More from these Authors

• Working Paper | HBS Working Paper Series | 2019

  The Value of Intermediation in the Stock Market

  Marco Di Maggio, Mark Egan and Francesco Franzoni

  Brokers continue to play a critical role in intermediating institutional stock market transactions. More than half of all institutional investor order flow is still executed by high-touch (non-electronic) brokers. Despite the continued importance of brokers, we have limited information on what drives investors' choices among them. We develop and estimate an empirical model of broker choice that allows us to quantitatively examine each investors' responsiveness to execution costs and access to research and order flow information. Studying over 300 million institutional trades, we find that investor demand is relatively inelastic with respect to commissions and that investors are willing to pay a premium for access to top research analysts and order-flow information. There is substantial heterogeneity across investors. Relative to other investors, hedge funds tend to be more price insensitive, place less value on sell-side research, and place more value on order-flow information. Furthermore, using trader-level data, we find that investors are more likely to trade with traders who are located physically closer and are less likely to trade with traders that have misbehaved in the past. Lastly, we use our empirical model to investigate the unbundling of equity research and execution services related to the MiFID II regulations. While under-reporting for the average firm is relatively small (4%), we find that the bundling of execution and research allows some institutional investors to under-report management fees by up to 15%.

  Keywords: financial intermediation; Institutional investors; research analysts; Financial Services Industry;

  Citation:

  Di Maggio, Marco, Mark Egan, and Francesco Franzoni. "The Value of Intermediation in the Stock Market." Harvard Business School Working Paper, No. 20-016, August 2019.  View Details

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• Working Paper | 2019

  Second Chance: Life Without Student Debt

  Marco Di Maggio, Ankit Kalda and Vincent Yao

  Rising student debt is considered one of the creeping threats of our time. This paper examines the effect of student debt relief on individual credit and labor market outcomes. We exploit the plausibly random debt discharge due to the inability of National Collegiate, the largest owner of private student loan debt, to prove chain of title for thousands of loans across the United States. Using hand-collected lawsuits filings matched with individual credit bureau information, we find that borrowers experiencing the debt relief shock reduce their indebtedness by 26%, by both reducing their demand for credit and limiting the use of existing credit accounts. They are also 12% less likely to default on other accounts. After the discharge, the borrowers' geographical mobility increases as well as their probability to change jobs. Ultimately their income increases by more than $4,000 over a three-year period, which is equivalent to about two months' average salary. These findings speak to the benefits of intervening in the student loan market to reduce the consequences of debt overhang problems by forgiving student debts.

  Keywords: student loans; debt relief; Borrowing and Debt; Personal Finance; Outcome or Result; United States;

  Citation:

  Di Maggio, Marco, Ankit Kalda, and Vincent Yao. "Second Chance: Life Without Student Debt." NBER Working Paper Series, No. 25810, May 2019.  View Details

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• Teaching Note | HBS Case Collection | April 2019

  The a2 Milk Company

  Benjamin C. Esty and Daniel Fisher

  The a2 Milk Company (a2MC) became the most valuable company listed on the New Zealand stock exchange in 2018 by capitalizing on a biochemical discovery related to the protein composition of cow's milk. Because many people find the A1 protein difficult to digest, and that protein may be related to other health problems (e.g., diabetes), a2MC sells dairy products containing the A2 protein only primarily in Australia and China. With sales of NZ$730 million in 2017 and a desire to grow, a2MC formed a strategic relationship with Fonterra, the world's sixth largest dairy company, in February 2018. But one month later, Nestle, the world's largest dairy company, confirmed that it had begun selling A2 infant formula in China and people speculated that it would start selling A2 products in Australia and New Zealand later in the year. a2MC's retiring CEO Geoffrey Babidge and newly appointed CEO Janyne Hrdlicka must decide how to respond to Nestle's entry. Can this successful entrant become an incumbent with a sustainable competitive advantage?

  Keywords: Judo economics; Market entry; innovation; barriers to response; industry attractiveness; advantage horizon; sustainability; first-mover advantage; scope; strategy execution; strategic evolution; biochemistry; genetics; branding; commodity; milk; Dairy; infant formula; Farming; Porter's Five Forces; Market Entry and Exit; Disruption; Innovation and Invention; Competitive Advantage; Corporate Strategy; Value Creation; Competition; Brands and Branding; Five Forces Framework; Consumer Products Industry; New Zealand; Australia; China;

  Citation:

  Esty, Benjamin C., and Daniel Fisher. "The a2 Milk Company." Harvard Business School Teaching Note 719-428, April 2019.  View Details

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