Selected Publications

You can also find my articles on my Google Scholar profile.

Do Investors Care About Biodiversity?

Published in Review of Finance (forthcoming), 2024

This paper introduces a new measure of a firm’s negative impact on biodiversity, the corporate biodiversity footprint, and studies whether it is priced in an international sample of stocks. On average, the corporate biodiversity footprint does not explain the cross-section of returns between 2019 and 2022. However, a biodiversity footprint premium (higher returns for firms with larger footprints) began emerging in October 2021 after the Kunming Declaration, which capped the first part of the UN Biodiversity Conference (COP15). Consistent with this finding, stocks with large footprints lost value in the days after the Kunming Declaration. The launch of the Taskforce for Nature-related Financial Disclosures (TNFD) in June 2021 had a similar effect. These results indicate that investors have started to require a risk premium upon the prospect of, and uncertainty about, future regulation or litigation to preserve biodiversity.

Recommended citation: Garel, A., Romec, A., Sautner, Z., & Wagner, A. F. (2024). Do investors care about biodiversity?. Review of Finance (forthcoming).

When Attention is Away, Analysts Misplay: Distraction and Analyst Forecast Performance

Published in Review of Accounting Studies, 2023

We construct a distraction measure based on extreme industry returns to gauge whether analysts’ attention is away from certain stocks under coverage. We find that temporarily distracted analysts make less accurate forecasts, revise forecasts less frequently, and publish less informative forecast revisions, relative to undistracted analysts. Further, at the firm level, analyst distraction carries real negative externalities by increasing information asymmetry for stocks that suffer from a larger extent of analyst distraction during a given quarter. Our findings thus augment our understanding of the determinants and effects of analyst effort allocation and broaden the literature on distraction and information spillover in financial markets.

Recommended citation: Bourveau, T., Garel, A., Joos, P., & Petit-Romec, A. (2023). When attention is away, analysts misplay: distraction and analyst forecast performance. Review of Accounting Studies, 29(1), 916-958.

Online Reputation and Debt Capacity

Published in Journal of Financial and Quantitative Analysis, 2023

We explore the effects of online customer ratings on financial policy. Using a large sample of Parisian restaurants, we find a positive and economically significant relationship between customer ratings and restaurant debt. We use the locally exogenous variations in customer ratings resulting from the rounding of scores in regression discontinuity tests to establish causality. Favorable online ratings reduce cash flow risk and increase resilience to demand shocks. Consistent with the view that good online ratings increase the debt capacity of restaurants and their growth opportunities, restaurants with good ratings use their extra debt to invest in tangible assets.

Recommended citation: Derrien, F., Garel, A., Romec, A., & Weisskopf, J. P. (2023). Online reputation and debt capacity. Journal of Financial and Quantitative Analysis, 1-41.

Music Sentiment and Stock Returns around the World

Published in Journal of Financial Economics, 2022

This paper introduces a real-time, continuous measure of national sentiment that is language-free and thus comparable globally: the positivity of songs that individuals choose to listen to. This is a direct measure of mood that does not pre-specify certain mood-affecting events nor assume the extent of their impact on investors. We validate our music-based sentiment measure by correlating it with mood swings induced by seasonal factors, weather conditions, and COVID-related restrictions. We find that music sentiment is positively correlated with same-week equity market returns and negatively correlated with next-week returns, consistent with sentiment-induced temporary mispricing. Results also hold under a daily analysis and are stronger when trading restrictions limit arbitrage. Music sentiment also predicts increases in net mutual fund flows, and absolute sentiment precedes a rise in stock market volatility. It is negatively associated with government bond returns, consistent with a flight to safety.

Recommended citation: Edmans, A., Fernandez-Perez, A., Garel, A., & Indriawan, I. (2022). Music sentiment and stock returns around the world. Journal of Financial Economics, 145(2), 234-254.

Institutional Shareholders and Bank Capital

Published in Journal of Financial Intermediation, 2022

We examine the relationship between institutional ownership and bank capital. Using a large sample of U.S. banks, we show that banks with greater institutional ownership operate with substantially higher capital ratios. The results are robust to controlling for standard determinants of bank capital structure, including market- and accounting-based risk measures. The results hold both for indexers and non-indexers, indicating that the effect of institutional ownership on bank capital cannot be explained by self-selection. We further address endogeneity concerns using an instrumental variable strategy based on the inclusion of banks in the S&P index. We find supporting evidence that the superior monitoring abilities of institutional investors, which reduce the severity of agency costs, is the main explanation for our results.

Recommended citation: Garel, A., Petit-Romec, A., & Vander Vennet, R. (2022). Institutional shareholders and bank capital. Journal of Financial Intermediation, 50, 100960.

The Capital Market Consequences of Tenure-Based Voting Rights: Evidence from the Florange Act

Published in Management Science, 2022

We examine the consequences of a regulatory intervention aimed at generalizing tenure voting in French public companies. The 2014 Florange Act departs from the ‘one share one vote’ principle by automatically granting double-voting rights (DVR) to shares held for at least two years. However, firms can opt out through an annual meeting vote. We document three main findings. First, firms that adopt DVR by default experience a decrease in long-term foreign institutional ownership offset by an increase in insider/family ownership. Second, those firms significantly underperform in terms of stock returns after Florange relative to those that reject DVR. Third, their environmental and social performance deteriorates. Collectively, our evidence casts doubt on the merit of regulation-induced tenure voting as a desirable corporate governance mechanism.

Recommended citation: Bourveau, T., Brochet, F., & Garel, A. (2022). The capital market consequences of tenure-based voting rights: Evidence from the Florange Act. Management Science, 68(12), 9107-9128.

Investor Rewards to Environmental Responsibility: Evidence from the COVID-19 Crisis

Published in Journal of Corporate Finance, 2021

The COVID-19 shock and its unprecedented financial consequences have brought about vast uncertainty concerning the future of climate actions. We study the cross-section of stock returns during the COVID-19 shock to explore investors’ views and expectations about environmental issues. The results show that firms with responsible strategies on environmental issues experience better stock returns. This effect is mainly driven by initiatives addressing climate change (e.g., reduction of environmental emissions and energy use), is more pronounced for firms with greater ownership by investors with long-term orientation and is not observed prior to the COVID-19 crisis. Overall, the results indicate that the COVID-19 shock has not distracted investors’ attention away from environmental issues but on the contrary led them to reward climate responsibility to a larger extent.

Recommended citation: Garel, A., & Petit-Romec, A. (2021). Investor rewards to environmental responsibility: Evidence from the COVID-19 crisis. Journal of Corporate Finance, 68, 101948.

How does COVID-19 Affect Electoral Participation? Evidence from the French Municipal Elections

Published in PloS one, 2021

This article investigates the effects of the COVID-19 outbreak on electoral participation. We study the French municipal elections that took place at the very beginning of the ongoing pandemic and held in over 9,000 municipalities on March 15, 2020. In addition to the simple note that turnout rates decreased to a historically low level, we establish a robust relationship between the depressed turnout rate and the disease. Using various estimation strategies and employing a large number of potential confounding factors, we find that the participation rate decreases with city proximity to COVID-19 clusters. Furthermore, the proximity has conditioned impacts according to the proportion of elderly –who are the most threatened– within the city. Cities with higher population density, where the risk of infection is higher, and cities where only one list ran at the election, which dramatically reduces competitiveness, experienced differentiated effects of distance.

Recommended citation: Noury, A., François, A., Gergaud, O., & Garel, A. (2021). How does COVID-19 affect electoral participation? evidence from the French municipal elections. PloS one, 16(2), e0247026.

Institutional Investor Distraction and Earnings Management

Published in Journal of Corporate Finance, 2021

In this study, we explore the implications of institutional investor distraction for earnings management. Our identification approach relies on a firm-level measure of institutional investor distraction that exploits exogenous attention-grabbing shocks to unrelated parts of institutional investors’ portfolios. We find that firms with distracted institutional shareholders engage more in both accrual-based and real earnings management. Further analyses show that the association between investor distraction and earnings management is stronger in firms with low analyst coverage and weak board monitoring, as well as in firms where managing earnings upward allows meeting or just beating their earnings target. Collectively, our results suggest that managers exploit the loosening in monitoring intensity resulting from investor distraction by engaging in earnings management. Even in the presence of institutional investors with superior monitoring abilities, limited attention may induce insufficient monitoring of earnings management practices.

Recommended citation: Garel, A., Martin-Flores, J. M., Petit-Romec, A., & Scott, A. (2021). Institutional investor distraction and earnings management. Journal of Corporate Finance, 66, 101801.

Engaging Employees for the Long Run: Long-Term Investors and Employee-Related CSR

Published in Journal of Business Ethics, 2020

This article explores whether and how long-term investors influence non-executive employees’ incentives. While long-term investors benefit from long-term investments that create value over time, employees tend to be averse to long-term investments. We conjecture that long-term investors foster employee-related CSR to motivate employees to engage in long-term investment projects. Consistent with this prediction, we find that long-term investor ownership is a strong driver of employee-related CSR. Additional analyses indicate that this result is not driven by self-selection or reverse causality. We further show that employee-related CSR leads to increased long-term investments (R&D expenses and corporate innovation). Overall, our findings highlight that employee-related CSR is an important channel through which long-term investors encourage long-term investments.

Recommended citation: Garel, A., & Petit-Romec, A. (2021). Engaging employees for the long run: Long-term investors and employee-related CSR. Journal of Business Ethics, 174(1), 35-63.

Stock Market Listing and the Persistence of Bank Performance Across Crises

Published in Journal of Banking and Finance, 2020

This paper examines whether stock market listing influences the persistence of bank performance across crises. We find that for both publicly and privately held banks, bank performance during the 1998 crisis is a strong predictor of bank performance during the 2007–2008 crisis. While for publicly held banks, the persistence is uniquely driven by bottom performers, for privately held banks the persistence is also driven by a group of top performers. We further show that banks that make a private-to-public transition between the two crises underperform in the 2007–08 crisis, especially if they are top performers during the 1998 crisis and more concerned about short-term stock price. We also document that after making a private-to-public transition, banks increase risk in a way that makes them more vulnerable to crises.

Recommended citation: Garel, A., Martín-Flores, J. M., & Petit-Romec, A. (2020). Stock market listing and the persistence of bank performance across crises. Journal of Banking & Finance, 118, 105885.

The Value of Academics: Evidence from Academic Independent Director Resignations in China

Published in Journal of Corporate Finance, 2019

In this paper, we use academic independent director resignations induced by the introduction of the Regulation 11 prohibiting academics from holding positions in Chinese public companies to examine their contribution to firm value. We document a negative market reaction to the issuance of the Regulation 11 and to the academic director resignations. The negative market reaction to academic director resignations is sizeable and hold when we further control for the influence of director, board, and firm characteristics. We next use heterogeneity in the market response to academic director resignations to study what the market values in academic directors. We find supportive evidence of a monitoring contribution and mixed evidence of advising and networking contributions. Finally, we show that in the two years following the issuance of the Regulation 11, companies with at least one academic director on their board prior to Regulation 11 underperform relative to companies without any academic directors. Overall, our results are consistent with a positive contribution of academic independent directors to firm value.

Recommended citation: Chen, J., Garel, A., & Tourani-Rad, A. (2019). The value of academics: Evidence from academic independent director resignations in China. Journal of Corporate Finance, 58, 393-414.

Bank Capital in the Crisis: It’s not just How Much You Have but Who Provides it

Published in Journal of Banking and Finance, 2017

Bank capital is the cornerstone of bank regulation and is considered a key determinant of a bank’s ability to withstand economic shocks. In the area of bank capital regulation, the general view is that more bank capital is better, irrespective of who provides it. In this paper, we investigate whether the investment horizon of bank capital providers matters for bank performance during the recent financial crisis. We observe that banks with more short-term investor ownership have worse stock returns during the crisis. Further exploration suggests that this is partially because banks with higher short-term investor ownership took more risk prior to the crisis but mainly because they experienced higher selling pressure during the crisis. Our results confirm the economic benefit of bank capital in helping banks to perform better during crises. However, when we decompose bank capital by the nature of its providers, we show that more capital is associated with worse performance when it is provided by short-term institutional investors.

Recommended citation: Garel, A., & Petit-Romec, A. (2017). Bank capital in the crisis: It's not just how much you have but who provides it. Journal of banking & finance, 75, 152-166.

Alexandre Garel

Selected Publications