Taxing or nudging with a tram picture by Rudy and Peter Skitterians and Pixabay

Taxing or nudging? Researchpost #122

Social ESG data: Social media data for environmental sustainability: A critical review of opportunities, threats, and ethical use by Andrea Ghermandi et al. as of March 17th, 2023: “… we review the literature on the use of social media data in environmental and sustainability research. We find that they can play a novel and irreplaceable role in achieving the UN Sustainable Development Goals by allowing a nuanced understanding of human-nature interactions at scale, observing the dynamics of social-ecological change, and investigating the co-construction of nature values. We reveal threats to data access and highlight scientific responsibility to address trade-offs between research transparency and privacy protection, while promoting inclusivity“ (p. 1).

ESG news impact: Retail Investors and ESG News by Qianqian Li, Edward M. Watts, and Christina Zhu as of March 15th, 2023 (#143): “Consistent with retail investors paying attention to ESG-related news, they trade more when these events elicit greater attention from the media and other market participants. Yet, we find that retail investors only trade on this information when they deem it financially material to a company’s stock performance. … the extent to which a representative retail investor exhibits non-pecuniary preferences toward ESG factors is limited” (p. 26).

Traditional and alternative investment research

Good buybacks: Short-term and Long-term Shareholders: Allies or Foes? Evidence from Share Repurchases by Luis Garcia-Feijóo and Pedro Monteiro as of March 10th, 2023 (#17): “Stock buybacks have faced strong criticism because they are perceived to sacrifice valuable investments in capital and job creation for short-term returns. … Results indicate that stock buybacks reduce overinvestment associated with short-term investors … Thus … we find that firms have been effectively using buybacks to improve capital investment, aligning the interest of investors with different horizons. … We find no evidence that share repurchase exacerbate labor investment inefficiencies associated with the presence of short-term investors“ (p. 27).

MBA premium: Investing in Your Alumni: Endowments’ Investment Choices in Private Equity by Roland Füss, Stefan Morkoetter, and Maria Oliveira as of March 13th, 2023 (#28): “Based on a unique dataset consisting of information about U.S. university endowments, its commitments into PE funds, and fund managers’ biographies … empirical results confirm a higher incidence of alumni ties in PE fund commitments made by university endowments. The strongest evidence is found for endowments from lower ranked universities and for less experienced endowments … We do not find strong and statistically significant evidence that endowment commitments to funds managed by alumni outperform other endowments’ PE investments overall. We demonstrate that this is the case for investments into funds managed by MBA graduates specifically” (p. 23).

PERE club success: Investor Cliques and Superior Fund Performance in Less Efficient Markets: An Examination of Private Equity Real Estate Funds by Bobby Yu, Peng Liu, and Prashant Das as of March 2nd, 2023 (#21): “Our analysis of more than 2,000 private equity real estate (PERE) funds over three decades reveals outstanding performance among PERE funds dominated by investor cliques. Specifically, cliques with a more extensive co-investment history are associated with superior fund performance. Identified superior fund performance is due to cliques’ influence on fund operations and not because they are able to repeatedly select high-performing fund managers. We further provide evidence that although more patient with fund operations, investor cliques effectively keep the dry powder low, thus mitigate agency problems“ (abstract).

AI investment advice: GPT as a financial advisor by Paweł Niszczota and Sami Abbas as of March 15th, 2023 (#54): “We assess the ability of GPT–a large language model–to serve as a financial robo-advisor for the masses, by combining a financial literacy test and an advice-utilization task (the Judge-Advisor System). Davinci and ChatGPT (variants of GPT) score 58% and 67% on the financial literacy test, respectively, compared to a baseline of 31%. However, people overestimated GPT’s performance (79.3%) … Lower subjective financial knowledge increased advice-taking. We discuss the risk of overreliance on current large language models and how their utility to laypeople may change” (abstract).

Visuals matter: How Graphics Can Influence Investment Professionals’ Valuations in Judgments with Limited Time: Evidence from an Eye-Tracking Study by Ralf Frank and Christoph Hörner as of March 1st, 2023 (#62): “In our study, we show how a graphic in an IAP (Sö: investor and analyst presentations) can influence investment professionals’ judgments when time is limited. Eye-tracking data indicates that companies can use graphics that show a key driver model to guide investors’ attention toward specific performance indicators. … When successful KPIs are included in such a value-creation model, investors who have seen a graphic representation of such a model rate the company’s investment attractiveness more highly than investors who have not seen the graphic “ (p. 24/25).