Latest Research Publications

Companies that provide a two-sided platform for users to proactively seek a match face great challenges in increasing matching efficiency and ensuring match quality. This paper examines how information designs can be used to improve matching outcomes when users derive utility from a match's vertical attribute (i.e., quality) and its horizontal attribute (i.e., idiosyncratic fit). We consider a game-theoretic model in which competing senders propose matching requests to competing receivers and users on the two sides are differentiated both horizontally and vertically. We first demonstrate that users' preference for the vertical attribute intensifies competition and hurts matching efficiency, and to avoid competition a sender may switch from a close receiver to a distant receiver even when the weight that he places on a match's horizontal closeness increases. Second, we examine four information designs in which one type of information from one side of the market is withheld. Designs that withhold either side's vertical information increase the number of matches, with the improvement from withholding receivers' information being greater. By contrast, designs that withhold either side's horizontal information can cause all requests to concentrate on one receiver and lead to the most severe match failure. Third, an increase in matching volume comes at the expense of certain users' welfare, as withholding one side's vertical information can hurt not only high-quality users on both sides but also the low-quality users on the opposite side. Although withholding one side's horizontal information may increase the matching volume under certain conditions, it can be Pareto dominated by a design that withholds one side's vertical information. Fourth, when strategic user pricing is involved, it not only redistributes user welfare but also corrects for matching distortion. Finally, in contrast to the result when strategic pricing is absent, when strategic pricing is present the platform withholding one side's vertical information can benefit all users on the opposite side, while withholding one side's horizontal information can benefit all users on the same side.

We develop a data-sales model to study the implications of alternative data for financial markets. Investors acquire skills to process the purchased raw data, and developing such skills is costly and involves considerable uncertainty. The data vendor controls the size of the data sample to influence the precision of the information investors can extract from the purchased data. Price informativeness is hump-shaped in skill-acquisition costs although the cost of capital and return volatility are U-shaped in skill-acquisition costs. Similar patterns can arise for skill mean and volatility. Our analysis suggests that the funds and data industries foster each other.

This paper studies how globalization affects the corporate tax policies of U.S. manufacturing firms. Using U.S.-granting China Permanent Normal Trade Relations as a quasi-natural experiment, we find a significant increase in tax reduction activities for firms facing higher exposure to Chinese imports. The effect is more pronounced for firms with higher managerial slack. We also find that the effect is stronger for firms in less diversified products market and faster changing industries. We also show that U.S. firms facing higher Chinese import competition are more likely to engage in other tax-motivated activities: acquisition of subsidiaries in low-tax regions and suspected transfer pricing. Furthermore, we explore the 2017 tax cut and the recent U.S.-China trade dispute and find that firms engage less in tax reduction activities after the 2017 tax cut and after the tariff increase for Chinese imports.

Views differ on whether individuals with a calling orientation toward work (i.e., seeing work as personally fulfilling and contributing to a better world) enjoy more favorable objective career outcomes, such as higher income and chance of promotion, versus those with a job orientation (i.e., seeing work as a means to a financial end). We suggest that the impasse is partially due to prior research’s exclusive focus on how work orientation affects one’s effort and subsequent job performance. Drawing on theories of signaling, cognitive biases, and reciprocity, we propose that calling-oriented employees enjoy better objective career outcomes than job-oriented employees via an external pathway: managers misperceive employees’ calling orientation as evidence of better performance and stronger organizational commitment. In Study 1—analyses of the Wisconsin Longitudinal Study—we find support for the main effect, and in Study 2—an online experiment—we constructively replicate this effect and find evidence for our predicted explanatory mechanisms. Furthermore, observing a calling-oriented employee prompts managers to perceive them more favorably in other domains, creating a halo effect. Our research sheds light on how individuals’ subjective view of the meaning of work influences their objective career success, highlighting workplace signals and managerial perceptions as important mechanisms.

We re-examine the puzzling pattern of lead-lag returns among economically-linked firms. Our results show that investors consistently underreact to information from lead firms that arrives continuously, while information with the same cumulative returns arriving in discrete amounts is quickly absorbed into price. This finding holds across many different types of economic linkages, including shared-analyst-coverage. We conclude that the ǣfrog in the panǥ (FIP) momentum effect is pervasive in co-momentum settings, suggesting that information discreteness (ID) serves as a cognitive trigger that reduces investor inattention and improves inter-firm news transmission.

A large literature in neuroscience and social psychology shows that humans are wired to be meticulous about how they are perceived by others. In this paper, we propose that impression management considerations can also end up guiding the content that investors transmit via word of mouth and inadvertently lead to the propagation of noise. We analyze server log data from one of the largest investment-related websites in the United States. Consistent with our proposition, we find that investors more frequently share articles that are more suitable for impression management despite such articles less accurately predicting returns. Additional analyses suggest that high levels of sharing can lead to overpricing.

We examine takeover auctions when an informed bidder has better information about the target value than a rival and target shareholders. The informed bidder’s information is either hard or soft, and only hard information can be credibly disclosed. We show that withholding information creates a winner’s curse, thereby serving as a preemption device that deters the rival’s participation. In turn, an endogenous dis- closure cost arises that induces the informed bidder to optimally withhold favorable information to minimize the acquisition price—breaking down the standard unraveling result, even if his information is always hard. Perhaps surprisingly, stronger competition from the uninformed bidder can reduce the target shareholders’ payoff and increase the payoff of the informed bidder while unambiguously improving social welfare. Moreover, “hardened” information can reduce the gains to trade, decreasing welfare but increasing shareholders’ payoff. Our results provide a cautionary note to promoting more competition and more disclosure.

We examine how investor demand for leverage shapes asset management fees. We show that in the sample of U.S. equity mutual funds: (1) fees increase in fund market beta precisely for beta larger than one; (2) this relation becomes stronger and high-beta funds experience larger inflows when leverage constraints tighten; and (3) low net alphas are especially common among high-beta funds. These results are consistent with a model in which asset managers compete for leverage-constrained investors with heterogeneous risk aversion. The asymmetric relation between betas and fees also extends to the HML and SMB factors.

We investigate the real effects of foreign exchange (FX) volatility on technological innovation. Using a 32-market, three-decade sample, we show that heightened FX volatility associates with significantly lower firm-level R&D expenditures, patents granted, and forward citations. The negative FX volatility-innovation relation can be attributed to precautionary savings needs and trade slowdown. The relationship is stronger for firms with financial constraints, with the use of foreign debt, and in more open economies; it is weaker for firms with derivatives hedging, with higher sales, and in countries with better financial development.