The U.S. system of securities law was designed more than 70 years ago to regain investors' trust after a major financial crisis. Today we face a similar problem. But while in the 1930s the prevailing ...perception was that investors had been defrauded by offerings of dubious quality securities, in the new millennium, investors' perception is that they have been defrauded by managers who are not accountable to anyone. For this reason, I propose a series of reforms that center around corporate governance, while shifting the focus from the protection of unsophisticated investors in the purchasing of new securities issues to the investment in mutual funds, pension funds, and other forms of asset management.
How stereotypes impair women's careers in science Reuben, Ernesto; Sapienza, Paola; Zingales, Luigi
Proceedings of the National Academy of Sciences - PNAS,
03/2014, Letnik:
111, Številka:
12
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Women outnumber men in undergraduate enrollments, but they are much less likely than men to major in mathematics or science or to choose a profession in these fields. This outcome often is attributed ...to the effects of negative sex-based stereotypes. We studied the effect of such stereotypes in an experimental market, where subjects were hired to perform an arithmetic task that, on average, both genders perform equally well. We find that without any information other than a candidate's appearance (which makes sex clear), both male and female subjects are twice more likely to hire a man than a woman. The discrimination survives if performance on the arithmetic task is self-reported, because men tend to boast about their performance, whereas women generally underreport it. The discrimination is reduced, but not eliminated, by providing full information about previous performance on the task. By using the Implicit Association Test, we show that implicit stereotypes are responsible for the initial average bias in sex-related beliefs and for a bias in updating expectations when performance information is self-reported. That is, employers biased against women are less likely to take into account the fact that men, on average, boast more than women about their future performance, leading to suboptimal hiring choices that remain biased in favor of men.
Who Blows the Whistle on Corporate Fraud? DYCK, ALEXANDER; MORSE, ADAIR; ZINGALES, LUIGI
The Journal of finance (New York),
December 2010, Letnik:
65, Številka:
6
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To identify the most effective mechanisms for detecting corporate fraud, we study all reported fraud cases in large U.S. companies between 1996 and 2004. We find that fraud detection does not rely on ...standard corporate governance actors (investors, SEC, and auditors), but rather takes a village, including several nontraditional players (employees, media, and industry regulators). Differences in access to information, as well as monetary and reputational incentives, help to explain this pattern. In-depth analyses suggest that reputational incentives in general are weak, except for journalists in large cases. By contrast, monetary incentives help explain employee whistleblowing.
Innovation and Institutional Ownership Aghion, Philippe; Van Reenen, John; Zingales, Luigi
The American economic review,
02/2013, Letnik:
103, Številka:
1
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We find that greater institutional ownership is associated with more innovation. To explore the mechanism, we contrast the "lazy manager" hypothesis with a model where institutional owners increase ...innovation incentives through reducing career risks. The evidence favors career concerns. First, we find complementarity between institutional ownership and product market competition, whereas the lazy manager hypothesis predicts substitution. Second, CEOs are less likely to be fired in the face of profit downturns when institutional ownership is higher. Finally, using instrumental variables, policy changes, and disaggregating by type of institutional owner, we argue that the effect of institutions on innovation is causal.
Trusting the Stock Market GUISO, LUIGI; SAPIENZA, PAOLA; ZINGALES, LUIGI
The Journal of finance (New York),
December 2008, Letnik:
63, Številka:
6
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We study the effect that a general lack of trust can have on stock market participation. In deciding whether to buy stocks, investors factor in the risk of being cheated. The perception of this risk ...is a function of the objective characteristics of the stocks and the subjective characteristics of the investor. Less trusting individuals are less likely to buy stock and, conditional on buying stock, they will buy less. In Dutch and Italian micro data, as well as in cross-country data, we find evidence consistent with lack of trust being an important factor in explaining the limited participation puzzle.
Does Culture Affect Economic Outcomes? Guiso, Luigi; Sapienza, Paola; Zingales, Luigi
The Journal of economic perspectives,
04/2006, Letnik:
20, Številka:
2
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Until recently, economists have been reluctant to rely on culture as a possible determinant of economic phenomena. Much of this reluctance stems from the very notion of culture: it is so broad and ...the channels through which it can enter the economic discourse so ubiquitous (and vague) that it is difficult to design testable, refutable hypotheses. In recent years, however, better techniques and more data have made it possible to identify systematic differences in people's preferences and beliefs and to relate them to various measures of cultural legacy. These developments suggest an approach to introducing culturally-based explanations into economics that can be tested and may substantially enrich our understanding of economic phenomena. This paper summarizes this approach and its achievements so far, and outlines directions for future research.
Women are generally more risk averse than men. We investigated whether between- and within-gender variation in financial risk aversion was accounted for by variation in salivary concentrations of ...testosterone and in markers of prenatal testosterone exposure in a sample of >500 MBA students. Higher levels of circulating testosterone were associated with lower risk aversion among women, but not among men. At comparably low concentrations of salivary testosterone, however, the gender difference in risk aversion disappeared, suggesting that testosterone has nonlinear effects on risk aversion regardless of gender. A similar relationship between risk aversion and testosterone was also found using markers of prenatal testosterone exposure. Finally, both testosterone levels and risk aversion predicted career choices after graduation: Individuals high in testosterone and low in risk aversion were more likely to choose risky careers in finance. These results suggest that testosterone has both organizational and activational effects on risk-sensitive financial decisions and long-term career choices.
In Search of New Foundations Zingales, Luigi
The Journal of finance (New York),
August 2000, Letnik:
55, Številka:
4
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In this paper I argue that corporate finance theory, empirical research, practical applications, and policy recommendations are deeply rooted in an underlying theory of the firm. I also argue that ...although the existing theories have delivered very important and useful insights, they seem to be quite ineffective in helping us cope with the new type of firms that is emerging. I outline the characteristics that a new theory of the firm should satisfy and how such a theory could change the way we do corporate finance, both theoretically and empirically.
The revenues of large companies often rival those of national governments, and some companies have annual revenues higher than many national governments. Among the largest corporations in 2015, some ...had private security forces that rivaled the best secret services, public relations offices that dwarfed a US presidential campaign headquarters, more lawyers than the US Justice Department, and enough money to capture (through campaign donations, lobbying, and even explicit bribes) a majority of the elected representatives. The only powers these large corporations missed were the power to wage war and the legal power of detaining people, although their political influence was sufficiently large that many would argue that, at least in certain settings, large corporations can exercise those powers by proxy. Yet in economics, the commonly prevailing view of the firm ignores all these elements of politics and power. We must recognize that large firms have considerable power to influence the rules of the game. I call attention to the risk of a “Medici vicious circle,” in which economic and political power reinforce each other. The possibility and extent of a “Medici vicious circle” depends upon several nonmarket factors. I discuss how they should be incorporated in a broader “Political Theory” of the firm.
Academics' view of the benefits of finance vastly exceeds societal perception. This dissonance is at least partly explained by an underappreciation by academia of how, without proper rules, finance ...can easily degenerate into a rent-seeking activity. I outline what finance academics can do, from a research point of view and from an educational point of view, to promote good finance and minimize the bad.
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