2013 – Industrial Organization and Corporate Finance
Cutting Edge Research at IFN-Conference
On June 13-15 the annual IFN Stockholm Conference was held in Vaxholm, in the Stockholm archipelago. The topic was "Industrial Organization and Corporate Finance." In a series of presentations the participants discussed studies about the impact of vertical relations, entrepreneurship and market structure on efficiency, innovation and growth. The emphasis was on the impact of the global financial crisis and how financial markets affect domestic and international markets for corporate control.
Mikaela Carlström, Hanken School of Economics, responding to a study presented by Fausto Panunzi, Bocconi University (in the forefront).
In recent years, the globalization of both product and financial markets has resulted in significant changes in market structures and funding opportunities for both small and big businesses. To promote research in this field IFN arranged an academic conference on the subject. The focus was on what these changes mean for competitiveness and efficiency.
Production chains and financing options
In recent years market structures have undergone major changes. The share of private equity-owned corporations has increased and companies increasingly change their boundaries through vertical and horizontal mergers. A series of studies on this topic were presented during the conference. Lars Persson, IFN, presented a study (Buying to Sell: Private Equity Buyouts and Industrial Restructuring) that answers the question of how an active private equity market affects industry structure, competition and welfare. The study pointed out that temporary ownership by private equity firms could be socially desirable, because temporary ownership induces strong incentives to restructure firms in order to get a good price when it's time to sell the company.
Lars Persson, IFN, listening to Gordon Phillips, USC Marshall School of Business.
One issue that has long since been on researchers' agenda is the optimal scope for a company. How much should be produced by the company itself and how much can be outsourced? Gordon Phillips, University of Southern California, unveiled an innovative new way to measure the degree of vertical integration based on automated text analysis of annual reports. His study (The Incentives for Vertical Mergers and Vertical Integration) shows that firms in industries with a high degree of research and development are less likely to vertically integrate. By refraining from vertical integration, firms preserve ex-ante incentives for innovation among subcontractors. On a similar topic, Frans Saxén, Hanken School of Economics, presented a study (Strategic Supply-chain Financing) that analyzes supply chain financing. This type of financing has become an increasingly important source of capital for suppliers in many industries.
Risk taking and financial institutions
The debate about how and to what extent incentive contracts, which are often used in the financial sector, should be regulated and what effect these have on risk and stability, remains a topical issue. Roman Inderst, University of Frankfurt, presented a comprehensive analysis debating whether a regulated deferral of bonus payments to employees in the financial sector could lead to reduced risk-taking. The study (Regulating Deferred Incentive Pay) shows that regulation can have a positive impact by reducing the likelihood of rare and critical events. However, tighter regulation may also have negative effects as it becomes costlier to establish short-term incentive contracts.
Networking is an importat part of the IFN Conference in Vaxholm. In the photo can be seen from left: Yossi Spiegel, Tel Aviv University, Albert Banal-Estanol, Universitat Pompeu Fabra and Nadav Levy, IDC Herzliya School of Economics.
The rating agencies' way to rate and pool financial products played a central role in the run up to the financial crisis. Joel Shapiro, University of Oxford, presented a study (Credit Ratings and Security Design) showing that rating agencies may have incentives to adapt to the quality standards required by investors. When the proportion of investors with high quality demands, such as pension fund managers, increases it becomes more difficult to sell securities. This could increase the incentives for rating agencies to give artificially high ratings.
Participants at the 2013 IFN Stockholm Conference taking place in Vaxholm.
This year, in addition to employees from IFN a dozen researchers from universities in the U.S. and Europe participated: Albert Banal-Estanol (Universitat Pompeau Fabra), Mikaela Carlstrom (Hanken School of Economics), Roman Inderst (Goethe University Frankfurt am Main), Jens Josephson (Dept. of Economics, Stockholm University), Nadav Levy (Interdisciplinary Center (IDC), Herzliya), Fausto Panunzi (Bocconi University), Gordon Phillips (University of Southern California), Frans Saxén (Hanken School of Economics), Joel Shapiro (Saïd Business School, University of Oxford), Yossi Spiegel (Tel Aviv University) and Rune Stenbacka (Hanken School of Economics).
The IFN Stockholm Conference is an annual scientific conference funded by the Marianne and Marcus Wallenberg Foundation. Some of the papers presented are still preliminary and the results may change before the final version is published.