Research

Leniency policy in hub and spoke cartels (with Buts, C., Jegers, M. and Vander Vennet, N.)

The competition literature documents that leniency programs can either destabilize or reinforce the sustainability of horizontal cartels. We contribute to this body of literature by looking at a specific type of cartels, namely hub and spoke cartels: horizontal collusions between spokes facilitated by, at least, one party operating at a different level of the supply chain, the hub. Drawing on earlier work of Van Cayseele and Miegielsen (2013) on hub and spoke cartels, and Chen and Rey’s dynamic leniency model for horizontal cartels (2013), this paper builds a model that measures the impact of leniency programs on hub and spoke cartels. We show that it is always desirable to offer some ex-ante leniency to the first-reporting hub-and-spoke cartel member to discourage cartel formation and assess the optimal leniency rate for both the hub and spokes. We then compare these results with the situation where the hub is excluded from the leniency program and argue that including the hub increases this program’s efficiency in discouraging cartel formation, suggesting that EU leniency programs (which allow the ringleader to benefit from leniency) are more effective than US ones (which do not). 

Presented @ BER seminar (Stellenbosch University, 2019), LCII brown bag seminar (ULiege, 2019), CORE brown bag seminar (UCLouvain, 2018),  VUB lunch seminar (Brussels, 2018), UCLouvain-Saint-Louis Brussels (Brussels, 2018), CRESSE (Rethymnon, 2015).

Corporate lobbying and firm performance (with Girard, A. and Gnabo, J-Y.)

Evidence are surprisingly mixed regarding the influence of lobbying on the overall firm performance. This paper documents that the sensitivity of these empirical results comes from the use of different measures of firm size. We assess the change in results using different proxies of firm size and replicating models from the corporate finance literature. The estimates show that the discrepancy in the results is mainly driven by an omitted variable bias explained by the non-interchangeability of firm size proxies. Addressing the omitted variable and self-selection concerns, our results report a positive association between lobbying expenditures and firm performance.

Presented @ Universidad de Los Andes School of Management Seminar (online, 2023), FFA (Bordeaux, 2023), Belgian Forum of Finance (Brussels, 2023), UCLouvain (LLN, 2022) and UCLouvain-Saint-Louis Brussels (Brussels, 2022).

Lobbying and risk-taking incentives (with Girard, A., Gnabo, J-Y., and Mantilla-Garcia, D.)

This article studies the influence of executive risk-taking incentives on lobbying. Executive compensation is a common tool for aligning their risk-taking with that of shareholders. In particular, stock options have been widely used in compensation contracts for corporate employees. Investment in lobbying is a mechanism available to executives to protect the firm against risk. We use the implementation of the 2005 Financial Accounting Standard 123R (hereinafter FAS123R) as a quasi-natural experiment to explore the role of option compensation in lobbying spending. The FAS 123R increased the cost of granting options as compensation, leading to a plausible exogenous shift in favor of diminishing option-based compensation. Our results show that the exogenous decrease in option-based compensation has a negative impact on lobbying expenditure, i.e. the need to buy political protection decreases as incentives for executive risk-taking decline.

Presented @ DeFiPP seminar UNamur (Namur, 2024, forthcoming), Universidad de Los Andes School of Management AGORA Seminar (Bogota, 2023). (Early working paper version upon request)

Benefiting from network position: Executive stock option compensation and their sensitivities to price and volatility (with Mantilla-Garcia, D.)

This paper studies how directorate interlocks impact their risk-taking incentives. Using option-based compensation to measure risk-taking incentives, we demonstrate that directors with a larger network are less sensitive to risk. To support the causal hypothesis, we leverage executives exit of a firm as a quasi-natural experiment to explore the network-risk relationship. The exit of an executive decreases the centrality of the executives from the firm and the executives indirectly linked to the same firm, resulting in a plausibly exogenous decrease of their network. Our results are in line with the resource dependency theory suggesting that networks reduce uncertainty.

(Early working paper version upon request)

Hub and Spoke Cartels: Incentives, Mechanisms and Stability (with Buts, C.) European Competition and Regulatory Law Review (CoRe), 2019, 3(1), 4-16.