Presentation on theme: "Class: Surveys and Experiments Empirical Methods in Finance Victoria Ivashina March 7, 2013 1."— Presentation transcript:
Class: Surveys and Experiments Empirical Methods in Finance Victoria Ivashina March 7,
1. Surveys Core references: ** Graham, John R., and Campbell R. Harvey, 2001, “The Theory and Practice of Corporate Finance: Evidence from the Field,” Journal of Financial Economics, 60, ** Campello, Murillo, John R. Graham, and Campbell R. Harvey, 2010, “The Real Effects of Financial Constraints: Evidence from a Financial Crisis,” Journal of Financial Economics 97, Ben-David, Itzhak, John R. Graham, and Campbell R. Harvey, 2012, “Managerial Miscalibration,” 2012, forthcoming Quarterly Journal of Economics. ** Schreft, L. Stacey and Raymond E. Owens, 1991, “Survey evidence of Tighter Credit Conditions: What Does It Mean?” Federal Reserve Bank of Richmond. Lown, S. Cara, Donald P. Morgan, and Sonali Rohatgi, 2000, “Listening to Loan Officers: The Impact of Commercial Credit Standards on Lending Output,” Economic Policy Review. 2
1. Surveys Methods Why do surveys? – With a large-sample study we are often limited to proxies which are often imperfect – You get to ask qualitative and direct question E.g., When evaluating new projects how often you use DCF methods? Is the demand for credit lower? Is the supply of credit lower? But: – Selection (can assess it) – Surveys are reflection of beliefs, or, even worse, reflection of beliefs of “right” (vs. actions), and this can be very hard to assess – Design is important since questions can be misunderstood 3
1. Surveys Methods Self-completion surveys – Cheap(er)! – No interviewer effects – Gives the respondent time to think and/or consult with others But – High non-response rate (8-9% is high) Selection bias – High incompletion rate – And you don’t get to clarify questions extra emphasis on the design of the survey Interview-based surveys 4
1. Surveys Methods Important: you most likely will not get a chance to go back and correct it. So get it right the first time around – Get feedback from “prominent academics” – Run a test High incompletion rate, what to do? – Understand (design) incentives! Motivation and credibility is important: E.g., introductory letters – E.g., Grahm and Harvey worked with Financial Executives Institute Incentives for completion and quick return – A simple trade trick: Peer pressure… or maybe just resolution of uncertainty – Selective incompletion: You might want to alternate the order of questions 5
“Information Disclosure, Cognitive Biases and Payday Borrowing” (Marianne Bertrand and Adair Morse)
This is an important study: It paper provides evidence on the economic importance of cognitive limitations in the context of payday-lending. The cost of payday-lending is exorbitant – Why do people use it? (i) It is a rational decision (high opportunity cost); (ii) Customers are not properly informed /cognitive limitations. Insight into effectiveness of information disclosure as a policy measure (Policy options: inform and/or limit options and/or educate).
Sample: Follow up phone survey (October 2008) – 187 respondents The treatment had an effect, yet the “patients” don’t thank you for it?
Ironically, Saving Planner suggests getting rid of magazines. The carrot: Why magazines? (Is payday-borrowing a necessity?) Why these magazines? (What does the publisher get out of it?) Why would anybody want these magazines? More information on the field experiment: (relevant for the generalization of the results)