Published and forthcoming
1. A Trust Crisis [Abstract], (with Luigi Zingales), International Review of Finance. 12(2): 123-131, June 2012.
We conjecture that the changes in economic activity from late 2008 to early 2009 is due to a drop in trust. We present new survey evidence consistent with this hypothesis.
2. The Determinants of Attitudes towards Strategic Default on Mortgages [Abstract], (with Luigi Guiso and Luigi Zingales), forthcoming Journal of Finance. This version: June 2011. On line Appendix. This paper previously circulated with the title "Moral and Social Constraints to Strategic Default on Mortgages," Financial Trust Index Working Paper, March 2011.
ABSTRACT: We use survey data to measure households’ propensity to default on mortgages even if they can afford to pay them (strategic default) when the value of the mortgage exceeds the value of the house. The willingness to default increases both in the absolute and in the relative size of the home-equity shortfall. Our evidence suggests that this willingness is affected both by pecuniary and non-pecuniary factors, such as views about fairness and morality. We also find that exposure to other people who strategically defaulted increases the propensity to default strategically because it conveys information about the probability of being sued.
3. The emergence of male leadership in competitive environments [Abstract], (with Ernesto Reuben, Pedro Rey-Biel and Luigi Zingales), Journal of Economic Behavior & Organization. 83(1): 111-117, June 2012.
ABSTRACT: We present evidence from an experiment in which groups select a leader to compete against the leaders of other groups in a real-effort task that they have all performed in the past. We find that women are selected much less often as leaders than is suggested by their individual past performance. We study three potential explanations for the underrepresentation of women, namely, gender differences in overconfidence concerning past performance, in the willingness to exaggerate past performance to the group, and in the reaction to monetary incentives. We find that men's overconfidence is the driving force behind the observed prevalence of male representation.
4. What Do Independent Directors Know? Evidence from Their Trading [Abstract], (with Enrichetta Ravina), The Review of Financial Studies. 23(3): 962-1003, March 2010.
ABSTRACT: We compare the trading performance of independent directors and other officers of the firm. We find that independent directors earn positive and substantial abnormal returns when they purchase their company stock, and that the difference with the same firm's officers is relatively small at most horizons. The results are robust to controlling for firm-fixed effects and to using a variety of alternative specifications. Executive officers and independent directors make higher returns in firms with the weakest governance and the gap between these two groups widens in such firms. Independent directors who sit on the audit committee earn higher returns than other independent directors at the same firm. Finally, independent directors earn significantly higher returns than the market when they sell the company stock in a window before bad news and around earnings restatements.
5. Gender differences in financial risk aversion and career choices are affected by testosterone (with Dario Maestripieri and Luigi Zingales), August 25, 2009, Proceeding of the National Academy of Sciences [PNAS link].
6. Time Discounting for Primary and Monetary Rewards [Abstract], (with Ernesto Reuben and Luigi Zingales), Economic Letters, 106(2): 125-127, January 2010.
ABSTRACT: This paper reports a positive and statistically significant relation between the short-term discount rate over a monetary reward and the short-term discount rate over a primary reward (chocolate). This relation is most evident among people who like chocolate and are hungry. This finding suggests that this type of experiments identifies an underling individual trait, consistent with of present-biased preferences.
7. Cultural Biases in Economic Exchange? [Abstract] [Supporting Online Materials], (with Luigi Guiso and Luigi Zingales), The Quarterly Journal of Economics, 124(3), August 2009.
ABSTRACT: How much do cultural biases affect economic exchange? We try to answer this question by using data on bilateral trust between European countries. We document that this trust is affected not only by the characteristics of the country being trusted, but also by cultural aspects of the match between trusting country and trusted country, such as religion, history of conflicts, and genetic and somatic similarities. We then find that lower bilateral trust leads to less trade between two countries, less portfolio investment, and less direct investment, even after controlling for the characteristics of the two countries. This effect is stronger for goodsthat are more trust intensive. Our results suggest that perceptions rooted in culture are important (and generally omitted) determinants of economic exchange.
8. Is Mistrust Self-Fulfilling? [Abstract], Supplementary Material, (with Ernesto Reuben and Luigi Zingales), Economic Letters, 104(2): 89-91, August 2009.
ABSTRACT: We study experimentally the effect of expectations on whether trust is repaid. Subjects respond with untrustworthy behavior if they see that little is expected of them. This suggests that guilt aversion plays an important role in the repayment of trust.
9. A Lobbying Approach to Evaluating the Sarbanes-Oxley Act of 2002 [Abstract], (with Yael Hochberg and Annette Vissing-Jørgensen), Journal of Accounting Research, 47(2): 519-583, May 2009.
ABSTRACT: We evaluate the impact of the Sarbanes-Oxley Act (SOX) on shareholders by studying the lobbying behavior of investors and corporate insiders in order to affect the final implemented rules under SOX. Investors lobbied overwhelmingly in favor of strict implementation of SOX, while corporate insiders and business groups lobbied against strict implementation. We identify firms most affected by the law as those whose insiders lobbied against strict implementation. Such firms appear to be characterized by agency problems, rather than motivated by concerns over compliance costs. Cumulative stock returns during the five and a half months leading up to SOX passage were approximately 7% higher for corporations whose insiders lobbied against SOX disclosure-related provisions than for similar non-lobbying firms, consistent with an expectation that SOX would reduce agency problems. Analysis of returns in the post-passage implementation period suggests that investors' positive expectations with regards to the effects of these provisions were warranted.
10. The Stock Market and Corporate Investment: a Test of Catering Theory [Abstract], (with Christopher Polk), Review of Financial Studies, 22(1): 187-217, January 2009.
This paper previously circulated with the title "The Real Effects of Investor Sentiment."
ABSTRACT: We test a catering theory describing how stock market mispricing might influence individual firms’ investment decisions. We use discretionary accruals as our proxy for mispricing. We find a positive relation between abnormal investment and discretionary accruals; that abnormal investment is more sensitive to discretionary accruals for firms with higher R&D intensity (opaque firms) or share turnover (firms with shorter shareholder horizons); that firms with high abnormal investment subsequently have low stock returns; and that the larger the relative price premium, the stronger the abnormal return predictability. We show that patterns in abnormal returns are stronger for firms with higher R&D intensity or share turnover.
11. Trusting the Stock Market [Abstract], (with Luigi Guiso and Luigi Zingales), The Journal of Finance, 63(6): 2557-2600, December 2008
ABSTRACT: We study the effect that a general lack of trust can have on stock market participation. In deciding whether to buy stocks, investors factor in the risk of being cheated. The perception of this risk is a function not only of the objective characteristics of the stocks, but also of the subjective characteristics of the investor. Less trusting individuals are less likely to buy stock and, conditional on buying stock, they will buy less. We find evidence consistent with these propositions in Dutch and Italian micro data, as well as in cross country data. All the evidence suggests that lack of trust could be an important factor in explaining the limited participation puzzle, especially among more wealthy investors.
12. Culture, Math, and Gender, [Abstract] [Supporting Online Materials] (with Luigi Guiso, Ferdinando Monte and Luigi Zingales), Science, 320(5880): 1164-1165, May 30, 2008
ABSTRACT: Analysis of PISA results suggests that the gender gap in math scores disappears in countries with a more gender-equal culture.
13. Alfred Marshall Lecture -- Social Capital as Good Culture [Abstract], (with Luigi Guiso and Luigi Zingales), The Journal of the European Economic Association, April-May 2008, 6(2-3): 295-320 (Published paper available online through Science Direct).
ABSTRACT: To explain the extremely long-term persistence (more than 500 years) of positive historical experiences of cooperation (Putnam 1993), we model the intergenerational transmission of priors about the trustworthiness of others. We show that this transmission tends to be biased toward excessively conservative priors. As a result, societies can be trapped in a low-trust equilibrium. In this context, a temporary shock to the return to trusting can have a permanent effect on the level of trust. We validate the model by testing its predictions on the World Values Survey data and the German Socio Economic Panel. We also present some anecdotal evidence that these priors are reflected in novels that originate in different parts of the country.
14.Does Culture Affect Economic Outcomes? [Abstract], (with Luigi Guiso and Luigi Zingales), The Journal of Economic Perspectives, Spring 2006, 20(2): 23-48. (Published paper available online through the American Economic Association.)
ABSTRACT: Economists have been reluctant to rely on culture as a possible determinant of economic phenomena. The notion of culture is so broad and the channels through which it can enter the economic discourse so vague that it is difficult to design testable hypotheses. In this paper we show this does need to be the case. We introduce a narrower definition of culture that allows for a simple methodology to develop and test cultural-based explanations. We also present several applications of this methodology: from the choice to become entrepreneur to that of how much to save, to end with the political decision on income redistribution.
15. Does Local Financial Development Matter? [Abstract] (with Luigi Guiso and Luigi Zingales), Quarterly Journal of Economics, 2004, 119 (3): 929-969 (Published paper available online through MIT Press.)
ABSTRACT: We study the effects of differences in local financial development within an integrated financial market. To do so, we construct a new indicator of financial development by estimating a regional effect on the probability that, ceteris paribus, a household is shut off from the credit market. By using this indicator we find that financial development enhances the probability an individual starts his own business, favors entry, increases competition, and promotes growth of firms. As predicted by theory, these effects are weaker for larger firms, which can more easily raise funds outside of the local area. Overall, the results suggest local financial development is an important determinant of the economic success of an area even in an environment where there are no frictions to capital movements.
16.The Role of Social Capital in Financial Development [Abstract] (with Luigi Guiso and Luigi Zingales), American Economic Review, June 2004, 94(3): 526-556 (Published paper available online through the American Economic Association.)
ABSTRACT: To identify the effect of social capital on financial development, we exploit the well-known differences in social capital (Banfield (1958), Putnam (1993)) across different parts of Italy. In areas of the country with high levels of social capital, households invest less in cash and more in stock, use more checks, have higher access to institutional credit, and make less use of informal credit. The effect of social capital is stronger where legal enforcement is weaker and among less-educated people. These results are not driven by omitted environmental variables, since we show that the behavior of movers is still affected by the level of social capital present in the province where they were born.
17. The Effects of Government Ownership on Bank Lending [Abstract], Journal of Financial Economics, May 2004, 72(2): 357-384. Reprinted in Stijn Claessens and Luc Laeven (editors), A Reader in International Corporate Finance. Washington, DC: World Bank Publications, 2006, pp. 259-286. (Published paper available online through Science Direct).
This paper previously circulated with the title "What do State-owned Firms Maximize? Evidence from the Italian Banks" and "Lending Incentives of State Owned Firms."
ABSTRACT: This paper uses information on individual loan contracts to study the effects of government ownership on bank lending behavior. State-owned banks charge lower interest rates than do privately owned banks to similar or identical firms, even if firms are able to borrow more from privately owned banks. State-owned banks mostly favor large firms and firms located in depressed areas. The lending behavior of state-owned banks is affected by the electoral results of the party affiliated with the bank: the stronger the political party in the area where the firm is borrowing, the lower the interest rates charged.
18. People’s Opium? Religion and Economic Attitudes [Abstract], (with Luigi Guiso and Luigi Zingales), Journal of Monetary Economics, January 2003, 50(1): 225-282 (Published paper available online through Science Direct).
ABSTRACT: Since Max Weber, there has been an active debate on the impact of religion on people’s economic attitudes. Much of the existing evidence, however, is based on cross-country studies in which this impact is confounded by differences in other institutional factors. We use the World Values Surveys to identify the relationship between intensity of religious beliefs and economic attitudes, controlling for country fixed effects. We study several economic attitudes toward cooperation, the government, working women, legal rules, thriftiness, and the market economy. We also distinguish across religious denominations, differentiating on whether a religion is dominant in a country. We find that on average, religious beliefs are associated with "good" economic attitudes, where "good" is defined as conducive to higher per capita income and growth. Yet religious people tend to be more racist and less favorable with respect to working women. These effects differ across religious denominations. Overall, we find that Christian religions are more positively associated with attitudes conducive to economic growth.
19. The Effects of Banking Mergers on Loan Contracts [Abstract], Journal of Finance, February 2002, 57(1): 329-368 (Published paper available online through Ingenta).
ABSTRACT: This paper studies the effects of banking mergers on individual loan borrowers. Using information on individual loan contracts between banks and companies, I analyze the consequences of banking consolidation on banks' credit policies. I find that (i) in-market mergers are beneficial to borrowers if these mergers involve the acquisition of banks with small market shares. In these cases, interest rates charged by the consolidated banks decrease, consistently with the view that horizontal mergers generate efficiency gains. However, as the local market share of the acquired bank increases, the efficiency effect is offset by market power; (ii) mergers have different distributional effects across borrowers of different sizes; (iii) small borrowers of target banks are less likely to borrow in the future from the consolidated bank than borrowers of similar banks not involved in mergers. The decision to deny credit to small borrowers does not seem to be based on the quality of the borrower, confirming potential adverse welfare effects of the banking consolidation on the availability of credit to small businesses.
20. Time Varying Risk Aversion [Abstract], (with Luigi Guiso and Luigi Zingales), Working Paper, July 2011.
ABSTRACT: We use a repeated survey of a large sample of clients of an Italian bank to measure possible changes in investors’ risk aversion following the 2008 financial crisis. We find that both a qualitative and a quantitative measure of risk aversion increase substantially after the crisis. These changes are correlated with changes in portfolio choices, but do not seem to be correlated with “standard” factors that affect risk aversion, such as wealth, consumption habit, and background risk. This opens the possibility that psychological factors might be driving it. To test whether a scary experience (as the financial crisis) can trigger large increases in risk aversion, we conduct a lab experiment. We find that indeed students who watched a scary video have a certainty equivalent that is 27% lower than the ones who did not.
21. Can we infer social preferences from the lab? Evidence from the trust game [Abstract], (with Nicole Baran and Luigi Zingales), Working Paper, August 2009.
22. Procrastination and Impatience [Abstract], (with Ernesto Reuben and Luigi Zingales), Working Paper, April 2009.
ABSTRACT: We use a combination of lab and field evidence to study whether preferences for immediacy and the tendency to procrastinate are connected as in O'Donoghue and Rabin (1999a). To measure immediacy, we have participants choose between smaller-sooner and larger-later rewards. Both rewards are paid by check to control for transaction costs. To measure procrastination, we record how fast participants cash their checks and complete other tasks. We find that individuals with a preference for immediacy are more likely to procrastinate. We also find evidence that individuals differ in the degree to which they anticipate their own procrastination.
23. Long Term Persistence [Abstract], (with Luigi Guiso and Luigi Zingales), Working Paper, August 2008. This paper previously circulated with the title "Was Putnam Right?"
ABSTRACT: Is social capital long lasting? Does it affect long term economic performance? To answer these questions we test Putnam’s conjecture that today marked differences in social capital between the North and South of Italy were due to the culture of independence fostered by the free city-states experience in the North of Italy at the turn of the first millennium. We show that the medieval experience of independence has an impact on social capital within the North, even when we instrument for the probability of becoming a city-state with historical factors (such as the Etruscan origin of the city and the presence of a bishop in year 1,000). More importantly, we show that the difference in social capital among towns that in the Middle Ages had the characteristics to become independent and towns that did not exists only in the North (where most of these towns became independent) and not in the South (where the power of the Norman kingdom prevented them from doing so). Our difference in difference estimates suggest that at least 50% of the North-South gap in social capital is due to the lack of a free city-state experience in the South.
24. Understanding Trust [Abstract], (with Anna Toldrà and Luigi Zingales), Working Paper, August 2010.
ABSTRACT: Several papers study the effect of trust by using the answer to the World Values Survey (WVS) question "Generally speaking, would you say that most people can be trusted or that you can’t be too careful in dealing with people?" to measure the level of trust. Glaeser et al. (2000) question the validity of this measure by showing that it is not correlated with senders’ behavior in the standard trust game, but only with his trustworthiness. By using a large sample of German households, Fehr et al. (2003) find the opposite result: WVS-like measures of trust are correlated with the sender’s behavior, but not with its trustworthiness. In this paper we resolve this puzzle by recognizing that trust has two components: a belief-based one and a preference based one. While the sender behavior’s reflects both, we show that WVS-like measures capture mostly the belief-based component, while questions on past trusting behavior are better at capturing the preference component of trust.
25. The Cost of Banking Regulation [Abstract], (with Luigi Guiso and Luigi Zingales), Working Paper, February 2007.
ABSTRACT: We use exogenous variation in the degree of restrictions to bank competition across Italian provinces to study both the effects of bank regulation and the impact of deregulation. We find that where entry was more restricted the cost of credit was higher and - contrary to expectations- access to credit lower. The only benefit of these restrictions was a lower proportion of bad loans. Liberalization brings a reduction in rate spreads and an increased access to credit at the cost of an increase in bad loans. In provinces where restrictions to bank competition were most severe, the proportion of bad loans after deregulation raises above the level present in more competitive markets, suggesting that the pre-existing conditions severely impact the effect of liberalizations.
26. Civic Capital as the Missing Link [Abstract], with Luigi Guiso and Luigi Zingales, Handbook of Social Economics, edited by Jess Benhabib, Alberto Bisin and Matthew Jackson, Volume 1, pp. 417-480, Elsevier, 2011. (Published version available online.)
ABSTRACT: This chapter reviews the recent debate about the role of social capital in economics. We argue that all the difficulties this concept has encountered in economics are due to a vague and excessively broad definition. For this reason, we restrict social capital to the set of values and beliefs that help cooperation—which for clarity we label civic capital. We argue that this definition differentiates social capital from human capital and satisfies the properties of the standard notion of capital. We then argue that civic capital can explain why differences in economic performance persist over centuries and discuss how the effect of civic capital can be distinguished empirically from other variables that affect economic performance and its persistence, including institutions and geography.
27. Between- and within-sex variation in hormonal responses to economic decision making tests in a large sample of MBA students, (with Dario Maestripieri, Nicole Baran, and Luigi Zingales), September, 2010, Stress.
28. A Description of the Templeton-Chicago MBAs Longitudinal Study [Abstract]
with Ernesto Reuben and Luigi Zingales (January 2008)
ABSTRACT: This document describes the data analyzed in the Templeton-Chicago MBAs longitudinal study. The study is based on the entire 2008 generation of MBA students from Chicago University’s Graduate School of Business. The data described in this document are obtained from three different sources: surveys, laboratory experiments, and the GSB’s admission department. We give a brief overview of each data source, in addition to a detailed description of the data-collection procedures.
29. Discussion of "The Bright Side of Internal Capital Markets" by Naveen Khanna and Sheri Tice, Journal of Finance, August 2001, 56(4): 1528-1531. (Published version available online through Wiley Online Library.)
30. Comments on "Lessons from Case Studies on Large Insolvencies" in Douglas D. Evanoff and George G. Kaufman (eds.), Systemic Financial Crises: Resolving Large Bank Insolvencies, pp. 391-394. New Jersey: World Scientific, 2005.
Dataset for paper "The Role of Social Capital in Financial Development," American Economic Review, 94(3): 526-556 (data download)
Somatic distance dataset from the paper "Cultural Biases in Economic Exchange?," The Quarterly Journal of Economics, 124(3), August 2009. (data download)
Sapienza's official bio
Kellogg School of Management