Publication records

This paper studies the effect of new fund flows on investment behavior and the resulting equilibrium price of risk. The small fund industry model shows equilibria with overinvestment in unprofitable and underinvestment in profitable investment opportunities. The large fund industry model derives market prices for risk and analyzes the resulting price distortions in equilibrium. New flow of funds to the asset management industry lead to inefficient investment decisions, mispricing of risk, and distortion of market implied probabilities. Furthermore, the paper provides an explanation for partial market failure and trade among identical asset managers without assuming heterogeneous beliefs.

 

View all ESMT Working Papers in the ESMT Working Paper Series here. ESMT Working Papers are also available via SSRN, RePEc, EconStor, and the German National Library (DNB).

Patent-based measures are frequently used as indicators in empirical research on innovation and technological change. Currently, there is little evidence as to what extent patent-based indicators relate to product market outcomes. Using a unique dataset that links outcomes from product commercialization in the pharmaceutical industry with detailed patent data, we relate patent-based indicators that capture either an invention’s value or the uncertainty surrounding the patenting process to the outcomes of the product development process. Our findings suggest that the speed of commercialization increases with value but reduces with uncertainty. Using a variety of alternative indicators we derive implications for the use and the proper interpretation of individual measures. Moreover, our study has broader implications as it highlights the detrimental effect of uncertainty on the speed of innovation.

 

View all ESMT Working Papers in the ESMT Working Paper Series here. ESMT Working Papers are also available via SSRN, RePEc, EconStor, and the German National Library (DNB).

We examine the relative weights hedge fund investors attach to past information in the fund selection process. The weighting scheme appears inconsistent with econometric forecasting models that predict fund returns, alphas or Sharpe ratios. In particular, investor flows are highly sensitive to performance streaks despite their limited predictive power regarding fund performance. Further, allocations based on forecast models’ out-of-sample predictions beat investor allocations by a significant margin, which suggests that the latter are suboptimal and reflect overreaction to certain types of information. Our findings do not support the notion that sophisticated investors have superior information or superior information processing abilities.

 

View all ESMT Working Papers in the ESMT Working Paper Series here. ESMT Working Papers are also available via SSRN, RePEc, EconStor, and the German National Library (DNB).

Price concentration studies investigate the relationship between market concentration and price levels. They are increasingly used in the mobile telecom industry. This paper provides a detailed account of the limitations of such studies. In addition, it proposes a specific approach in order to account for quality differences across countries, which are likely important when explaining price differences. When applying our approach to European mobile telecom markets from 2003 to 2012, we find that there is no positive relationship between concentration and prices and some indications that the relationship may be negative.

 

View all ESMT Working Papers in the ESMT Working Paper Series here. ESMT Working Papers are also available via SSRN, RePEc, EconStor, and the German National Library (DNB).

Negotiating the pursuit of multiple goals often requires making difficult trade-offs between goals. In these situations, consumers can benefit from using products that help them pursue several goals at the same time. But do consumers always prefer these multipurpose products? We propose that consumers’ incidental mood state alters perceptions of products in a multiple-goals context. Four studies demonstrate that being in a positive mood amplifies perceptions of differences between multiple conflicting goals. As a consequence, consumers are less likely to evaluate multipurpose products as being able to serve multiple distinct goals simultaneously. We conclude by discussing implications of these findings for marketers of multipurpose products.

 

View all ESMT Working Papers in the ESMT Working Paper Series here. ESMT Working Papers are also available via SSRN, RePEc, EconStor, and the German National Library (DNB).

Equipment manufacturers offer different types of maintenance service plans (MSPs) that delineate payment structures between equipment operators and maintenance service providers. These MSPs allocate risks differently and thus induce different kinds of incentives. A fundamental question, therefore, is how such structures impact service performance and the service chain value. We answer empirically this question. Our study is based on a unique panel data covering the sales and service records of over 700 diagnostic medical body scanners. By exploiting the presence of a standard warranty period, we overcome the key challenge of isolating the incentive effects of MSPs on service performance from the confounding effects of adverse selection. We found that moving an operator from a basic pay-per-service plan to a fixed-fee full-protection plan leads to both a reduction in reliability and an increase in service costs. We further show that the increase in cost is driven by both the operator and the service provider. Our results point to the presence of losses in service chain value in the maintenance of medical equipment, and provide the first evidence that a basic pay-per-service plan, where the risk of equipment failure is borne by the operator, can actually improve performance and costs.

 

View all ESMT Working Papers in the ESMT Working Paper Series here. ESMT Working Papers are also available via SSRN, RePEc, EconStor, and the German National Library (DNB).

In luxury brand management, experiences are essential. However, most of what we know about designing customer experiences originates from work developed with and/or for mass brands. Luxury brands are conceptually different and require a specific approach to brand management. Using a grounded theory approach, we present a framework consisting of seven principles to design luxury experience. Our research suggests that to create a true luxury experience brands should go beyond traditional frameworks of brand management. By compiling best practices and the commonalities amongst the interviewed companies’ most successful efforts to create a luxury experience, the framework can help brands to implement a “trading-up” strategy: Luxury brands can enhance their desirability by offering a true luxury experience and non-luxury brands can adopt principles of luxury experience and become life-style brands.

 

View all ESMT Working Papers in the ESMT Working Paper Series here. ESMT Working Papers are also available via SSRN, RePEc, EconStor, and the German National Library (DNB).

This paper studies the interplay between the operational and financial facets of capacity investment. We consider the capacity choice problem of a firm with limited liquidity and whose access to external capital markets is hampered by moral hazard. The firm must therefore not only calibrate its capacity investment and the corresponding funding needs, but also optimize its sourcing of funds. Importantly, the set of available sources of funds is derived endogenously and includes standard financial claims (debt, equity, etc.). We find that when higher demand realizations are more indicative of high effort, debt financing is optimal for any given capacity level. In this case, the optimal capacity is never below the efficient capacity level but sometimes strictly above that level. Further, the optimal capacity level increases with the moral hazard problem's severity and decreases with the firm's internal funds. This runs counter to the newsvendor logic and to the common intuition that by raising the cost of external capital and hence the unit capacity cost, financial market frictions should lower the optimal capacity level. We trace the value of increasing capacity beyond the efficient level to a bonus effect and a demand elicitation effect. Both stem from the risk of unmet demand, which is characteristic of capacity decisions under uncertainty.

 

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This paper analyzes the effect of the removal of government guarantees on bank risk taking. We exploit the removal of guarantees for German Landesbanken which results in lower credit ratings, higher funding costs, and a loss in franchise value. This removal was announced in 2001, but Landesbanken were allowed to issue guaranteed bonds until 2005. We find that Landesbanken lend to riskier borrowers after 2001. This effect is most pronounced for Landesbanken with the highest expected decrease in franchise value. Landesbanken also significantly increased their off-balance sheet exposure to the global ABCP market. Our results provide implications for the debate on how to remove guarantees.

 

View all ESMT Working Papers in the ESMT Working Paper Series here. ESMT Working Papers are also available via SSRN, RePEc, EconStor, and the German National Library (DNB).

A firm that lacks the specialized complementary assets necessary to commercialize an innovation faces a trade-off between contracting with an incumbent to access those assets and integrating downstream into commercialization. According to the framework developed in the prior literature, under a strong appropriability regime the innovator is likely to be better off contracting with an incumbent (as long as it can negotiate reasonable terms). However, we argue that if the innovator can learn from its experience in product commercialization, and thereby build its own commercialization capabilities, then the benefits of integrating downstream may outweigh the opportunity costs of learning and foregone profits. Alternatively, by engaging in joint commercialization, the innovator may be able to avoid these opportunity costs, albeit at the expense of higher inter-organizational governance costs. We illustrate the relationship between the choice of commercialization mode, commercialization experience, and performance in the context of the pharmaceutical industry. Specifically, we study how commercialization mode and experience affects the likelihood of drug approval. We find that when innovators lacking commercialization experience participate in the commercialization process though either joint commercialization or by commercializing alone, the product is less likely to be approved. However, innovators that have participated in the commercialization process in the past are more likely to successfully commercialize subsequent innovations under joint commercialization than those which have only contracted the commercialization to an incumbent. The results suggest that in some circumstances participating in the commercialization process, either through self-commercialization or by engaging in joint commercialization, may be the optimal strategy even for firms without the requisite complementary assets.

 

View all ESMT Working Papers in the ESMT Working Paper Series here. ESMT Working Papers are also available via SSRN, RePEc, EconStor, and the German National Library (DNB).