Wednesday, July 29, 2015

Women Don’t Mean Business? Gender Penalty in Board Appointments

SOLAL Isabelle, SNELLMAN Kaisa
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INSEAD Working Paper 2015/52/OBH

This paper examines the relationship between board diversity and firm performance. Using 14 years of panel data on U.S. firms, we show that increasing gender diversity has no impact on objective measures of firm performance, but does result in a systematic decrease in the firm’s market value. We explain this finding by suggesting that the decision to appoint female directors will alter the market’s perception of the appointing firm. In a second panel study, we show that firms perceived to be committed to diversity similarly suffer a decrease in firm value. Finally, we show through an experiment that female board appointments are taken as a signal that the firm is motivated by social performance goals, to the detriment of pure profit maximization. Collectively, these three studies suggest that female board appointments are viewed as diversity measures, and as a signal of a broader commitment of the firm to social welfare goals, as opposed to strict shareholder value maximization. This mechanism, we argue, operates irrespective of the actual or perceived competence of the female nominee. We discuss the implications of our findings for future research on board diversity and firm performance.

Technology Choice and Capacity Portfolios under Emissions Regulation

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INSEAD Working Paper 2015/51/TOM/ISIC (revised version of 2012/37/TOM/ISIC)

We study the impact of emissions tax and emissions cap-and-trade regulation on arm's technology choice and capacity decisions. We show that emissions price uncertainty under cap-and-trade results in greater expected profit than a constant emissions price under an emissions tax, which contradicts popular arguments that the greater uncertainty under capand- trade will erode value. We further show that two operational drivers underlie this result: i) the firm's option not to operate, which effectively right-censors the uncertain emissions price; and ii) dispatch flexibility, which is the firm's ability to first deploy its most profitable capacity given the realized emissions price. In addition to these managerial insights, we also explore policy implications: the effect of emissions price level, and the effect of investment and production subsidies. Through an illustrative example, we show that production subsidies of higher investment and production cost technologies (such as carbon capture and storage technologies) have no effect on the firm's optimal total capacity whenfirms own a portfolio of both clean and dirty technologies, but that investment subsidies of these technologies increase the firm's total capacity, conditionally increasing expected emissions. A subsidy of a lower production cost technology, on the other hand, has no effect on the firm's optimal total capacity in multi-technology portfolios, regardless of whether the subsidy is a production or investment subsidy.

Tuesday, July 28, 2015

Winner of 2015 Best Paper Award

Winner of 2015 Best Paper Award
UniCredit & Universities Foundation

Self-fulfilling Fire Sales: Fragility of  Collateralised Short-term Debt Markets

Innovation and Top Income Inequality

AGHION Philippe, AKCIGIT Ufuk, BERGEAUD Antonin, BLUNDELL Richard, HEMOUS David 
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INSEAD Working Paper 2015/50/EPS  

In this paper we use cross-state panel data to show that top income inequality is (at least partly) driven by innovation. We first establish a positive and significant correlation between various measures of innovativeness and top income inequality in cross-state panel regressions. Two distinct instrumentation strategies suggest that this correlation (partly) reflects a causality from innovativeness to top income inequality, and the effect is significant: for example, when measured by the number of patent per capita, innovativeness accounts on average across US states for around 17% of the total increase in the top 1% income share between 1975 and 2010. Finally, we show that innovation does not increase broader measures of inequality which do not focus on top incomes, and that innovation is positively correlated with social mobility, but less so in states with more intense lobbying activities.

Temporary Hubs for the Global Vehicle Supply Chain in Humanitarian Operations

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Production and Operations Management (forthcoming)

We model the global vehicle supply chain of an International Humanitarian Organization (IHO) with a dynamic hub location model across monthly periods. We use actual vehicle data from the International Federation of the Red Cross to feed our model and provide insights into IHO secondary support demand. We find that secondary support demand for items such as vehicles is different from primary beneficiary demand for items such as water and food. When considering disaster response and development program demand simultaneously (disaster cycle management), our results illustrate that keeping a lean centralized hub configuration with an option for temporary hubs in mega disaster locations can reduce overall supply chain costs over a long time horizon. We also show that it is possible to structure a supply chain to take operational advantage of earmarked funding. This research lays the groundwork for using optimization models to analyze disaster cycle management.