Eufinger, Christian and Andrej Gill. "Incentive-Based Capital Requirements"

Management Science, Volume 63, Issue 12, 2017

This paper proposes a new regulatory approach that implements capital requirements contingent on executive incentive schemes. We argue that excessive risk-taking in the financial sector originates from the shareholder moral hazard created by government guarantees rather than from corporate governance failures within banks. The idea behind the proposed regulatory approach is thus that the more the compensation structure decouples bank managers' interests from those of shareholders by curbing risk-taking incentives, the higher the leverage the bank is permitted to take on. Consequently, the risk-shifting incentives caused by government guarantees and the risk-mitigating incentives created by the compensation structure offset each other, such that the manager chooses the socially efficient investment policy.

Gill, Andrej and Uwe Walz. "Are VC-backed IPOs delayed Trade Sales?"

Journal of Corporate Finance, Volume 37, April 2016

We investigate the role of venture-backing at the time of the initial public offering for the decision to subsequently be taken over and leave the exchange. We show, controlling for firm characteristics as well as the endogeneity of the involvement of VC, that VC-backed firms are significantly more likely to leave the exchange in the course of a take over. Our analysis sheds new light on decisions to go private, and even more so on the process of going public for VC-backed firms. Our findings suggest that, in a significant number of cases, VC-backed IPOs can be interpreted as delayed trade sales.

Gill, Andrej and Nikolai Visnjic. "Performance Benefits of Tight Control"

Journal of Private Equity (2015), Volume 18, Number 3

This study investigates the transition from being a listed company with a dispersed ownership structure to being a privately held company with a concentrated ownership structure. We consider a sample of private equity backed portfolio companies to evaluate the consequences of the corporate governance changes on operational performance. Our analysis shows significant positive abnormal growth in several performance ratios for the private period of our sample companies relative to comparable public companies. These performance differences come from the increase in ownership concentration after the leveraged buyout transaction.

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Current Research Project

Gill, Andrej, Heinz, Matthias, Schumacher, Heiner and Matthias Sutter. "Social Preferences of Young Professionals and the Financial Industry", accepted Management Science

The financial industry has been struggling with widespread misconduct and public mistrust. One explanation for these phenomena could be the selection of individuals who wish to work in and get job offers from the financial industry. In this paper, we examine the selection into the financial industry based on social preferences. We identify the social preferences of business and economics students, and, for six years, follow up on their early career choices as well as on their job placement after graduation. Students eager to work in the financial industry behave in substantially less trustworthy manner and show less willingness to cooperate than those with other career plans. The job market does not alleviate this selection. Those subjects who find their first permanent job in finance behave in significantly less trustworthy manner than those working in other industries.

Bauer, Kevin and Andrej Gill. "Mirror, Mirror on the Wall: Algorithmic Assessments, Transparency, and Self-fulfilling Prophecies", R&R Information Systems Research

There are growing efforts of data privacy advocates and regulators to provide individuals with a right to explanation about the nature and use of algorithmic assessments that concern them. While desirable from an accountability, contestability, and bias safeguarding point of view, psychological and economic theories suggest that unintended behavioral side effects may occur. This paper puts these theories to the test. We use a series of controlled, incentivized investment games that vary investors’ and recipients’ access to an algorithmic assessment recipients’ likelihood to pay back an investment. Our results show that for erroneous algorithmic assessments, transparency can trigger self-fulfilling prophecies, causally changing assessed individuals’ behavior. Privately learning about being incorrectly categorized by an algorithm steers recipients’ behavior in the direction of the assessment. Becoming aware that an investor has disregarded an incorrect no-repayment assessment additionally reduces repayment. The results demonstrate that the introduction of algorithmic transparency creates a novel, unintended channel through which the use of (inaccurate) algorithms may have important side effects. Specifically, we provide evidence that algorithmic transparency enables algorithms to alter concerned individuals’ beliefs about what kind of person they are and what others expect of them.

Gill, Andrej and David Heller. "Leveraging the (Un)Known: The Value of Patent Portfolios"

We provide new evidence on the relevance of patents for attracting external debt financing. For a representative, multi-country sample, we  find large positive effects of valuable patent portfolios on firms' debt capacity. To study this, we develop a novel patent portfolio value measure using granular information on patent fee payments. For identification, we investigate exogenous variation in patent strength arising from the staggered implementation of the 2004 EU Enforcement Directive. Results are strongest for financially constrained firms, which emphasizes the strategic potential of patents. Moreover, our  findings highlight the importance of a harmonized, reliable legal framework to spur these effects.

Gill, Andrej, Hett, Florian and Johannes Tischer. "Time-Inconsistency and Households' Financial Mistakes: Evidence from Bank Transaction and Behavioral Measurement Data"

Households regularly fail to make optimal financial decisions. But what are the underlying reasons for this? Using two conceptually distinct measures of individual time inconsistency, one based on bank account transaction data and one based on behavioral measurement experiments, we show that the excessive use of bank account overdrafts is linked to time inconsistency. By contrast, there is no correlation between a survey-based measure of financial literacy and overdraft usage. Our results indicate that consumer education and information may not substantially improve households' financial decision-making. Rather, behaviorally motivated interventions targeting specific biases in decision-making might qualify as effective policy tools.


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