Working Papers

We develop a measure of corporate culture using coworker connectivity on LinkedIn's platform, and show it is strongly correlated with positive employee relations and satisfaction. Using state-level changes to employment agreements as shocks to explicit contracts, we find that these changes significantly impact employees in weakly connected firms, but have little to no effect on those at strongly connected firms. Our results suggest that firms with strong corporate culture are less dependent on explicit contracts to retain human capital. We document implications for firms' investment decisions and other outcomes.

Anti-market ideology pre-exists modern capitalism, is diffused in capitalistic economies, and peaks during economic crises. Is anti-market ideology an inert cultural by-product of crises, or does it affect economic decision making? If it does, through which channels? I manipulate exposure to anti-market ideology in an artefactual field experiment. Subjects exposed to anti-market ideology invest less often and less money in risky financial opportunities than controls. The effect is stronger for women, older, and college-educated subjects. Risk aversion does not change with exposure. Instead, treated subjects have a more negative view of the financial sector, even if they do not realize they are exposed to anti-market ideology. They react to positive news but not to negative news regarding investment payoffs in subsequent investment choices. These results are consistent with context-dependent beliefs. Contrary to behavioral biases, anti-market ideology makes more sophisticated agents deviate from neoclassical decision-making.

We document five effects of providing individuals with crowdsourced spending information about their peers (individuals with similar characteristics) through a FinTech app. First, users who spend more than their peers reduce their spending significantly, whereas users who spend less keep constant or increase their spending. Second, users' distance from their peers' spending affects the reaction monotonically in both directions. Third, users' reaction is asymmetric - spending cuts are three times as large as increases. Fourth, lower-income users react more than others. Fifth, discretionary spending drives the reaction in both directions and especially cash withdrawals, which are commonly used for incidental expenses and anonymous transactions. We argue Bayesian updating, peer pressure, or the fact that bad news looms more than (equally-sized) good news cannot alone explain all these facts.

Despite the importance of trust in determining economic outcomes, little is known about what facilitates or hinders interpersonal trust. Using a randomized field experiment of a fundraising campaign, we examine the role of trust and the determinants of perceived trustworthiness in the context of crowdfunding. The key feature of the experiment involves randomized rotations of the campaign design, which differ in the profile photo, details of campaign description, and the update status. The perceived trustworthiness of these rotations is then independently judged by survey participants. We find that while posting updates significantly increases perceived trustworthiness of the campaign and the funds raised, having a more detailed description has little effect. Our follow-up survey reveals that the differential effects are mostly driven by information salience. Interestingly, displaying a white or male profile photo improves the trustworthiness score and generates a higher contribution level, which can be explained by white participants(and donors) and male participants (and donors) preferences. Finally, we find that effects of campaign updates and the profile photo disappear when donors are directly connected to the fundraising team, highlighting the authentication and trust-transmission role of social networks.

Whether teams attenuate or exacerbate the behavioral biases which are pervasive at the individual level is an open question. To address this question, we use the mutual fund industry as a laboratory. Our focus is on how return extrapolation is transmitted from individual fund managers to the team-managed funds they join. We show that teams heavily attenuate the influence of extrapolation bias on funds' trading behavior. Additional analysis reveals that this attenuation is not due to differences in investment experience, compensation contracts, workload, and investment styles between solo-managed and team-managed funds. Rather, our evidence suggests that the elicitation of team members' inner cognitive reflection can be responsible for teams' reduction in behavioral biases. Our results highlight the attenuation of the extrapolation bias as a potential benefit of team-based asset management.

Are we in a new "Polanyian moment"? If we are, it is essential to examine how "spontaneous" and punctual expressions of discontent at the individual level may give rise to collective discourses driving social and political change. It is also important to examine whether and how the framing of these discourses may vary across political economies. This paper contributes to this endeavor with the analysis of anti-finance discourses on Twitter in France, Germany, Italy, Spain and the UK between 2019 and 2020. This paper presents three main findings. First, the analysis shows that, more than ten years after the financial crisis, finance is still a strong catalyzer of political discontent. Second, it shows that there are important variations in the dominant framing of public anti-finance discourses on social media across European political economies. If the antagonistic "us versus them" is prominent in all the cases, the identification of who "us" and "them" are, vary significantly. Third, it shows that the presence of far-right tropes in the critique of finance varies greatly from virtually inexistent to a solid minority of statements.

We find evidence suggesting that similarity of political views between the CEO and independent directors ("political homophily") encourages the CEO to share adverse information with the board. Firms with higher political homophily have lower stock price crash risk, are more likely to divest previously acquired assets with poor announcement returns, and are more likely to recognize losses in asset value. Furthermore, the effect of political homophily is complemented by strong shareholder governance which prevents friendly board from insulating the CEO in the case of ex post negative outcomes. Our identification utilizes the exogenous variation in political beliefs associated with the entry of a conservative television network in local markets. Our findings show that a friendly board facilitates CEO-board communication which is crucial for the board to function effectively in its advisory role.

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.

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.

The recent meme stock saga has drawn attention to the growing role of social networks in capital markets. In this paper, the authors summarize the latest research that uses large scale, representative, real-world social network data to study social networks' influences on trading, liquidity, and valuations of stocks. Institutional investors invest more heavily in stocks if there are strong social ties between the geographic locations of the institution's headquarters and the firm's headquarters. Further, a firm's social ties to large institutional investors reduce its cost of capital, increase its valuation, and strengthen its liquidity. Social networks help to timely disseminate important news releases into prices, but also trigger belief divergence and generate persistent excess trading. Moreover, social interactions can amplify investors' behavioral biases and contribute to retail investors' attraction to lottery-type stocks. The authors provide additional examples to further illustrate why the roles of social networks are of particular importance to market participants.

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.

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.