Time varying risk aversion Guiso, Luigi; Sapienza, Paola; Zingales, Luigi
Journal of financial economics,
06/2018, Volume:
128, Issue:
3
Journal Article
Peer reviewed
Open access
Exploiting portfolio data and repeated surveys of an Italian bank's clients, we test whether investors’ risk aversion increases following the 2008 crisis. We find that, after the crisis, both ...qualitative and quantitative measures of risk aversion increase substantially and that affected individuals divest more stock. We investigate four explanations: changes in wealth, expected income, perceived probabilities, and emotion-based changes of the utility function. Our data are inconsistent with the first two channels, while they suggest that fear is a potential mechanism underlying financial decisions, whether by increasing the curvature of the utility function or the salience of negative outcomes.
The value of corporate culture Guiso, Luigi; Sapienza, Paola; Zingales, Luigi
Journal of financial economics,
07/2015, Volume:
117, Issue:
1
Journal Article
Peer reviewed
Open access
We study which dimensions of corporate culture are related to a firm׳s performance and why. We find that proclaimed values appear irrelevant. Yet, when employees perceive top managers as trustworthy ...and ethical, a firm׳s performance is stronger. We then study how different governance structures impact the ability to sustain integrity as a corporate value. We find that publicly traded firms are less able to sustain it. Traditional measures of corporate governance do not seem to have much of an impact.
LONG-TERM PERSISTENCE Guiso, Luigi; Zingales, Luigi; Sapienza, Paola
Journal of the European Economic Association,
December 2016, Volume:
14, Issue:
6
Journal Article
Peer reviewed
Open access
We study whether a positive historical shock can generate long-term persistence in development. We show that Italian cities that achieved self-government in the Middle Ages have a higher level of ...civic capital today than similar cities in the same area that did not. The size of this effect increases with the length of the period of independence and its intensity. This effect persists even after accounting for the fact that cities did not become independent randomly. We conjecture that the Middle-Age experience of self-government fostered self-efficacy beliefs—beliefs in one's own ability to complete tasks and reach goals—and this positive attitude, transmitted across generations, enhances civic capital today. Consistently, we find that fifth-graders in former free city-states exhibit stronger self-efficacy beliefs and that these beliefs are correlated with a higher level of civic capital.
We compare answers to policy questions by economic experts and a representative sample of the US population. We find a 35 percentage point difference between the two groups. This gap is only ...partially explained by differences in ideological or personal characteristics of the two samples. Interestingly, the difference is the largest on the questions where economists agree the most and where there is the largest amount of literature. Informing people of the expert opinions does not seem to have much of an impact. Ordinary people seem to be skeptical of the implicit assumptions embedded into the economists' answers. PUBLICATION ABSTRACT
We compare the trading performance of independent directors and other executives. The findings reveal that independent directors earn positive substantial abnormal returns when they purchase their ...company stock, and that the difference from the same firm's executives is relatively small at most horizons. We also find that executives and independent directors make higher returns in firms with the weakest governance, the gap between these two widens in such firms, and that independent directors sitting on the audit committee earn higher returns than other independent directors at the same firm. Independent directors also earn significantly abnormal returns when they sell the company stock in a window before bad news and around earnings restatements.
We use survey data to measure households' propensity to default on mortgages even if they can afford to pay them (strategic default) when the value of the mortgage exceeds the value of the house. The ...willingness to default increases in both the absolute and the relative size of the home-equity shortfall. Our evidence suggests that this willingness is affected by both pecuniary and non-pecuniary factors, such as views about fairness and morality. We also find that exposure to other people who strategically defaulted increases the propensity to default strategically because it conveys information about the probability of being sued.
Cultural Biases in Economic Exchange? Guiso, Luigi; Sapienza, Paola; Zingales, Luigi
The Quarterly journal of economics,
08/2009, Volume:
124, Issue:
3
Journal Article
Peer reviewed
Open access
How much do cultural biases affect economic exchange? We answer this question by using data on bilateral trust between European countries. We document that this trust is affected not only by the ...characteristics of the country being trusted, but also by cultural aspects of the match between trusting country and trusted country, such as their history of conflicts and their religious, genetic, and somatic similarities. We then find that lower bilateral trust leads to less trade between two countries, less portfolio investment, and less direct investment, even after controlling for the characteristics of the two countries. This effect is stronger for goods that are more trust intensive. Our results suggest that perceptions rooted in culture are important (and generally omitted) determinants of economic exchange.
This paper investigates whether there are systematic differences between the forecasting style and abilities of female and male analysts, and whether market participants recognize these differences. ...My key conjecture is that only female analysts with superior forecasting abilities enter the profession due to a perception of discrimination in the analyst labor market. Consistent with this conjecture, I find that female analysts issue bolder and more accurate forecasts and their accuracy is higher in market segments in which their concentration is lower. Further, the stock market participants are aware of the male-female skill differences. They respond more strongly to the forecast revisions by female analysts even though those analysts get less media coverage. The short-term market reaction is incomplete, however, because it is followed by a strong postrevision drift. The perception of abilities is similar in the analyst labor market, where female analysts are more likely to move up to high-status brokerage firms, while their downward career mobility is lower. Collectively, these results indicate that female analysts have better-than-average skill due to self-selection and market participants are at least partially able to recognize their superior abilities.
ABSTRACT
We study when preferences for competition are a positive economic trait among high earners and the extent to which this trait can explain the gender gap in income among a master's degree in ...business administration (MBAs). Consistent with the experimental evidence, preferences for competition are a positive economic trait only for individuals who are not overconfident. Preferences for competition correlate with income only at graduation when bonuses are guaranteed and not a function of performance. Overconfident competition‐loving MBAs observe lower compensation and income growth, and experience greater exit from high‐reward industries and more frequent job interruptions. Preferences for competition do not explain the gender pay gap among MBAs.
While both cultural and legal norms (institutions) help foster cooperation, culture is the more primitive of the two and itself sustains formal institutions. Cultural changes are rarer and slower ...than changes in legal institutions, which makes it difficult to identify the role played by culture. Cultural changes and their effects are easier to identify in simpler, more controlled, environments, such as corporations. Corporate culture, thus, is not only interesting per se, but also as a laboratory to study the role of societal culture and the way it can be changed.
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