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

forthcoming 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, Heinz, Matthias, Schumacher, Heiner and Matthias Sutter. "Social Preferences of Young Professionals and the Financial Industry", 

Management Science, Volume 69, Issue 7, 2023

Trust is an important element of many financial transactions. Yet, the financial industry has been struggling with public mistrust. One explanation for this 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 more than 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 a 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 in a trust game than those working in other industries. 

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.