We analyze recent changes in the occupational structure of French manufacturing firms. Firms employ a greater proportion of engineers working on the design and marketing of new products and a lower proportion of high‐skill experts working in administration‐related activities. Firms have also reduced the share of production‐related activities at both the levels of high‐skill and low‐skill workers. We develop a labor demand model that shows the role played by technological change. New technologies make it possible to allocate more human resources to the activities that are the most difficult to program in advance.

We analyze the dynamics of earnings forecasts and discount rates implicit in valuations during the COVID-19 crisis. Forecasts over 2020 earnings have been progressively reduced by 16%. Longer-run forecasts have reacted much less. We estimate an implicit discount rate going from 8.5% in mid-February to 11% at the end of March and reverting to its initial level in mid-May. Over the period, the unlevered asset risk premium increases by 50bp, the leverage effect also increases by 50bp, while the risk free rate decreases by 100bp. Hence, analysts’ forecast revisions explain all of the decrease in equity values between January 2020 and mid-May 2020. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Limits to arbitrage arise because financial intermediaries may face funding constraints when mispricing worsens. Using a model with limits to arbitrage, where we allow arbitrageurs to secure capital even in case of underperformance, we show that arbitrageurs that are more protected from withdrawals have more mean-reverting and volatile returns. Using data on hedge fund performance, we find robust support for these hypotheses: Funds with contractual impediments to withdrawals, and funds with performance-insensitive outflows, recover more quickly after a bad year and have more volatile returns. Our evidence is consistent with the idea that some hedge funds overcome the limits to arbitrage.

We study the relation between the ownership structure of financial assets and non-fundamental risk. We define an asset to be fragile if it is susceptible to non-fundamental shifts in demand. An asset can be fragile because of concentrated ownership, or because its owners face correlated or volatile liquidity shocks, i.e., they must buy or sell at the same time. We formalize this idea and apply it to mutual fund ownership of US stocks. Consistent with our predictions, fragility strongly predicts price volatility. We then extend the logic of fragility to investigate two natural extensions: (1) the forecast of stock return comovement and (2) the potentially destabilizing impact of arbitrageurs on stock prices.

Egalement paru dans : Document de travail du LEA ; 00-02

Analyst forecasts outperform econometric forecasts in the short run but underperform in the long run. We decompose these differences in forecasting accuracy into analysts’ information advantage, forecast bias, and forecast noise. We find that noise and bias strongly increase with forecast horizon, while analysts’ information advantage decays rapidly. A noise increase with horizon generates a mechanical reversal in the sign of the error-revision (Coibion-Gorodnichenko) regression coefficient at longer horizons, independently of over-/underreaction. A parsimonious model with bounded rationality and a noisy cognitive default matches the term structures of noise and bias jointly.

We propose a method to estimate the effect of firm policies (e.g., bankruptcy laws) on allocative efficiency using (quasi-)experimental evidence. Our approach takes general equilibrium effects into account and requires neither a structural estimation nor a precise assumption on how the experiment affects firms. Our aggregation formula relies on treatment effects of the policy on the distribution of output-to-capital ratios, which are easily estimated. We show this method is valid for a large class of commonly used models in macrofinance. We apply it to the French banking deregulation episode of the mid- 1980s and find an increase in aggregate TFP of 5 percent. (JEL G21, G24, G28, G31, G32, H25)

Using a data set of 839 French deals, we look at the change in corporate behavior following a leveraged buyout (LBO) relative to an adequately chosen control group. In the 3 years following a leveraged buyout, targets become more profitable, grow much faster than their peer group, issue additional debt, and increase capital expenditures. We then provide evidence consistent with the idea that in our sample, private equity funds create value by relaxing credit constraints, allowing LBO targets to take advantage of hitherto unexploited growth opportunities. First, post-buyout growth is concentrated among private-to-private transactions, i.e., deals where the seller is an individual, as opposed to divisional buyouts or public-to-private LBOs where the seller is a private or a public firm. Second, the observed post-buyout growth in size and post-buyout increase in debt and capital expenditures are stronger when the targets operate in an industry that is relatively more dependent on external finance. These results contrast with existing evidence that LBO targets invest less or downsize.

We study the effect of investor horizons on corporate behavior. We argue that longer investor horizons attenuate the effect of stock mispricing on corporate policies. Consistent with our argument, we find that when a firm is undervalued, greater long-term investor ownership is associated with more investment, more equity financing, and less payouts to shareholders. Our results do not appear to be explained by long-term investor self-selection, monitoring (corporate governance), or concentration (blockholdings). Our results are consistent with a version of market timing in which mispriced firms cater to the tastes of their short-term investors rather than their long-term investors.

Using plant-level data from France, we document a potential cost of political connections for firms that is not offset by other benefits. Politically connected CEOs alter corporate employment decisions to help (regional) politicians in their re-election efforts by having higher job and plant creation rates, and lower rates of destruction in election years, especially in politically contested areas. There is little evidence that connected firms benefit from preferential access to government resources, such as subsidies or tax exemptions. Connected firms are less profitable in the cross-section and also experience a drop in profitability when a connected CEO comes to power.