with the demand for and supply of consumer and small business loans originated on lending marketplaces. Loan demand increases substantially with past borrowing activities of geographically distant but socially connected areas, with an elasticity of 0.21. Borrower-area social proximity to deposits increases funding likelihood by 5.61% and improves ex-post loan performance. We establish causality with granular instrumental variables obtained from natural disasters (demand-side) and financial adviser misconduct (supply-side). The results suggest social networks improve capital allocation by increasing the awareness of alternative lending platforms and facilitating the transmission of less accessible information complementary to loan-specific data. |
| Keywords | Social network, online lending marketplaces, credit demand and supply, information transmission |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3537714 |
| Tags | Archival Empirical | Consumer Decisions | Financing- and Investment Decisions (Individual) | Social Network Structure |
Investor memory
| Authors | Godker, Jiao, Smeets |
| Year | 2020 |
| Type | Working Paper |
| Abstract | How does memory shape individuals' financial decisions? We find experimental evidence of a self-serving memory bias. Subjects over-remember their own positive investment outcomes and under-remember negative ones. In contrast, subjects who did not invest but merely observed outcomes do not have this bias. The memory bias affects individual beliefs and decisions to re-invest. After investing, subjects form overly optimistic beliefs about their investment and re-invest even when doing so leads to a lower expected return. The memory bias is relevant for understanding how people learn from experiences in financial markets and has general implications for individual overconfidence and risk-taking. |
| Keywords | Memory, selective recall, beliefs, self-image, investor behavior, experimental finance |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3348315 |
| Tags | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) | Social Transmission Biases |
Social collateral
| Authors | Nguyen, Dang |
| Year | 2020 |
| Type | Working Paper |
| Abstract | This paper studies the role of social stigma in debt repayment decisions, using a randomized field experiment with the borrowers of a retail bank. In our experiment, borrowers are randomly chosen to have their repayment status shared with an observer who is also randomly selected from a pre-existing list of the borrower's social connections. First, we find that receiving the social disclosure treatment significantly reduces delinquency, by 20% of the base rate. Second, estimates from the benchmarking treatments indicate that borrowers are willing to pay 9% of their monthly income to preserve their social image, not significantly less than they would pay to maintain a good credit report. Third, we combine the random variation in the assigned social contexts with heterogeneity in subject characteristics to examine why borrowers respond to reputational incentives. We find that borrowers are concerned that the revelation of delinquency can make them a less attractive match in social interactions such as in the labor market or the marriage market, i.e., the instrumental role of reputation. Our findings highlight the role of social social collateral as an alternative mechanism to enforce lending contracts and expand credit provision. |
| Keywords | Bank borrowing, social disclosure, reputational costs, debt repayment decision, social networks |
| URL | https://finance.darden.virginia.edu/wp-content/uploads/2020/08/Social-Collateral_062020.pdf |
| Tags | Archival Empirical | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) | Social Network Structure |
Identity and choice under risk
| Authors | D'Acunto |
| Year | 2019 |
| Type | Working Paper |
| Abstract | I test a set of predictions that constitute an identity theory of choice under risk using large-scale artefactual field experiments. Men whose identity is primed or threatened invest more in risky opportunities than other men and women. They become overconfident even in pure games of chance with no scope for skill, which is consistent with the motivated-beliefs channel identity theory postulates. The effects are stronger for men who are more likely to commit to male identity - older men and men in the Southern US. I show identity theory can contribute to explain negative-expected-value investment by risk-averse agents (e.g., trading individual stocks) and overinvestment in delegated choice under risk (e.g., managerial overinvestment) using simple financial opportunities. Because behaving in line with their identity increases men's utility, departures from expected utility theory are not necessarily suboptimal in this identity theory of choice under risk. |
| Keywords | Cultural finance, expectations, motivated beliefs, behavioral finance, overconfidence, financial decision-making, risk attitudes, heterogeneous agents, cultural economics |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3466626 |
| Tags | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) |