Working Papers

Online Reputation and Debt Capacity

with Alexandre Garel, Arthur Petit-Romec and Jean-Philppe Weisskopf

This paper explores the effects of online customer ratings on financial policy. Using a large sample of Parisian restaurants, we find a positive and economically significant relation between customer ratings and bank debt. We use the locally exogenous variations in customer ratings resulting from the rounding of scores in regression discontinuity tests to establish causality. Customer ratings have more impact on debt when information asymmetry is higher. They affect financial policy through a reduction in cash flow risk and greater resilience to demand shocks. Restaurants with good ratings use their extra debt to invest in tangible assets.

Set-up Costs and the Financing of Young Firms

with Jean-Stéphane Mésonnier and Guillaume Vuillemey

We show that set-up costs are a key determinant of the capital structure of young firms. Theoretically, when firms face high set-up costs, they can only be established by lengthening debt maturity. Empirically, we use a large sample of French firms to show that young firms have a significantly higher leverage and issue longer-maturity debt than seasoned companies. As predicted by the model, these patterns are stronger in high set-up cost industries and for firms with lower profitability. Last, we show that, following an exogenous shock that reduces banks’ supply of long-term loans, young firms in high set-up cost industries grow significantly less.

Labor Force Demographics and Corporate Innovation

with Ambrus Kesckés and Phuong-Anh Nguyen

We argue that a younger labor force produces more innovation. Using the native born labor force projected based on historical births, we find that a younger age structure causes a significant increase in innovation. We use three levels of analysis in succession – commuting zones, firms, and inventors – to examine or eliminate various effects such as firm and inventor life cycles. We also find that innovation activities reflect the innovative characteristics of younger labor forces. Our results indicate that demographics increase innovation through the labor supply channel rather than through a financing supply or consumer demand channel.

Industry Asset Revaluations Around Public and Private Acquisitions

with Laurent Frésard, Victoria Slabik, and Philip Valta

Revaluations of industry peers around horizontal acquisitions are negative when targets are private, but positive when they are public. We posit this “revaluation spread” arises because acquiring managers favor private targets when public firms are overvalued. Targets’ ownership status thus conveys information about industry assets’ misvaluation, and triggers predictable revaluations. Supporting this idea, the “revaluation spread” is larger when peers’ valuations deviate more from fundamentals, varies with overall market misvaluation, predicts future industry returns, and is unrelated to peers’ and industries’ fundamentals. Our findings suggest an active market for real assets fosters the ability of stock prices to reflect fundamentals.

The Unintended Consequences of Regulations in Emerging Financial Market: Evidence from the Chinese IPO Market

with Xiaohui Wu, Qi Zeng, and Yan Zhang

This paper explores the impact of regulations imposed by Chinese authorities on the development of the Chinese IPO market. Because of limits on prices and proceeds, the Chinese IPO market does not attract companies that need cash the most. Some regulations exclude firms from the domestic IPO market. Others induce firms with large growth options to list abroad. Some IPO firms that raise large amounts of cash decide to pay large dividends shortly after going public. Investors interpret this behaviour as evidence that they overestimated the growth options of these firms at the time of their IPO and react accordingly.

Do Analysts’ Preferences Affect Corporate Policies?

with François Degeorge, Ambrus Kecskes, and Sébastien Michenaud

Equity research analysts tend to cover firms about which they have favorable views. We exploit this tendency to infer analysts’ preferences for corporate policies from their coverage decisions. We then use exogenous analyst disappearances to examine the effect of these preferences on corporate policies. After an analyst disappears, firms change their policies in the direction opposite to the analyst’s preferences. The influence of analyst preferences on policies is stronger for firms for which analyst coverage is likely to matter more: young firms, and firms with higher market valuations. Our results suggest that firms choose their corporate policies, in part, to be consistent with the preferences of their analysts.