HOMBERT Johan

The thesis contains three essays. In the first essay, I investigate whether financial experts benefit from more machine-readable data in producing information in asset management. Exploiting an exogenous regulatory shock that makes firms' filings more machine-readable, I find that institutions with more financial experts have greater performance improvement than institutions with fewer financial experts, suggesting that financial experts benefit from more machine-readable data. This result allows for an assessment of the likelihood that algorithms will replace highly trained financial practitioners. In the second essay, I study the rationale and implications of the recent MiFID II regulation in Europe, which has made delegated asset managers' spending on sell-side analyst research more transparent to their clients. We show that transparency decreases the use of sell-side research but stimulates more buy-side research activity, which is consistent with the empirical results. Our model has additional predictions on managerial performance, liquidity, and social welfare. In the third essay, I study brokers in the private placement markets, who intermediate about 20% of the capital raised by non-financial firms in this market. I find that projects intermediated by brokers with better reputations are more likely to be fully funded. Contrary to existing theories about underwriters, projects sold through brokers are on average less likely to be fully funded and most issuers prefer direct sales. A model with both search frictions and asymmetric information suggests that these non-regularities may be due to the fact that the certification role of brokers is limited by competition between intermediated and direct sales. The model also explains some of the non-intuitive patterns of commission fees in the data. These results contribute to a better understanding of private equity markets and intermediaries in other financial markets.

No summary available.

We develop a model of vertical merger waves and use it to study the optimal merger policy. As a merger wave can result in partial foreclosure, it can be optimal to ban a vertical merger that eliminates the last unintegrated upstream firm. Such a merger is more likely to worsen market performance when the number of downstream firms is large relative to the number of upstream firms,.

The three chapters of this thesis study the financial choices of households over the course of their lives. In the first chapter, I use French administrative data on job-creating entrepreneurs to estimate a life-cycle model in which risk-averse individuals can start a business and return to wage employment. I estimate that the unobserved benefits of entrepreneurship amount to 6,100 euros per year, or 67,000 over the lifetime of a firm. In the second chapter, I estimate a portfolio choice model that takes into account the relationship between stock market returns and the asymmetry of idiosyncratic income shocks. The cyclicality of this asymmetry may explain why young or modestly wealthy households invest little in the stock market, and why the share of their wealth invested in stocks grows until retirement age.In the third chapter, I calibrate a portfolio choice model in which the labor market and the stock market are cointegrated. I estimate that the certainty equivalent of pension entitlements for employed households is 46% lower than the sum of annualized payments at the risk-free rate. At the national level, the adjusted value of pension entitlements is $19.6 trillion, or 37% less than the unadjusted value of $31 trillion.

No summary available.

No summary available.

No summary available.

We use French matched employer-employee data to track skilled individuals entering the labor market during the late 1990s tech bubble. The boom led to a sharp increase in the share of skilled entrants in the tech sector, which offers relative higher wages at the time. When the boom ends, however, the wage premium reverses and these skilled workers end up with a 5.5% wage discount ten years out, relative to similar peers who started in a non-tech sector. Other moments of the wage distribution of the boom, pre-boom, and post-boom cohorts are inconsistent with explanations based on a selection effect or a cycle effect. Instead, we provide suggestive evidence that workers allocated to the booming tech sector accumulate human capital early in their career that rapidly becomes obsolete.

No summary available.

No summary available.

We study intergenerational risk sharing taking place in one of the most common retail investment products in Europe---life insurance savings contracts---focusing on the 1.4 trillion euro French market. Using regulatory and survey data, we show that contract returns are an order of magnitude less volatile than the returns of assets backing the contracts. Contract return smoothing is achieved using reserves that absorb fluctuations in asset returns and that generate intertemporal transfers across generations of investors. We estimate the average annual amount of intergenerational transfer at 1.4% of contract value, i.e., 17 billion euros per year or 0.8% of GDP. While theory asserts that intergenerational risk sharing cannot take place in competitive markets because it relies on non-exploited return predictability, we show that: (a)~contracts returns are indeed predictable. (b)~investor flows barely react to predictable returns. (c)~observed fees offset the estimated gain from exploiting contract return predictability.

This thesis is composed of three articles on empirical banking economics. The first article deals with the impact of lending conditions on home ownership and real estate prices. It proposes a strategy for identifying causal effects using the Prêt à Taux Zéro policy. He concludes that a relaxation of lending conditions allows households with relatively lower incomes to become homeowners but significantly increases house prices. The second paper discusses the effect of capital requirements on bank lending to non-financial corporations. It isolates the component of capital requirements that is exogenous to macroeconomic conditions using the rating system of the French banking supervisor. It shows that measures of governance quality and strategy are important contributors to capital requirements. By plotting the effect of capital requirements on institutions' capital ratios and then on credit supply, we show that increasing capital requirements reduces credit supply. The third paper analyzes the accounting for credit risk in the European interbank market between 2011 and 2015 and how it is modified by monetary policy adjustments over the period. It focuses on the risk inherent in holding assets located in the peripheral countries of the euro zone. It shows that market access and interest rates paid by borrowers respond to this holding. The nature and magnitude of this response depend on monetary policy interventions.

The first chapter proposes a theory of financial intermediation, which explains the reasons for the coexistence of traditional banks and shadow banks. The argument developed is that these two types of banks are complementary, which is due to their mutually beneficial interaction in times of crisis. This argument is consistent with some of the stylized facts of the financial crisis that we document. The second chapter of this thesis consists of a detailed exposition and quantification of transfers between different generations of life insurance savers. These transfers give rise to intergenerational risk sharing, made possible by the existence of market friction. We show that this friction consists of imperfect competition between life insurers. The third chapter of this thesis exposes the liquidity risks to which life insurance companies in France are subject, and studies the resulting investment decisions. The empirical approach based on the institutional specificities of life insurance - the modalities of taxation of savers - highlights the causality of liquidity risk on the investment choices of life insurers. The fourth chapter studies the conditions under which firms choose to enter a new market via the acquisition of an existing firm (external entry) rather than by using their existing resources (internal entry). We show that firms that enter a new market via an acquisition are more likely to be those whose human capital is a priori inadequate for that market.

No summary available.

No summary available.

No summary available.

We study the effect of a merger between two large banks on credit market competition. We identify the competitive effect of the merger using matched loan-level and firm-level data and exploiting variation in the merging banks' market overlap across local lending markets. On the credit market side, we find a reduction in lending, in particular through termination of relationships. In the average market, bank credit decreases by 2.7%. On the real side, firm exit increases by 4%, whereas firms that do not exit and firms that start up experience no adverse real effect on investment and employment.

The capital of a bank is a key element of their soundness and in this thesis we examine its dynamics. Chapter 2 shows that the introduction of a deposit guarantee leads banks to increase their leverage. However, bank responses are heterogeneous: the effect decreases with size, systemicity and initial capitalization so that the largest banks and the initially least capitalized banks do not respond to the adoption of a deposit guarantee. Chapter 3 proposes a new measure to quantify the aggregate capitalization of banking sectors by considering market discipline and the regulatory framework. This index allows us to study how capital shortfalls relative to a bank-specific implied capital target induce aggregate credit fluctuations. The capitalization index is consistent with the Bank Lending Survey and is significantly correlated with future aggregate credit fluctuations, particularly during episodes of undercapitalization. Chapter 4 is not about bank capital but studies the impact of scientific standards and conventions (statistical significance levels) on the behavior of researchers. We identify irregularities in the distribution of t-stats from empirical papers and interpret these as the result of distorted incentives. Our identification allows us to separate publication bias from what we call inflation bias: the fact that researchers are tempted to inflate marginally rejected tests by choosing a "significant" specification.

Information collection and processing in financial institutions is challenging. This can delay the observation by traders of the exact capital charges and constraints of their institution. During this delay, traders face preference uncertainty. In this context, we study optimal trading strategies and equilibrium prices in a continuous centralized market. We focus on liquidity shocks, during which preference uncertainty is likely to matter most. Preference uncertainty generates allocative inefficiency, but need not reduce prices. Progressively learning about preferences generate round–trip trades, which increase volume relative to the frictionless market. In a cross section of liquidity shocks, the initial price drop is positively correlated with total trading volume. Across traders, the number of round–trips is negatively correlated with trading profits and average inventory.

This thesis is composed of three separate chapters. The first chapter shows that managers overreact to risks that come to their attention. After a hurricane, the shock to perceived liquidity risk produced by the disaster leads firms in the vicinity of the disaster area to temporarily increase their cash holdings while the actual risk has not changed. The second chapter shows that managers strategically influence investors' attention to earnings announcements by warning them of the date of the event at a later or later time. This strategy allows them to smooth the impact of bad results on their stock price over time. The third chapter studies the effect of league tables in M&A activities. League tables rank investment banks. A bank's league table ranking predicts its ability to generate new business in the future, which gives banks an incentive to manipulate their rankings.

We study whether R&D-intensive firms are more resilient to trade shocks. We correct for the endogeneity of R&D using tax-induced changes to R&D cost. While rising imports from China lead to slower sales growth and lower profitability, these effects are significantly smaller for firms with a larger stock of R&D (by about half when moving from the bottom quartile to the top quartile of R&D). We provide evidence that this effect is explained R&D allowing firms to increase product differentiation. As a result, while firms in import-competing industries cut capital expenditures and employment, R&D-intensive firms downsize considerably less.

No summary available.

No summary available.

We study whether R&D-intensive firms are more resilient to trade shocks. We correct for the endogeneity of R&D using tax-induced changes to the cost of R&D. On average across US manufacturing firms, rising imports from China lead to slower sales growth and lower profitability. These effects are, however, significantly smaller for firms with a larger stock of R&D -- by about half when moving from the 25th percentile to the 75th percentile of the R&D stock distribution. As a result, while the average firm in import-competing industries cuts capital expenditures and employment, R&D-intensive firms downsize considerably less.

In the first chapter, I show that traditional liquidity measures, such as market depth, are not always relevant for measuring investor welfare. I build a model of an order-driven market and show that high liquidity supply can correspond to poor execution conditions for liquidity providers and relatively low welfare.In the second chapter, I model the speed of price adjustments to news arrivals in order-driven markets, when investors have limited attention capacity.Due to their limited attention, investors imperfectly follow news arrivals. Due to their limited attention, investors imperfectly follow the arrival of news, so prices adjust to the news after a certain delay. This delay decreases as the level of attention of investors increases.The delay in price adjustment also decreases as the frequency at which news arrives, increases. The third chapter presents a work written in collaboration with Thierry Foucault. We build a model to explain how high-frequency trading can generate "mini-flash crashes" (a sudden change in price followed by a very rapid return to the previous level). Our theory is based on the idea that there is a tension between the speed at which information can be acquired and the accuracy of that information. When high-frequency traders implement strategies involving rapid reactions to market events, they increase their risk of reacting to noise and thus generate "mini flash crashes". Nevertheless, they increase the informational efficiency of the market.

We study a large-scale French reform that provided generous downside insurance for unemployed individuals starting a business. We study whether this reform affects the composition of people who are drawn into entrepreneurship. New firms started in response to the reform are, on average, smaller, but have similar growth expectations and education levels compared to start-ups before the reform. They are also as likely to survive or to hire. In aggregate, the effect of the reform on employment is largely offset by large crowd-out effects. However, because new firms are more productive, the reform has the impact of raising aggregate productivity. These results suggest that the dispersion of entrepreneurial abilities is small in the data, so that the facilitation of entry leads to sizable Schumpeterian dynamics at the firm-level.

A forced asset sale occurs when a firm needs to sell assets to generate cash and, because potential buyers face financial constraints, assets are traded at a price below fundamental value. In the first chapter, I show that a policy designed to support asset prices aggravates agency problems within firms. In the second, I establish that asset prices in the decentralized economy are socially too low if liquidity shocks dominate, but are too high if solvency shocks are prevalent. In the third chapter, co-authored with David Thesmar, we show using a theoretical model that we test on hedge fund data, that funds with contractual provisions limiting outflows, such as lock-in periods, buy assets when the rest of the industry experiences outflows and must liquidate their positions.