| 1. |
- Banerji, S., et al.
(författare)
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Money as a weapon: Financing a winner-take-all competition
- 2021
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Ingår i: Journal of Corporate Finance. - : Elsevier BV. - 0929-1199. ; 66
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Tidskriftsartikel (refereegranskat)abstract
- We investigate the capital structure of pioneering startup firms, which are frequently credited with opening new markets and niches in the digital era and often face the threat of the potential entry of successful, cash-rich firms from adjacent markets. Our analysis is made in the context of a winner-take-all competition in the form of an all-pay auction for the monopolistic position in a new market. We show that a pioneer's optimal capital structure exhibits widespread diversity and is determined by a tradeoff between entry deterrence and post-entry competition intensification. A pure-equity (a mixture of equity and risky debt) structure is optimal when (1) barriers to entry are small (large), (2) the future prospect of the new market is fairly certain and/or, (3) the new market is likely (unlikely) to create large externalities on the potential entrant's existing business. The post-entry competition is likely to engender large losses to both the winner and the loser. © 2020 Elsevier B.V.
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| 2. |
- Fang, Dawei, 1983
(författare)
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Dry Powder and Short Fuses: Private Equity Funds in Emerging Markets
- 2019
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Ingår i: Journal of Corporate Finance. - : Elsevier BV. - 0929-1199. ; 59, s. 48-71
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Tidskriftsartikel (refereegranskat)abstract
- One puzzling feature of domestic private equity (PE) funds in emerging markets is that such funds often have a “short fuse”, i.e., a much shorter lifespan than their developed market counterparts. Based on a simple agency model, we propose an explanation for this puzzle. We show that, under a long fuse, PE managers have incentives to game performance-based compensation schemes by opportunistically timing investments and burning money when early investments fail. Shortening the fuse restricts timing opportunism, but alleviates money-burning incentives only if managerial compensation is sufficiently concavified or the contract stipulates substantial investors' hurdle returns. Both of these options can force managers to concede rents to investors. Thus, managers face a tradeoff between rents and agency costs. In emerging markets, where agency costs are high, managers use a short fuse with incentive compatible compensation schemes to minimize agency costs. In contrast, in developed markets, where agency costs are low, managers use a long fuse to preserve rents. Based on these results, we further draw predictions on fund performance, managerial behavior, and investor rents for both long-fused developed-market funds and short-fused emerging-market funds. We also predict that, when institutional infrastructure in emerging markets improves and when domestic PE managers in emerging markets gain more experience, domestic PE funds in emerging markets will adopt the long-lifespan PE contracts typical in developed markets.
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| 3. |
- Fang, Dawei, 1983, et al.
(författare)
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How tournament incentives affect asset markets: A comparison between winner-take-all tournaments and elimination contests
- 2017
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Ingår i: Journal of Economic Dynamics and Control. - : Elsevier BV. - 0165-1889. ; 75, s. 1-27
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Tidskriftsartikel (refereegranskat)abstract
- We investigate the impact of investment managers׳ tournament incentives on investment strategies and market efficiency, distinguishing between winner-take-all tournaments (WTA), where a minority wins, and elimination contests (EC), where a majority wins. Theoretically, we show that investment managers play heterogeneous strategies in WTA and homogeneous strategies in EC, and markets are more prone to mispricing in WTA than in EC. Experimentally, we find that investment managers play more heterogeneous strategies in WTA than in EC, but this does not trigger significant differences in prices. Moreover, prices in WTA and EC do not differ significantly from markets composed of linearly incentivized subjects.
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| 4. |
- Fang, Dawei, 1983, et al.
(författare)
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Less Competition, More Meritocracy?
- 2022
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Ingår i: Journal of Labor Economics. - : University of Chicago Press. - 0734-306X .- 1537-5307. ; 40:3
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Tidskriftsartikel (refereegranskat)abstract
- Uncompetitive contests for grades, promotions, retention, and job assignments, which feature lax standards and limited candidate pools, are often criticized for being unmeritocratic. We show that when contestants are strategic, lax standards and exclusivity can make selection more meritocratic. When many contestants compete for a few promotions, strategic contestants adopt high-risk strategies. Risk-taking reduces the correlation between performance and ability. Through reducing the effects of risk-taking, "Peter principle" promotion policies, which entail promoting some contestants that are unlikely to be worthy, can increase the overall correlation between selection and ability and thus further meritocracy.
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| 5. |
- Fang, Dawei, 1983, et al.
(författare)
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Meeting new peers: The effects of Morningstar category reassignment on fund flows and star ratings
- 2021
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Ingår i: International Review of Financial Analysis. - : Elsevier BV. - 1057-5219. ; 77
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Tidskriftsartikel (refereegranskat)abstract
- We investigate how the reassignment of a fund's Morningstar category affects fund flow and Morningstar star rating. We find that funds assigned to a different category gain positive abnormal flows and this effect is significant mainly for high-rated funds. Category reassignment does not improve a fund's star rating on average, and flows are less responsive to a star-rating change if the rating change is likely to be driven by category reassignment. The positive abnormal flows captured by high-rated funds after category reassignment are consistent with a visibility story: some investors filter funds by Morningstar category and star rating, and category reassignment makes a fund more visible to a new group of investors if the fund is highly rated. In contrast, a low-rated fund is likely to be selected only by investors who do not refer to the fund's Morningstar information and, hence, gains little visibility from category reassignment. We also find evidence that more sophisticated investors are more likely to consider not only fund rating but also fund category when evaluating fund performance.
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| 6. |
- Fang, Dawei, 1983, et al.
(författare)
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Skewing the Odds: Taking Risks for Rank-Based Rewards
- 2014
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Ingår i: Econometric Society European Meeting, 2014-08-27, Toulouse; Royal Economic Society Conference, 2014-04-09, Manchester; Midwest Economic Association Conference, 2014-03-20, Evanston, Illinois; Erasmus School of Economics, 2014-11-10, Rotterdam.
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Konferensbidrag (övrigt vetenskapligt/konstnärligt)
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| 7. |
- Fang, Dawei, 1983, et al.
(författare)
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Turning Up the Heat: The Discouraging Effect of Competition in Contests
- 2020
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Ingår i: Journal of Political Economy. - : University of Chicago Press. - 0022-3808 .- 1537-534X. ; 128:5, s. 1940-1975
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Tidskriftsartikel (refereegranskat)abstract
- We study contests in which contestants are homogeneous and have convex effort costs. Increasing contest competitiveness, by making prizes more unequal, scaling up the competition, or adding new contestants, always discourages effort. These results have significant implications: although often criticized as evidence of laxity or cronyism, muting competition (e.g., adopting softer grading curves or less high-powered promotion systems) can both reduce inequality and increase output. Holding promotion contests at the division level rather than the firm level can boost employees’ effort. Our results are also consistent with personnel policies that feature egalitarian pay systems and dismissal of worst-performing employees.
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| 8. |
- Gärling, Tommy, 1941, et al.
(författare)
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Fast and Slow Investments in Asset Markets: Influences on Risk Taking
- 2019
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Ingår i: Behavioral Finance Working Group Conference. London: 6-7 June 2019.
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Konferensbidrag (övrigt vetenskapligt/konstnärligt)abstract
- In an experiment business school students (n=123) role play being investment managers in a fund company incentivized by rank-based performance compensations. Investments are made at self-paced rates in stocks with normal return distributions varying in expected value and variance. Results show that investments increase above but decrease and are relatively more risky below a relative comparison standard. Above the comparison standard, hypothetical monetary bonuses do not increase risk taking more than non-monetary bonuses, while below the comparison standard hypothetical monetary penalties suppress risk taking more than non-monetary penalties do. Compared to a control condition with no relative comparison standard and hypothetical incentives, risk taking is lower below but not different above the comparison standard. The difference in results suggest that time pressure and complexity of strategic optimization are determinants of elevated risk taking in asset market experiments investigating effects of rank-based performance compensations.
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| 9. |
- Gärling, Tommy, 1941, et al.
(författare)
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Fast and slow investments in asset markets: Influences on risk taking
- 2021
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Ingår i: Journal of Behavioral Finance. - : Informa UK Limited. - 1542-7560 .- 1542-7579. ; 22:1, s. 84-96
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Tidskriftsartikel (refereegranskat)abstract
- © 2020, © 2020 The Author(s). Published with license by Taylor & Francis Group, LLC. The aim is to investigate whether elevated risk taking in asset market experiments driven by rank-based performance incentives decrease if removing a time limit on choices and minimizing complexity of strategic optimization. In a scenario experiment, business school students (n = 123) acting as investment managers in a fund company make investments at self-paced rates. The results show that investments are influenced by rank-based compensations implemented as a relative comparison standard but not that risk taking is elevated. The motive to minimize losses relative to others appear to counteract risk taking, particularly if poor performance is penalized by reducing the fixed income.
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| 10. |
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