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The full text of the working paper is available at SSRN.

This paper investigates whether, and if so, to what extent, Level 3 fair values disclosed by European banks provide useful information to investors and are reflected in firm value changes. Using a unique sample of 416 hand-collected firm-year observations from European banks reporting under IFRS, in contrast to previous research conducted in the US, we find no overall evidence that changes in Level 3 fair values are associated with changes in firm value. However, the value relevance of Level 3 fair values depends on the category assigned to financial instruments. Level 3 fair values that are held for trading are reflected in firm value. Further analyses suggest that this effect is driven predominantly by banks that operate in market-based economies and hire audit firms with deep industry expertise

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The landmark decision by the U.S. Supreme Court on Citizens United v. Federal Election Commission asserts for the first time that corporations benefit from First Amendment protection regarding freedom of speech in the form of independent political expenditures, thus creating a new avenue for political activism. This paper studies how corporations adjusted their political activism in response to this ruling. The paper presents evidence consistent with the hypothesis that institutional investors, in particular public pension funds, have a preference for not using the new avenue for political activism, a preference not shared by other investors.

Many industries, including consumer electronics and telecommunications equipment, are characterized with
short product life-cycles, constant technological innovations, rapid product introductions, and fast obsolescence. Firms in such industries need to make frequent design changes to incorporate innovations, and the
effort to keep up with the rate of technological change often leaves little room for the consideration of product
reuse. In this paper, we study the design for reusability and product reuse decisions in the presence of both
a known rate of incremental innovations and a stochastic rate of radical innovations over time. We formulate
this problem as a Markov Decision Process. Our steady-state results confirm the conventional wisdom that a
higher probability of radical innovations would lead to reductions in the firm's investments in reusability as
well as the amount of reuse the firm ends up doing. Interestingly, the design for reusability decreases much
more slowly than the actual reuse. We identify some specific scenarios, however, where there is no tradeoff
between the possibility of radical innovations and the firms reusability and reuse decisions. Based on over
425,000 problem instances generated over the entire range of model parameters, we also provide insights
into the negative impact of radical innovations on firm profits, but show that the environmental impact of
increased radical innovation is not necessarily negative. Our results also have several implications for policy
makers seeking to encourage reuse.

The LeChatelier-Samuelson principle states that as a reaction to a shock, an agent's short-run adjustment of an action is smaller than the long-run adjustment of that action when the other related actions can also be adjusted. We extend the principle to strategic environments and define long run as an adjustment that also includes other players adjusting their strategies. We show that the principle holds for both idiosyncratic shocks (affecting only one player's action directly) and common shocks in supermodular games, only for idiosyncratic shocks in submodular games if the players' payoffs depend only on their own strategies and the sum of the rivals' strategies (for example, homogeneous Cournot oligopoly), and only for idiosyncratic shocks in other games of strategic substitutes or heterogeneity satisfying Morishima Conditions. We argue that the principle might also explain the empirical findings of overshifting of cost and unit tax by multiproduct firms.

This paper provides a legal and economic analysis of the European rules for regional state aid according to Article 107 (1) and (3) TFEU. It summarizes the historical evolution and the trends of regional aid rules and describes the economic rationale behind them. The main principles are discussed with reference to recent academic research, leading cases and the State Aid Modernization initiative (“SAM”). The current rules for the assessment of compatibility as laid down in the general block exemption and the regional aid guidelines 2014 are critically reviewed in light of these principles.

This paper studies the effect of new fund flows on investment behavior and the resulting equilibrium price of risk. The small fund industry model shows equilibria with overinvestment in unprofitable and underinvestment in profitable investment opportunities. The large fund industry model derives market prices for risk and analyzes the resulting price distortions in equilibrium. New flow of funds to the asset management industry lead to inefficient investment decisions, mispricing of risk, and distortion of market implied probabilities. Furthermore, the paper provides an explanation for partial market failure and trade among identical asset managers without assuming heterogeneous beliefs.