Research articles for the 2019-10-09

A Literature Review of Financial Contracting Theory from the Islamic and Conventional Overviews: Contributions, Gaps, and Perspectives
Ajmi, Hechem,AbdulAziz, Hassanuddeen,Kassim, Salina,Mansour, Walid
This paper discusses the financial contracting theory from the conventional and Islamic perspectives. It provides an overview of the contributions in this field and discusses the gaps in the literature. In addition, it proposes two relevant approaches namely the financial contracting enforceability approach and the adverse selection analysis in order to deal with conflicts of interest among economic agents. The first approach is meant to assess the contract that maximizes the value of the firm subject to the enforcement constraint for the agent and the participation constraint for the principal. The second approach considers an adverse selection framework in order to determine the principal’s subjective perception of the risk of default when equity and debt financings are used. Similarly, it suggests avenues for future research. Firstly, it calls for a deeper understanding of venture capital as a potential model of mushārakah. Secondly, it puts stress on the importance of examining crowd-funding functioning from the principal-agent point of view. Thirdly, it sheds some light on the necessity to yield financial explanation about the excessive use of murābaḥah instead of ijārah. In a nutshell, we assume that the alternative approaches can be adopted to provide relevant insights regarding the proposed future researches.

A Macroeconomic Model with Bond Liquidity
Gao, Tianchi
This paper considers a two-country macro model where private bond can serve as financial liquidity. With incomplete markets, higher bond liquidity leads to higher growth from more efficient financing of investment opportunities, but also generates higher instability by increasing equilibrium leverage and worsening the undercapitalized country’s terms of trade. Numerical experiments, based on a parameterized version of the model, show that welfare cost from instability can outweigh gains from higher growth. In particular, bond liquidity reduces welfare in economies with low fundamental volatilities and low credit market frictions, as leverage and hence stationary distribution in such environments are more sensitive to interest rate changes. In terms of macroprudential regulations, bond liquidity can significantly relax the optimal tightness of leverage constraints, while also moderately increase the optimal tax on credit. Lastly, this paper distinguishes between public and private liquidity, and explores the model’s fiscal policy implications.

Access to Safe Assets and Financial Stability
Macchiavelli, Marco
Does access to a safe asset lead to a flight to safety in times of stress? We use the 2013 debt limit episode as our laboratory to answer this question. Money market funds with access to safe repos offered by the Federal Reserve display less sensitivity of outflows to risk exposures, relative to similar funds without access to the Fed. Moreover, access to safe assets does not come at the expense of a flight to safety. Our findings highlight the importance of having access to safe assets in reducing financial fragility of the shadow-banking sector.

Accounting for Fixed Assets and Investment Efficiency: A Real Options Framework
Ruan, Lufei
In a perfect world, a manager's investment in fixed assets would increase with the assets' profitability. However, when managers privately know their project profitability and care about their company’s short-term share price, managers of less profitable firms face the temptation to overinvest in order to pool with strong firms. This creates pressure on strong firms to overinvest to the point where weak firms cease to find it worthwhile to mimic strong firms. I show that, when firms have abandonment options, the willingness of a weak firm's manager to mimic depends on the expected future resale value of the fixed assets. An impairment policy (prohibiting write-ups) reduces the value of abandonment options, which are particularly important for weak firms. The reduced value of the abandonment options decreases the amount of overinvestment required by strong firms to separate themselves from weak firms. I also show that allowing firms to choose depreciation schedules improves investment efficiency: in equilibrium, strong firms choose faster depreciation. Last, in the staged-investments setting, I show that an impairment policy also mitigates underinvestment at an initial stage. These findings rationalize the current accounting standards for fixed assets and contribute to related policy debates on accounting measurement.

Art Pricing with Computer Graphic Techniques
Lan Ju,Zhiyong Tu,Changyong Xue

This paper makes the first attempt to introduce the tools from computer graphics into the art pricing research. We argue that the creation of a painting calls for a combination of conceptual effort and painting effort from the artist. However, as the important price determinants, both efforts are long missing in the traditional hedonic model because they are hard to measure. This paper draws on the digital pictures of auctioned paintings from various renowned artists, and applies the image recognition techniques to measure the variances of lines and colors of these paintings. We then use them as the proxies for the artist's painting effort, and include them in the hedonic regression to test their significance. Our results show that the variances of lines and colors of a painting can significantly positively explain the sales price in a general context. Our suggested measurements can better capture the content heterogeneity of paintings hence improving on the traditional art pricing methodology. Our approach also provides a quantitative perspective for both valuation and authentication of paintings.

Banking Deregulation and Discrimination in Mortgage Lending
Chu, Yongqiang
This paper examines how interstate banking deregulation affects mortgage lending to minorities. I find that the mortgage approval rates for African Americans, compared with other borrowers, decrease after interstate banking deregulation. I also find that the effect is only present in out-of-state banks, but not in in-state banks or non-bank lenders, suggesting that the effect is driven by the strengthening of the bank balance sheet after deregulation, but not by the increased competition. Further analyses show that the effect is stronger for banks with weaker balance sheets before deregulation.

Beyond the LTV Ratio: New Macroprudential Lessons from Spain
Galán, Jorge,Lamas, Matias
Booming house prices have been historically correlated with the loosening of banks’ lending standards. Nonetheless, the evidence in Spain shows that the deterioration of lending policies may not be fully captured by the popular loan-to-value (LTV) ratio. Drawing on two large datasets comprising more than five million mortgage operations that cover the last financial cycle, we show that the LTV indicator may exhibit a misleading picture of actual mortgage credit imbalances and risk. In turn, risk identification improves when other metrics are considered. In particular, we show that loan-to-price (LTP) as well as ratios that consider the income of borrowers are major determinants of mortgage defaults. Moreover, we identify relevant non-linear effects of lending standards on default risk. Finally, we document that the relationship between lending standards and default rates changes over the cycle. Overall, the findings provide useful insights for the design of the macroprudential policy mix and, in particular, for the implementation of borrower-based measures.

Bootstrapping the Gini Index of the Network Degree: An Application for Italian Corporate Governance
Drago, Carlo,Ricciuti, Roberto
We propose a new approach based on bootstrapping to compare complex networks. This is an important task when we wish to compare the effect of a (policy) shock on the structure of a network. The bootstrap test compares two values of the Gini index, and the test is performed on the difference between them. The application is based on the interlocking directorship network. At the director level, Italian corporate governance is characterized by the widespread occurrence of interlocking directorates. Article 36 of Law 214/2011 prohibited interlocking directorates in the financial sector. We compare the interlocking directorship networks in 2009 (before the reform) with 2012 (after the reform) and find evidence of an asymmetric effect of the reform on the network centrality of the different companies but no significant effects on Gini indices.

Corporate Governance Through Exit and Voice
Becht, Marco,Franks, Julian R.,Wagner, Hannes F.
How do active managers engage with portfolio firms? And, what role does monitoring and engagement play in their trading decisions? We use proprietary data from a large UK active asset manager with a long-standing commitment to stewardship to answer these questions. Our sample, based on nine years of daily data, provides a detailed picture of how fund managers’ decisions are influenced by monitoring target firms, especially through private engagements. Internal analysts and a centralised stewardship team monitor the board and management and place portfolio companies on a watch list when there are governance or other concerns. The asset manager engages more intensively with the watch list, abstaining or voting against management proposals in a third of meetings. More intensive engagement and negative votes against are associated with internal analyst downgrades and with exit by fund managers. We provide evidence that monitoring and engagement generate information advantages, which in turn contribute to alpha. Our results provide strong support for voice influencing exit.

Creating a unique mobile financial services framework for Myanmar: A Review
Dr Ma Nang Laik,Chester Mark Hong Wei

Myanmar is languishing at the bottom of key international indexes. United Nations considers the country as a structurally weak and vulnerable economy. Yet, from 2011 when Myanmar ended decades of military rule and isolationism and transited towards democracy, its breakneck development has led to many considering the country to be one of the final frontiers for growth in the Asia region. One such industry that has benefitted from the opening of the country is telecommunications. The mobile penetration rate at 4.8% in 2011 has increased significantly to 90% in 2016. Despite renewed optimism and development in the economy, one statistic remains disappointing. According to a report by Asian Development Bank (ADB), only 23% of the adult population have access to a bank account. This highlights a need to reach out and increase access to financial resources to a population that is severely unbanked and underbanked. This creates an interesting proposition of allowing both the telecommunications and financial sector to form the mobile financial services (MFS) sector and meet the need of improving access to financial resources for the population. This report explores the government role in supporting, growing and sustaining the MFS sector and conducts a comparative research into Singapore, Malaysia and Thailand to understand the steps taken by these governments to develop their own Financial Technology (FinTech), specifically MFS, industry. Finally, the report will present preliminary recommendations that the Myanmar government could consider implementing to drive growth in its MFS sector.

Distributionally Robust XVA via Wasserstein Distance Part 2: Wrong Way Funding Risk
Derek Singh,Shuzhong Zhang

This paper investigates calculations of robust funding valuation adjustment (FVA) for over the counter (OTC) derivatives under distributional uncertainty using Wasserstein distance as the ambiguity measure. Wrong way funding risk can be characterized via the robust FVA formulation. The simpler dual formulation of the robust FVA optimization is derived. Next, some computational experiments are conducted to measure the additional FVA charge due to distributional uncertainty under a variety of portfolio and market configurations. Finally some suggestions for future work, such as robust capital valuation adjustment (KVA) and margin valuation adjustment (MVA), are discussed.

Do Investors Recognize Biases in Analysts' Forecasts?
Baird, Philip L.
This study presents direct evidence on the question whether investors recognize the widely documented biases in securities analysts’ earnings forecasts. The internal rate of return implied by current stock price and consensus earnings forecasts is found to be correlated with indicators of bias in a manner consistent with investors discounting optimistic earnings forecasts at higher rates of return and less optimistic forecasts at lower rates of return. In a departure from studies of excess returns, the evidence in implied returns indicates that investors recognize the biases in analysts’ earnings forecasts.

Does Costly Reversibility Matter for U.S. Public Firms?
Bai, Hang,Li, Erica X. N.,Xue, Chen,Zhang, 张橹, Lu
Yes, most likely. The firm-level evidence on costly reversibility is even stronger than the prior evidence at the plant level. The firm-level investment rate distribution is highly skewed to the right, with a small fraction of negative investments, 5.79%, a tiny fraction of inactive investments, 1.46%, and a large fraction of positive investments, 92.75%. When estimated via simulated method of moments, the standard investment model explains the average value premium, while simultaneously matching the key properties of the investment rate distribution, including the cross-sectional volatility, skewness, and the fraction of negative investments. The combined effect of costly reversibility and operating leverage is the key driving force behind the model’s quantitative performance.

Estimating and decomposing most productive scale size in parallel DEA networks with shared inputs: A case of China's Five-Year Plans
Saeed Assani,Jianlin Jiang,Ahmad Assani,Feng Yang

Recently (Assani et al. 2018) introduced the concept of the most productive scale size (MPSS) for multi-stage data envelopment analysis (DEA) systems which are connected in series. However, some real-life applications may have different structures. This paper investigates the MPSS measurements for systems consisting of multiple subsystems connected in parallel. New models for determining the MPSS of the system and the subsystems are proposed. It is proved that the MPSS of the system can be decomposed as the weighted sum of MPSS of the individual subsystems. The main result is that the system is overall MPSS if and only if it is MPSS in each subsystem. MPSS decomposition allows policymakers to target the non-MPSS subsystems of the production process in order to the subsequent improvements. An application of China's Five-Year Plans (FYPs) is used to show the applicability of the proposed methods for estimating and decomposing MPSS in parallel network DEA. Industry and Agriculture sectors with shared inputs are considered as two subsystems in the FYPs. Interesting findings have been noticed. First, for an equal ratio of shared inputs (50 Industry: 50 Agriculture), the Industry sector achieved MPSS in 22 years compared to 17 years in Agriculture. In other words, using the same resources of population, GDP, and general government final consumption, the Industry sector is more stable and productive than the Agriculture sector. Second, the last two FYPs, 11th and 12th, were the perfect two FYPs among the others.

Extreme Dependencies in the European Banking Sector
Gkillas, Konstantinos,Konstantatos, Christoforos,Longin, François,Tsagkanos, Athanasios
We investigate the impact of 2008 global financial crisis due to Lehman Brothers collapse on tail dependence structure of the largest systemic banks in euro in a pairwise comparison using bivariate extreme value theory. The dataset includes banks equity prices from area core (Austria, Belgium, France and Germany) and periphery (Greece, Ireland, Italy, Portugal and Spain). We use the multivariate extreme value theory to model the tail dependence structure and we focus on extreme correlation to quantify the downside and upside dependencies. During the European sovereign debt crisis period, our findings reveal that the extreme correlation substantially increases among the banks of the core during the crisis. However, in same period, among the systemic banks in the we observe both increases and decreases to the level of extreme correlation. We also show that during the crisis the probability that shocks transmitted among the systemic banks in the core; and between the systemic banks in core and periphery is significantly higher.

Guarantees in Ṣukūk between Sharīʿah Objectives and Contract Conditions
Aidi, Ali bin Hussein,Salama, Muhammad
Guarantees offered for ṣukūk in Islamic finance have become a problematic issue of discussion. From the authors’ perspective, the issue should be approached from two aspects: one considering the required conditions for the validity of contracts and the other considering the Sharīʿah objectives. This research aims to emphasize the necessity of considering the objectives of contracts from a Sharīʿah perspective before judging their validity; particularly with regard to guaranteed ṣukūk. To achieve this goal, the research employs two methods: one descriptive and the other analytical as well as critical. The research has concluded that it is not permissible to stipulate holding the ṣukūk issuer liable neither for the ṣukūk nominal values nor for a predetermined amount of profit; that the idea of holding the ṣukūk issuer responsible based on considering him a joint muḍārib is not founded on solid evidence; that it is not permissible for the muḍārib, partner, or wakīl to be committed to give loan to ṣukūk holders when the actual return for ṣukūk is less than expected; that, in some of their applications, ṣukūk based on lease ending with ownership involve the impermissible ʿīnah transaction; that guarantees in ṣukūk contradict Sharīʿah rules when the issuer undertakes to purchase the ṣukūk assets at their nominal values at the end of the muḍārabah, mushārakah, or wakālah; and that the criteria to assess Islamic ṣukūk on the basis of Sharīʿah objectives can be divided into: criteria related to the motive, criteria related to the contract structure, and criteria for the outcomes of implementing the product.

Migrant Tenure Abroad and the Differential Impact of Remittances for Entrepreneurship in Developing Countries
Cummings, Michael,Deeds, David L.,Vaaler, Paul M.
We use social identity and agency logic to theorize and test hypotheses about how migrants’ different abilities and motivations tied to tenure abroad change the impact of their remittances on venture investment back home. Regression and related analyses of remittances to 33 developing countries from 2001â€"2010 indicate that, for migrants residing abroad for less (more) than a year, remittances significantly increase new business founding rates (venture-funding availability). Our results suggest that migrants’ tenure abroad shifts remittance-based venture investment activity in ways consistent with shifting importance in migrants’ dual social identities and their related entrepreneurial abilities and motivations. Shorter-term migrants identifying more with their home countries remit to found ventures that provide livelihoods upon their return. Longer-term migrants identifying more with their host countries remit to fund ventures from afar that provide individual financial returns and, perhaps, social returns derived from assisting home-country family members, local communities, and the broader homeland.

Most productive scale size of China's regional R&D value chain: A mixed structure network
Saeed Assani,Jianlin Jiang,Ahmad Assani,Feng Yang

This paper offers new mathematical models to measure the most productive scale size (MPSS) of production systems with mixed structure networks (mixed of series and parallel). In the first property, we deal with a general multi-stage network which can be transformed, using dummy processes, into a series of parallel networks. In the second property, we consider a direct network combined with series and parallel structure. In this paper, we propose new models to measure the overall MPSS of the production systems and their internal processes. MPSS decomposition is discussed and examined. As a real-life application, this study measures the efficiency and MPSS of research and development (R&D) activities of Chinese provinces within an R&D value chain network. In the R&D value chain, profitability and marketability stages are connected in series, where the profitability stage is composed of operation and R&D efforts connected in parallel. The MPSS network model provides not only the MPSS measurement but also values that indicate the appropriate degree of intermediate measures for the two stages. Improvement strategy is given for each region based on the gap between the current and the appropriate level of intermediate measures. Our findings show that the marketability efficiency values of Chinese R&D regions were low, and no regions are operated under the MPSS. As a result, most Chinese regions performed inefficiently regarding both profitability and marketability. This finding provides initial evidence that the generally lower profitability and marketability efficiency of Chinese regions is a severe problem that may be due to wasted resources on production and R&D.

On the feasibility of parsimonious variable selection for Hotelling's $T^2$-test
Michael D. Perlman

Hotelling's $T^2$-test for the mean of a multivariate normal distribution is one of the triumphs of classical multivariate analysis. It is uniformly most powerful among invariant tests, and admissible, proper Bayes, and locally and asymptotically minimax among all tests. Nonetheless, investigators often prefer non-invariant tests, especially those obtained by selecting only a small subset of variables from which the $T^2$-statistic is to be calculated, because such reduced statistics are more easily interpretable for their specific application. Thus it is relevant to ask the extent to which power is lost when variable selection is limited to very small subsets of variables, e.g. of size one (yielding univariate Student-$t^2$ tests) or size two (yielding bivariate $T^2$-tests). This study presents some evidence, admittedly fragmentary and incomplete, suggesting that in some cases no power may be lost over a wide range of alternatives.

Optimal Closing Benchmarks
Frei, Christoph,Mitra, Joshua
In financial markets, the closing price serves as an important benchmark. Accordingly, its stability is of great concern to market administrators, as they desire to have a benchmark that is robust against distorting and manipulating trades. We introduce a market model to analyze the stability of the closing price with presence of three types of volume: distorting volume, volume that targets the closing price, and volume that is unrelated to the closing price. We find that the optimal closing price is either the price from an auction or the volume weighted average price (VWAP) from regular trading only, explaining the prevalence of these closing benchmarks on financial markets. A succinct condition depending on the different volume types indicates when the inclusion of a closing auction is optimal.

Perceptions of the Threat to National Security and the Stock Market
Omar, Ayman,Lambe, Brendan,Wisniewski, Tomasz Piotr
This paper investigates the impact of national security concerns on equity valuations. While existing literature focuses on actual events of violent nature, our approach differs in that we examine the effect of a continuous index derived from media coverage of these concerns. Our analysis documents significant changes in the first and second moments of US equity return distribution arising from fluctuations in national security uncertainty. This result is corroborated using a country-specific geopolitical risk index in a sample of 16 emerging markets. Our findings indicate that journalistic reportage can affect stock market investors beyond the events that have transpired.

Political Openness and Armed Conflict: Evidence from Local Councils in Colombia
Hector Galindo-Silva

In this paper, I empirically investigate how the openness of political institutions to diverse representation can impact conflict-related violence. By exploiting plausibly exogenous variations in the number of councillors in Colombian municipalities, I develop two sets of results. First, regression discontinuity estimates show that larger municipal councils have a considerably greater number of political parties with at least one elected representative. I interpret this result as evidence that larger municipal councils are more open to diverse political participation. The estimates also reveal that non-traditional parties are the main beneficiaries of this greater political openness. Second, regression discontinuity estimates show that political openness substantially decreases conflict-related violence, namely the killing of civilian non-combatants. By exploiting plausibly exogenous variations in local election results, I show that the lower level of political violence stems from greater participation by parties with close links to armed groups. Using data about the types of violence employed by these groups, and representation at higher levels of government, I argue that armed violence has decreased not because of power-sharing arrangements involving armed groups linked to the parties with more political representation, but rather because armed groups with less political power and visibility are deterred from initiating certain types of violence.

Quantifying Life Insurance Risk using Least-Squares Monte Carlo
Claus Baumgart,Johannes Krebs,Robert Lempertseder,Oliver Pfaffel

This article presents a stochastic framework to quantify the biometric risk of an insurance portfolio in solvency regimes such as Solvency II or the Swiss Solvency Test (SST). The main difficulty in this context constitutes in the proper representation of long term risks in the profit-loss distribution over a one year horizon. This will be resolved by using least-squares Monte Carlo methods to quantify the impact of new experience on the annual re-valuation of the portfolio. Therefore our stochastic model can be seen as an example for an internal model, as allowed under Solvency II or the SST. Since our model does not rely upon nested simulations it is computationally fast and easy to implement.

Risk-averse optimal stopping under ambiguity and partial information
Randall Martyr,John Moriarty

We obtain structural results for non-Markovian optimal stopping problems in discrete time when the decision maker is risk averse and has partial information about the stochastic sequences generating the costs. Time consistency is ensured in the problem by the aggregation of a sequence of conditional risk mappings, and the framework allows for model ambiguity. A reflected backward stochastic difference equation is used to characterise the value function and optimal stopping times.

The Impact of Macroeconomic Factors on US Islamic and Conventional Equity
Kantakji, Mazhar Hallak
This study explores the influence of economic fundamentals on both Islamic and conventional equity in the US stock market by applying various methods of time series techniques focusing on the period from January 1996 to September 2013. The empirical results show that the exogenous variables are industrial production (IP), interest rate (T3), and consumer production index (CPI); whereas Islamic stock index (IS), conventional stock index (CS), and money supply (M2) are endogenous variables. When IP, T3, or CPI receives a shock, it will deviate from the equilibrium and will transmit the shock to other variables whereas if IS, CS, or M2 undergoes a shock, the long-run combination will correct it through the short-run adjustment to the equilibrium. The empirical findings also reveal a higher impact of industrial production and lower impact of interest rate on Islamic equity, as compared to conventional equity. Our results are consistent with the theory that Islamic finance, due to its effective Sharīʿah screening process, is more prevalent in the real economic sector and less associated with interest-based activities.

The Impacts of the Alaska Permanent Fund Dividend on High School Status Completion Rates
Mattathias Lerner

Direct cash transfer programs have shown success as poverty interventions in both the developing and developed world, yet little research exists examining the society-wide outcomes of an unconditional cash transfer program disbursed without means-testing. This paper attempts to determine the impact of direct cash transfers on educational outcomes in a developed society by investigating the impacts of the Alaska Permanent Fund Dividend, which was launched in 1982 and continues to be disbursed on an annual basis to every Alaskan. A synthetic control model is deployed to examine the path of educational attainment among Alaskans between 1977 and 1991 in order to determine if high school status completion rates after the launch of the dividend diverge from the synthetic in a manner suggestive of a treatment effect.

The Nexus between Loan Portfolio Size and Volatility: Does Banking Regulation Matter?
Bremus, Franziska,Ludolph, Melina
Since the global financial crisis and the related restructuring of banking systems, bank concentration is on the rise in many countries. Consequently, bank size and its role for macroeconomic volatility (or: stability) is the subject of intense debate. This paper analyzes the effects of financial regulations on the link between bank size, as measured by the volume of the loan portfolio, and volatility. Using bank-level data for 1999 to 2014, we estimate a power law that relates bank size to the volatility of loan growth. The effect of regulation on the power law coefficient indicates whether regulation weakens or strengthens the size-volatility nexus. Our analysis reveals that more stringent capital regulation and the introduction of bank levies weaken the size-volatility nexus; in countries with more stringent capital regulation or levies in place, large banks show, ceteris paribus, lower loan portfolio volatility. Moreover, we find weak evidence that diversification guidelines weaken the link between size and volatility.

The Numerical Simulation of Quanto Option Prices Using Bayesian Statistical Methods
Lisha Lin,Yaqiong Li,Rui Gao,Jianhong Wu

In the paper, the pricing of Quanto options is studied, where the underlying foreign asset and the exchange rate are correlated with each other. Firstly, we adopt Bayesian methods to estimate unknown parameters entering the pricing formula of Quanto options, including the volatility of stock, the volatility of exchange rate and the correlation. Secondly, we compute and predict prices of different four types of Quanto options based on Bayesian posterior prediction techniques and Monte Carlo methods. Finally, we provide numerical simulations to demonstrate the advantage of Bayesian method used in this paper comparing with some other existing methods. This paper is a new application of the Bayesian methods in the pricing of multi-asset options.

Valuing Diversity: CEOS' Career Experiences and Corporate Investment
Hu, Conghui,Liu, Yu-Jane
This paper investigates the impact of CEOs' career experiences on corporate investment decisions. We hypothesize that CEOs with more diverse career experiences are less likely to be constrained by insufficient internal capital. The potential mechanism is that rich external experiences help CEOs accumulate social connections and these connections mitigate information asymmetry and lead to better access to external funds. Consistent with this argument, we find that firms with CEOs who have more diverse career experiences exhibit lower investment-cash flow sensitivity and exploit more outside funds, including both bank loans and trade credit. These effects are more pronounced among financially constrained firms. Even controlling for connections gained through financial institutions or government offices, the effect of diversity still remains very strong. Finally, we conduct several tests to mitigate the concern that our results are driven by the endogeneity of CEOs' appointments.