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  • 2022
  • Article

Missing Novelty in Drug Development
By: Joshua Krieger, Danielle Li and Dimitris Papanikolaou
We provide evidence that risk aversion leads pharmaceutical firms to underinvest in radical innovation. We introduce a new measure of drug novelty based on chemical similarity and show that firms face a risk-reward trade-off: novel drug candidates are less likely to...  View Details
Keywords: Drug Development; Risk Aversion; Research and Development; Innovation and Invention; Investment; Pharmaceutical Industry
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  • Article

Reliable Post hoc Explanations: Modeling Uncertainty in Explainability
By: Dylan Slack, Sophie Hilgard, Sameer Singh and Himabindu Lakkaraju
As black box explanations are increasingly being employed to establish model credibility in high stakes settings, it is important to ensure that these explanations are accurate and reliable. However, prior work demonstrates that explanations generated by...  View Details
Keywords: Black Box Explanations; Bayesian Modeling; Decision Making; Risk and Uncertainty; Information Technology
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  • 2021
  • Working Paper

Risk Sensitivity or Social Signaling? Unmasking Behaviors with Video Analytics
By: Shunyuan Zhang, Kaiquan Xu and Kannan Srinivasan
In 2020, as the novel coronavirus spread globally, face masks were recommended in public settings to protect against and slow down the spread of the coronavirus. Why did people comply, or not, while shopping in 2020? Do these motivations relate to their shopping...  View Details
Keywords: Video Analytics; In-store Shopping; Mask; Sensitivity To Risk; Social Perception; COVID-19; Health Pandemics; Consumer Behavior; Risk and Uncertainty; Attitudes
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  • 2021
  • Working Paper

Standing on the Shoulders of Science
By: Joshua Lev Krieger, Martin Watzinger and Monika Schnitzer
Today's innovations rely on scientific discoveries of the past, yet only some corporate R&D builds directly on scientific output. We analyze U.S. patents to establish three new facts about the relationship between science and the value of inventions. First, we show...  View Details
Keywords: Patent Novelty; Value Capture; Science; Patents; Valuation
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  • 2021
  • Working Paper

Currency Hedging: Managing Cash Flow Exposure
By: Laura Alfaro, Maurici Mauricio and Liliana Varela
Foreign currency derivative markets are among the largest in the world, yet their role in emerging markets is relatively understudied. We study firms' currency risk exposure and their hedging choices by employing a unique dataset covering the universe of FX derivatives...  View Details
Keywords: FX Derivatives; Hedging; Currency; Cash Flow; Emerging Markets; Chile
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  • 2021
  • Working Paper

Pricing of Climate Risk Insurance: Regulation and Cross-Subsidies
By: Ishita Sen and Ana-Maria Tenekedjieva
Homeowners’ insurance provides households financial protection from climate losses. To improve access and affordability, state regulators impose price controls on insurance companies. Using novel data, we construct a new measure of rate setting frictions for individual...  View Details
Keywords: Climate Risk; Homeowners' Insurance; Price Controls; Financial Regulation; Cross-subsidization; Climate Change; Household; Insurance; Price; Governance Controls; Financial Institutions; United States
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  • Article

Credit and Punishment: Are Corporate Bankers Disciplined for Risk-Taking?
By: Janet Gao, Kristoph Kleiner and Joseph Pacelli
We examine whether bankers face disciplining consequences for structuring poorly performing corporate loans. We construct a novel data set containing the employment histories and loan portfolios of a large sample of corporate bankers and find that corporate credit...  View Details
Keywords: Syndicated Loans; Credit Events; Career Outcomes; Loan Officers; Banks and Banking; Financing and Loans; Risk Management; Corporate Finance; Personal Development and Career
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  • November–December 2020
  • Article

The Risks You Can't Foresee: What to Do When There's No Playbook
By: Robert S. Kaplan, Herman B. Leonard and Anette Mikes
No matter how good their risk management systems are, companies can’t plan for everything. Some risks are outside people’s realm of experience or so remote no one could have imagined them. Some result from a perfect storm of coinciding breakdowns, and some materialize...  View Details
Keywords: Novel Risks; Risk Management; Crisis Management
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  • August 2020
  • Article

Financial Market Risk Perceptions and the Macroeconomy
By: Carolin E. Pflueger, Emil Siriwardane and Adi Sunderam
We propose a novel measure of risk perceptions: the price of volatile stocks (PVS), defined as the book-to-market ratio of low-volatility stocks minus the book-to-market ratio of high-volatility stocks. PVS is high when perceived risk directly measured from surveys and...  View Details
Keywords: Risk-centric Business Cycles; Cross-section Of Equities; Real Risk-free Rate; Real Investment; Financial Markets; Risk and Uncertainty; Perception; Investment
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  • 2020
  • Working Paper

In a Pandemic, People Must Remember: Friends Are Contagious
By: T. Schlager and A.V. Whillans
This article reveals a behavioral tendency that may contribute to the spread of the novel coronavirus (SARS-CoV-2). Across seven studies—including two representative samples of Americans and Canadians (N = 3,408)—we show that people consistently underestimate...  View Details
Keywords: Coronavirus; Behavior; Health Pandemics; Relationships; Risk and Uncertainty; Perception
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  • 2020
  • Working Paper

Novel Risks
By: Robert S. Kaplan, Herman B. "Dutch" Leonard and Anette Mikes
All organizations practice some form of risk management to identify and assess routine risks in their operations, supply chains, strategy, and external environment. These risk management policies, however, fail in the presence of novelty. Novel risks arise from...  View Details
Keywords: Risk Management; Policy; Failure; Organizational Change and Adaptation
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  • 2021
  • Working Paper

rTSR: Properties, Determinants, and Consequences of Benchmark Choice
By: Paul Ma, Jee-Eun Shin and Charles C.Y. Wang
We develop a measurement-error framework for assessing the quality of relative-performance metrics designed to filter out the systematic component of performance and analyze relative total shareholder return (rTSR)—the predominant metric market participants use to...  View Details
Keywords: Relative TSR; Relative Performance Evaluation; Systematic Risk; Board Of Directors; Compensation Consultants; Style Effects; Executive Compensation; Performance Evaluation; Corporate Governance
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  • 2019
  • Working Paper

Throwing the Baby Out with the Drinking Water: Unintended Consequences of Arsenic Mitigation Efforts in Bangladesh
By: Nina Buchmann, Erica Field, Rachel Glennerster and Reshmaan Hussam
The 1994 discovery of arsenic in ground water in Bangladesh prompted a massive public health effort to test all tubewells in the country and convince nearly one-quarter of the population to switch to arsenic-free drinking water sources. According to numerous sources,...  View Details
Keywords: Child Mortality; Arsenic; Unintended Consequences; Health Disorders; Safety; Outcome or Result; Bangladesh
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  • June 2017
  • Case

Veolia: Resourcing the World
By: Gautam Ahuja, Tarun Khanna, Kristina Maslauskaite and Vincent Dessain
In March 2016, Antoine Frérot, CEO of Veolia, a global environmental services provider, was undergoing an important transformation of the company. In 2013, Frérot presented a growth strategy that focused on increasing the share of industrial clients, enhancing growth...  View Details
Keywords: Strategy; Circular; Emerging Markets; Organizational Change and Adaptation; Growth and Development Strategy; Economy
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  • April 2017
  • Article

Financing Risk and Innovation
By: Ramana Nanda and Matthew Rhodes-Kropf
We provide a model of investment into new ventures that demonstrates why some places, times, and industries should be associated with a greater degree of experimentation by investors. Investors respond to financing risk―a forecast of limited future funding―by modifying...  View Details
Keywords: Risk and Uncertainty; Financing and Loans; Innovation and Invention
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  • 2017
  • Working Paper

Economic Uncertainty and Earnings Management
By: Luke C.D. Stein and Charles C.Y. Wang
In the presence of managerial short-termism and asymmetric information about skill and effort provision, firms may opportunistically shift earnings from uncertain to more certain times. We document empirically that when financial markets are less certain about a firm's...  View Details
Keywords: Discretionary Accruals; Uncertainty; Implied Volatility; Earnings Response Coefficient; Risk and Uncertainty; Earnings Management; Financial Markets
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  • December 2014
  • Article

When to Sell Your Idea: Theory and Evidence from the Movie Industry
By: Hong Luo
I study a model of investment and sale of ideas and test its empirical implications using a novel data set from the market for original movie ideas. Consistent with the theoretical results, I find that buyers are reluctant to meet unproven sellers for early-stage...  View Details
Keywords: Market For Ideas; Information Asymmetry; Expropriation Risk; Intermediary; Intellectual Property Protection; Strategy; Intellectual Property; Film Entertainment; Sales; Entertainment and Recreation Industry
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  • June 2014
  • Article

Frictions in Shadow Banking: Evidence from the Lending Behavior of Money Market Funds
By: Sergey Chernenko and Adi Sunderam
We document the consequences of money market fund risk taking during the European sovereign debt crisis. Using a novel data set of security-level holdings of prime money market funds, we show that funds with large exposures to risky Eurozone banks suffered significant...  View Details
Keywords: Money Market Mutual Funds; European Sovereign Debt Crisis; Runs; Contagion; Risk Taking; Investment Funds; Financial Crisis; Europe
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  • May 2014
  • Article

Dynamics of Demand for Index Insurance: Evidence from a Long-Run Field Experiment
By: Shawn A. Cole, Daniel Stein and Jeremy Tobacman
This paper estimates how experimentally-manipulated experiences with a novel financial product, rainfall index insurance, affect subsequent insurance demand. Using a seven-year panel, we develop three main findings. First, recent experience matters for demand,...  View Details
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  • November 2013
  • Article

Investment Cycles and Startup Innovation
By: Ramana Nanda and Matthew Rhodes-Kropf
We find that VC-backed firms receiving their initial investment in hot markets are more likely to go bankrupt, but conditional on going public are valued higher on the day of their IPO, have more patents, and have more citations to their patents. Our results suggest...  View Details
Keywords: Innovation; Market Cycles; Financing Risk; Risk and Uncertainty; Venture Capital; Investment; Innovation and Invention
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