Customer Capital and the Aggregate Effect of Short-Termism (with Marco Errico and Luigi Pollio) [Draft] [Slides]
Presented at the Spring 2023 GLMM BC-BU, at the Federal Reserve Bank of Boston.
Managers face continuous pressure to meet short-term forecasts and targets, which can potentially impact firms' investments in customer capital and pricing decisions. Using data on U.S. public companies together with IBES analysts' forecasts, we find that firms that just meet analysts' profit forecasts have an average markup growth of 0.8% higher than firms that just miss targets, suggesting opportunistic markup manipulation. To assess the aggregate economic implications of short-termism, we develop and estimate a quantitative firm-heterogeneity model that incorporates short-term frictions and endogenous markups resulting from customer accumulation. In the model, short-termism arises optimally to offset manager's private incentives, resulting in higher markups and lower customer capital stock. We find that, on average, firms increase markups by 8% due to short-termism, generating $38 millions of additional annual profits. At the macro level, the distortion reduces consumers' welfare by 4% and lowers the annual total market capitalization by $3.1 trillions on average.
The Dynamics of Capital Flows: the Impact of Global and Local Uncertainty (with Francesco Beraldi and Chenping Yang)
Capital flow dynamics are subject to investors' preferences over time towards certain type of assets rather than others. In the last decades there has been a growing interest in finding out what determines these flows. We want to test whether local uncertainty is a push factor for every country or there is some sort of asymmetric behavior between US and RoW, as already seen in many aspects of the financial markets. Our main empirical result indicates that there is a remarkable heterogeneity between these two groups, showing that US acts once more time as a star, pulling capital whenever it experience a period of local uncertainty. From this evidence we then develop a model, which is able to encompass the more generic existing ones, by introducing the asymmetric role played by US, compared to the other countries.