- "Can Restructuring Gains Be Sustained Without Ownership Changes? Evidence from Withdrawn Privatizations", 2021. With William L. Megginson. Journal of Financial and Quantitative Analysis 56 (4): pp 1476-1504.

Abstract: By employing a novel, hand-collected sample of withdrawn and completed share issue privatizations (SIPs) we show that both groups undergo comparable restructuring processes over the three years preceding the event. We employ a matching procedure to explicitly control for the identified restructuring effect, isolating the ultimate consequences of the ownership transfer from political to private investors on corporate policies and performance. We find that, absent the ownership transfer, most of the gains realized during the restructuring process are re-absorbed over the post-treatment period. Results are robust to the use of instrumental variables, indicating that the transition from state to private ownership represents a necessary condition for the long-term success of privatization programs.

- "Beyond Religion and Culture: The Economic Consequences of the Institutionalization of Sharia Law", 2022. Emerging Markets Review, Forthcoming.

    Abstract: Religious and cultural practices have major implications for a Country’s economic performance. However, it is not clear if the institutionalization of these social norms within a country’s legal system causes material economic effects. In this study I show this to be the case. By employing the synthetic control methodology to mitigate endogeneity concerns, I show that the institutionalization of Sharia Law within a Muslim-majority country’s legal system causes material economic costs. Results hold in different settings, confirming that the governmental enforcement of existing social norms constrain individuals’ social and economic freedom, ultimately resulting in worsened economic outcomes.

- "Where Does Corporate Social Capital Matter the Most? Evidence From the COVID-19 Crisis, 2021. With Franco Fiordelisi and Giuseppe Galloppo. Finance Research Letters, Forthcoming.

    Abstract: Firms with high social capital systematically outperform their peers during periods of economic distress. Yet, it is not clear under which institutional conditions corporate social capital is the most valuable to shareholders. By studying the performance of 1,789 firms in 27 countries during the initial phases of the COVID-19 pandemic, we document that the resilience effect of social capital is heterogeneous across countries. We identify the flexibility of a country's labor market as a critical determinant of corporate returns on social capital-related investments. These findings are consistent with social capital hedging firms against systematic shocks by mitigating employee-related litigation risk.

 - "International Relations and Sovereign Wealth Funds' Political Value: Evidence from a Quasi-Natural Experiment", 2017. With William L. Megginson. Wake Forest Law Review (52), pp: 857-888.

    Abstract: This paper exploits the 2016 American presidential election as an exogenous shock to international political relations to study whether Sovereign Wealth Funds (SWFs) are investments vehicles used by foreign governments to influence the American political system. By combining an event study with cross-sectional analyses we identify weak support for international political relations being priced in the market through SWFs’ investments. These findings are consistent with and might explain the SWF discount identified in Bortolotti, Fotak and Megginson (2015). All in all, these results cast further doubts concerning SWFs’ absolute and unconditional political disinvolvment, calling for further research aimed to identify whether or not these funds pursue political goals.

Academic Publications 

PUBLICATIONS

Selected Working Papers

- "Does the Stock Market Fully Value Alternative Work Arrangements? Work From Home and Equity Prices ", 2022. R&R at the Review of Corporate Finance Studies.

    Abstract: We analyze the relationship between corporate reliance on alternative work arrangements and stock returns by documenting that an equal-weighted portfolio of the “100 Best Companies for Remote Working Jobs” earned an annualized four-factors alpha of 7.44% over the period 2014 to 2019. Firms included in the ranking also exhibited more pronounced positive earnings surprises and announcement returns. We conclude that even though Work From Home arrangements are beneficial to firm value through their effects on employees’ satisfaction and productivity, the stock market fails at fully valuing these contracts even when data are publicly available for a large number of corporations.

- "Corporate Innovation in the Cyber Age", 2022. With Yue (Mark) Ma. R&R at the Journal of Corporate Finance.

Abstract: We construct and validate a text-based metric capturing firms' ex-ante exposure to cybersecurity risk, and we document that the rise of cyber threats is redesigning corporate innovation and appropriation strategies. As firms' exposure to cybersecurity risk increases, managers' reliance on trade-secrets declines, as they seek to protect their firm's intellectual capital under patent and intellectual property laws. Besides increasing their patenting activity, we document that firms exposed to cyber threats file for simpler patents to accelerate their innovation cycle. Finally, we show that this strategic adjustment is not costless, as it causes firms' returns to R&D investments to decline significantly.

Media Coverage: https://clsbluesky.law.columbia.edu/author/gabriele-lattanzio-and-yue-ma/

 - "Identifying Classification Shifting: Evidence from a New Approach", 2022. With Wayne B. Thomas. R&R at the British Accounting Review.

Abstract: Classification shifting is defined in the literature as managers’ intentional classification of certain core expenses as income-decreasing special items with the intent to inflate reported core performance. We show that firms’ propensity to engage in this reporting strategy is persistent over time and relates to its use by peer firms. We also find that this strategy is associated with higher year-ahead firm value and stock returns. As one possible channel through which this valuation effect originates, we find that classification shifting allows firms to increase their debt capacity, consistent with firms shifting risks from shareholders to debtholders. Our tests are implemented using a new firm-year measure of classification shifting that can be broadly applied in many other research settings.

"M&A and Cybersecurity Risk: Empirical Evidence", 2022. With Taillard J.

Abstract: Using novel measures of cybersecurity risk, we document that low cybersecurity risk firms are more likely to be involved in M&A transactions. Mergers are significantly less likely to be withdrawn if the target has a low cybersecurity risk profile. Merger premium are higher for mergers involving low cybersecurity risk acquirers. Deals involving low cybersecurity risk firms yield superior post-merger operating performance and are less likely to trigger goodwill impairments. Announcement returns have also started to reflect cybersecurity risk in recent years. These findings offer novel evidence on the economic impact of cybersecurity risk on the market for corporate control.

"How Binding is Supervisory Guidance? Evidence From the European Calendar Provisioning", 2022. With Fiordelisi F. and Mare D.S.

Abstract: We examine whether banks respond differently to the adoption of a supervisory guidance as
compared to a similar regulatory action. By exploiting the staggered and distinct supervisory
and regulatory implementation of the European Calendar Provision, we indeed document
that while this reform achieved the intended overall goal of reducing European banks’ nonperforming loans ratios, its effect materialized during the initial release of the ECB supervisory guidance, rather than following its adoption as a Pillar 1 regulation. That is, the subsequent formalization of this supervisory initiative within a regulatory framework achieved
limited economic results, while eliminating any residual flexibility for the regulatory authority concerning the degree to which the calendar provisioning should be enforced. 

Media Coverage: 
 

World Bank: https://documents.worldbank.org/en/publication/documents-reports/documentdetail/099712205172222193/idu04756c4680f87d046860b6af0e7a34c058952

Oxford Business Law Blog: https://mail.google.com/mail/u/0/#search/OXFORD/FMfcgzGpGKhRbNgBMsRsTPgpgmQHngSL

 - "Competing Common Owners", 2019.

    Abstract: Competition in the asset management industry acts as a counter-balancing force preventing the materialization of anti-competitive effects of common ownership. Since institutional investors compete on relative performance, the distribution of these anti-competitive rents plays a crucial role at determining their long-term sustainability. Managers of funds benefiting the least from these anti-competitive rents would indeed put pressure on firms’ managers to aggressively compete against their rivals, as re-establishing a competitive equilibrium would save them from being perceived as an underperforming fund. That is, while common ownership might cause temporary anti-competitive effects, competition in the asset management industry undermines their long-term sustainability.

- "Listing Gaps, Mergers Waves and the American Model of Equity Finance", 2020. With William L. Megginson and Ali Sanati.

Abstract: The US listing gap - an abnormal decline in the number of stock market listings relative to other countries - is often interpreted as a warning sign for the US public equity markets. We show that, over the same period that the US listing gap expands, the US economy has experienced abnormally high aggregate stock market valuations, merger activity, and private equity (PE) investments. We investigate the relations among these dimensions and document a transition in the US equity financing model. Our revised estimation shows that the US listing gap is created in two distinct waves, the timing of which suggests a negative role for the regulation of listed firms. The US listing gap is virtually fully explained by the rise of mergers and acquisitions activity, as the leading factor, and PE investments since the mid-1990s. Finally, we document that this phenomenon is emerging in other developed economies, with a few years of delay. 

Media Coverage: http://clsbluesky.law.columbia.edu/author/gabriele-lattanzio-william-l-megginson-and-ali-sanati/ 

Online Appendix available here.

- "Corporate Purpose and Value: Evidence from a Novel Measure of Environmental Awareness", 2020. With Lubomir P. Litov. Under Review.

Abstract: We construct and validate a text-based metric capturing firms' ex-ante exposure to cybersecurity risk, and we document that the rise of cyber threats is redesigning corporate innovation and appropriation strategies. As firms' exposure to cybersecurity risk increases, managers' reliance on trade-secrets declines, as they seek to protect their firm's intellectual capital under patent and intellectual property laws. Besides increasing their patenting activity, we document that firms exposed to cyber threats file for simpler patents to accelerate their innovation cycle. Finally, we show that this strategic adjustment is not costless, as it causes firms' returns to R&D investments to decline significantly.

Online Appendix

Data Availability: Link to Relative Social Responsibility Score.

 

This dataset contains the Relative Social Responsibility Score for the period 1998 to 2018 for all firms included in the KLD dataset. Conditions for the use of this dataset are as follows:

1) Please, reference the following paper which contains details on the construction and usage of the data.

"Does Competing Through Corporate Social Responsibility Engagements Lead to Superior Financial Performance?", with Lubomir P. Litov, Working Paper 2019.

2) Data may be used for non-commercial purposes free of charge. For all other uses, please contact Gabriele Lattanzio or Lubomir P. Litov.

- "An ESG Ratings Free Assessment of Socially Responsible Investment Strategies", 2020. With Franco Fiordelisi, Giuseppe Galloppo, and Viktoriia Paimanova.

Abstract: Environmental, Social, and Governance (ESG) ratings feature statistical and economic problems undermining their reliability as valid proxies for corporates’ social performance. To overcome this ratings providers specific bias, we focus on global sample of ESG-oriented Exchange Traded Funds (ETFs). Studying passive and pre-committed strategies provide us with several economic and econometric advantages, allowing us to document that Socially Responsible Investments (SRI)-oriented strategies generate significantly higher average stock market returns and liquidity. However, the identified overperformance is concentrated in months of extreme climate activity, while the effect reverses during financial crisis. These findings confirm that investors react to non-pecuniary shocks by increasing the weights assigned to SRI investments in their portfolio, but their preference shifts back towards traditional strategies during economic downturns.

Other Publications & Contributions