Banks Asset and Liability Valuation in the New Regulatory Environment: A Game Theory Perspective. Journal of Banking Regulation, in press. (with Amira Annabi)
In the aftermath of the global financial crisis, US regulators have required banks to disclose more details regarding the valuation techniques of their traded assets and liabilities. Using data from 2013 to 2014 annual reports for nine primary dealers, we examine the determinants of the choice of the valuation techniques in a game theory setup. Consistent with their publicly disclosed shareholder policy, we assume that the banks' objective is to maximize their return on equity. Our key findings are threefold. First, we show that the optimal strategy for the global systemically important banks (G-SIBs) is to select the valuation techniques associated with a lower level of risk. Conversely, the optimal strategy for the non-G-SIBs is to select the valuation techniques associated with a higher level of risk. Finally, we demonstrate that the above optimal strategies are consistent over time. These findings are in line with the regulators' mindset to reduce the balance sheet riskiness of G-SIBs.
The People's Hired Guns? Experimentally Testing the Motivating Force of a Legal Frame. International Review of Law and Economics, 43: 67-82, 2015. (with Christoph Engel)
Legal realists expect prosecutors to be selfish. If they get the defendant convicted, this helps them advance their careers. If the odds of winning on the main charge are low, prosecutors have a second option. They can exploit the ambiguity of legal doctrine and charge the defendant for vaguely defined crimes, like “conspiracy”. We model the situation as a signaling game and test it experimentally. If we have participants play the naked game, at least a minority play the game theoretic equilibrium and use the broad rule if a signal indicates that the defendant is guilty. This becomes even slightly more frequent if a misbehaving defendant imposes harm on a third participant. By contrast if we frame the situation as a court case, almost all prosecutors take the signal at face value and knowingly run the risk of losing in court if the signal was false. Our experimental prosecutors behave like textbook legal idealists, and follow the urge of duty. The experiment demonstrates the strong behavioral force of a legal frame.
Multinational corporations. In International Encyclopedia of Social & Behavioral Sciences, edited by James Wright, 74-80, 2015. (with Bruce Kogut)
A multinational corporation (MNC) is an organizational vehicle to transfer knowledge from one country to another while preserving cash flow and control rights. The MNC has its origins in the uncertainty of international trade and investment, and its modern form coevolved with the emergence of institutional and political structures that permitted owners to realize and retain profits from the utilization of its organizational knowledge in foreign countries and territories. Since operating overseas incurs costs, the MNC is only viable if its transfer of organizational capabilities permits it to compete effectively against domestic and other foreign competition. With the diffusion of knowledge, local competitors often compete with the MNC in the long run. However, an MNC has the advantage of profiting from arbitraging across markets and leveraging its scale and scope globally. The impact of the revolution in information technologies has consequently an ambiguous effect, both enabling the MNC to operate globally more effectively and enabling markets to contract to more efficiently compete against organizational solutions.
On post-crisis banks' fair value measurement disclosure. (with Amira Annabi)
In this paper, we explore the relationship between the selection of valuation techniques by investment banks and the banks' risk perceptions and performance in the context of the theory of performativity. We use inferential statistics to study these relationships by building a unique dataset based on the disclosure of 12 investment banks' 2012-2015 annual financial statements. Moreover, we create two constructs, namely intensity of use and risk perception. We measure intensity of use as a frequency metric of how often a particular bank adopts valuation techniques for a particular asset or liability. We measure risk perception based on disclosed ranges of values for unobservable inputs. Our results are twofold: we find a significant negative correlation between (1) intensity of use and investment bank performance and (2) intensity of use and risk perception. These results indicate that a performative process takes place, and the valuation techniques are enacting their environment.
Do snitches get snitches? The effect of wrongdoing externalities on the willingness to blow the whistle. (with Ernesto Reuben and Caroline Stein)
Whistleblowing is a crucial tool for the enforcement of socially desirable behavior within organizations, particularly when external monitoring costs are high. In this paper, we study wrongdoing by employees in a setting where whistleblowing is possible but can influence the labor-market opportunities of those who blow the whistle. We investigate situations where wrongdoing negatively affects a principal and has either no externalities, negative externalities, or positive externalities on other employees. We assume that whistle blowing exposes wrongdoing and punishes the culprits but also exposes the identity of those who blow the whistle. Consequently, whistle blowing carries additional costs or benefits depending on whether it is penalized or rewarded in the labor market. We find that wrongdoing is most frequent and least likely to be reported in cases where it produces positive externalities on other employees. Moreover, irrespective of the type of externality, whistleblowers are less likely to be hired, even by organizations where no wrongdoing occurs.
The relevance of business techniques. (with Eric Abrahamson) Under review
Recent reviews of scholarship about the relevance of business-school sciences stress three points. First, these reviews highlight the recent growth in attention to the issue scientific relevance; that is scientific articles broadcasting business school research that could benefit business organizations, their stakeholders, and society. Second, they stress the tendency of research, suggesting how to enhance the relevance of business-school research to be irrelevant in doing so. Third, they attribute this irrelevance of the relevance literature to the paucity of theory-driven, empirically-rigorous studies investigating scientific relevance. They call for such studies, and this study aims to respond to this call. In response to the call for theory-driven research, we derive hypotheses from two coevolution theories of science and practice: Performativity and Market Theories of business techniques. Coevolution occurs when scientific research, bearing on business techniques, both influences and is influenced by the diffusion of these techniques. Coevolution renders these techniques beneficial and relevant to the organizations that use them. In response to the call for empirically-rigorous research, we combine this study’s, multi-case, quantitative findings, with those of existing, single-case, qualitative studies. Our quantitative study examines the scientific coevolution of 23 business techniques from the business-school fields of Accounting, Financial Economics, Management, Marketing, Operations Research, and Information Technology. Our quantitative results, in combination with those of qualitative studies, support Market Coevolution theories. Both our quantitative and qualitative results suggest that the joint broadcast of the yearly number of scientific and non-scientific articles about business techniques correlates with business organizations' use of these techniques. These results also provide support for Performativity coevolution theories, suggesting that the yearly number of scientific articles about business techniques correlate with these techniques' use by organizations. Interestingly, our quantitative results indicate that non-scientific articles about business techniques do not coevolve with business organizations' use of these techniques.
All of the institutions with which corporations interact are housed with the legal system. Due to this, it is crucial to study not only business strategy but also legal strategy. We study the setting of the U.S. legal system and focus on the prosecutor as the focal actor. The prosecutor selects the statute or statutes used in a case and possesses the ability to switch statutes between the indictment and trial stage, which is crucial to her discretionary abilities. The corporate world is rife with examples of prosecutors using polysemantic statutes, defined here legal statutes that have several potential interpretations that can be utilized to the advantage of the focal actor, to increase their performance, or conviction rate. We explore this type of behavior and attempt to disentangle the processes that it involves. To do so, we employ a dataset of nearly 73,000 federal criminal cases in order to explore the relationship between polysemantic laws and conviction. We confirm our hypotheses that more polysemantic laws are associated with higher level of conviction, controlling for the skill of the prosecutor. Further, this relationship is moderated by the amount of fine involved in the case.
This Spring, I am teaching the Management and Organizations course to Undergraduate students at New York University Abu Dhabi. This course is listed as BUSOR-AD 115. In this course, we explore the concepts of leadership, culture and decision-making among others. See the link to the syllabus.
Previously, I taught the Strategic Management course for Undergraduate students at New York University Abu Dhabi, listed as BUSOR-AD-116. In this course, we follow several public companies into their operations and strategy. The course melds strategic concepts with the case method. See the link to the syllabus.
At Manhattan College, I taught the Strategic Management course for Undergraduate Seniors, listed as MGMT 406. In this course, we focused on how managers analyze key environmental forces and then formulate, implement and evaluate strategies. We considered various normative strategic planning models and discuss cases featuring small businesses, profit and non-profit firms, and multinational corporations. I also taught the Advanced Strategic Management course, which is listed as MGMT 720 and uses the case method. Moreover, I co-taught the Criminal Justice Ethics course listed as RELS 399. I have also taught independent studies in Entrepreneurship and Advanced Strategic Management.
I also have experience working with MBA, and Executive MBA students.
Here are the webpages of my co-authors:
And the link to my university webpage