Research
Working papers
Managerial risk-taking incentives and political connections: Evidence from FAS123R (with Girard, A., Gnabo, J-Y., and Mantilla, D.)
This article studies the influence of executive risk-taking incentives on lobbying. Executive compensation is a common tool for aligning their risk-taking with that of shareholders. In particular, stock options have been widely used in compensation contracts for corporate employees. Investment in lobbying is a mechanism available to executives to protect the firm against risk. We use the implementation of the 2005 Financial Accounting Standard 123R (hereinafter FAS 123R) as a quasi-natural experiment to explore the role of option compensation in lobbying spending. The FAS 123R increased the cost of granting options as compensation, leading to a plausible exogenous shift in favor of diminishing option-based compensation. Our results show that the exogenous decrease in option-based compensation has a negative impact on lobbying expenditure, i.e. the need to buy political protection decreases as incentives for executive risk-taking decline.
Presented @ The 12th Christmas Meeting of Belgian Economists (University of Antwerp, 2024, forthcoming), DeFiPP seminar UNamur (Namur, 2024, forthcoming), Universidad de Los Andes School of Management 2024 Research Symposium (Bogota, 2024, forthcoming), Universidad de Los Andes School of Management AGORA Seminar (Bogota, 2023). (Early working paper version upon request)
Interlocking directorates and risk-taking incentives (with Mantilla, D.)
This paper studies how directorate interlocks impact risk-taking incentives. Using option-based compensation to measure risk-taking incentives, we demonstrate that directors with a larger network are less sensitive to risk. To support the causal hypothesis, we leverage executives exit of a firm as a quasi-natural experiment to explore the network-risk relationship. The exit of an executive decreases the centrality of the executives from the firm and the executives indirectly linked to the same firm, resulting in a plausibly exogenous decrease of their network. Our results are in line with the resource dependency theory suggesting that networks reduce uncertainty.
Presented @ Universidad de Los Andes School of Management (Bogota, internal seminar, forthcoming). (Early working paper version upon request)
Corporate lobbying and US federal grants: Information in exchange for compensation
R&R in Journal of Financial Stability
This paper examines the effect of firms' lobbying activities on US federal grants. My model indicates that firms lobbying the granting agency during the grant allocation process have 6.96 times bigger odds to get a federal award. The main results are robust across measures of lobbying, and account for endogeneity concerns by employing instrumental variable strategies. I also observe that federal grants are more responsive to lobbying expenditures to the granting agency when (1) firms show less unethical behaviors, (2) federal grant amounts are less transparent and (3) assets a more opaque. In addition, I find that firms receiving more federal grants tend to have lower cost of debt and higher CEO compensation, without being able to show higher firm performance. Overall, these results appear consistent with the informational lobbying theory, at the regulator level, and a self-serving behavior, at the management level.
Presented @ LAVG (Marseille, 2024), UCLouvain-Saint-Louis Brussels (Brussels, 2022), Econometric Society - Delhi School of Economics (online, 2020), UCLouvain (online, 2020) and UCLouvain-Saint-Louis Brussels (online, 2020).
Lobbying and cartel enforcement (with Girard, A. and Gnabo, J-Y.)
R&R in Applied Economics
This paper examines the effect of firms’ lobbying activities on penalties received from public competition authorities. We show that lobbying expenditures are negatively associated with the amount of the cartel sanction, across and within cartel. Our estimates also report that cartel sanctions are more responsive to lobbying expenditures when the lobbying firm qualifies for the leniency program. If we consider lobbying expenditures as a proxy for informativeness, more uncertainty in uncovering the cartel incentivises the antitrust authority to reduce the cartel sanction in exchange of lobby.
Presented @ LACEA conference (Bogota, 2023), DeFiPP seminar UNamur (Namur, 2022), DG Competition - Chief Economist Team seminar (Brussels, 2022), AMSE conference (Marseille, 2022), ECARES PhD seminar (Brussels, 2022), RSM doctoral seminar (Rotterdam, 2021), Benelux Corporate Finance Network seminar (online, 2021), CRESSE (Heraklion, 2021), INFER (online, 2020), RGS (Dortmund, 2020), WIPE (Reus, 2020), UCLouvain (LLN, 2019) and UCLouvain-Saint-Louis Brussels (Brussels, 2019).
Corporate lobbying and firm performance (with Girard, A. and Gnabo, J-Y.)
Evidence are surprisingly mixed regarding the influence of lobbying on the overall firm performance. This paper documents that the sensitivity of these empirical results comes from the use of different measures of firm size. We assess the change in results using different proxies of firm size and replicating models from the corporate finance literature. The estimates show that the discrepancy in the results is mainly driven by an omitted variable bias explained by the non-interchangeability of firm size proxies. Addressing the omitted variable and self-selection concerns, our results report a positive association between lobbying expenditures and firm performance.
Presented @ Universidad de Los Andes School of Management Seminar (online, 2023), FFA (Bordeaux, 2023), Belgian Forum of Finance (Brussels, 2023), UCLouvain (LLN, 2022) and UCLouvain-Saint-Louis Brussels (Brussels, 2022).
Publications
Corporate lobbying and firm performance variability (with Girard, A. and Gnabo, J-Y.) Finance Research Letters, 2023, 58, 104524.
Firm performance and the crowd effect in lobbying competition (with Girard, A. and Gnabo, J-Y.) Finance Research Letters, 2023, 53, 103618.
Leniency policy in hub and spoke cartels (with Buts, C., Jegers, M. and Vander Vennet, N.) European Competition Journal, 2024 (forthcoming).
Hub and Spoke Cartels: Incentives, Mechanisms and Stability (with Buts, C.) European Competition and Regulatory Law Review (CoRe), 2019, 3(1), 4-16.
Work in progress
“Common ownership and lobbying” (with Fiona Kasperk, Oxford University)
“Merger enforcement and licensing” (with Logan Emery, Erasmus University)
“Venture capital investments and political connections” (with Gianluca Gucciardi, Bicocca University)
“Comprendre les dynamiques économiques et de colonialité qui endiguent la décolonisation de la santé publique : construction d’un cadre conceptuel à l’aide d’une revue de la littérature” (with Yasmine El Addouli, Kit Royal Tropical Institute & Sherihane Bensemmane, Sciensano)