Author Archives: support

Study Examines How Reporting Changes Affect Gig Workers and Reveal Unreported Income

Leave a Reply

The rapid growth of platform-based gig work means more U.S. workers are earning income through self-employment. Unlike traditional wages, these earnings are generally not subject to tax withholding, although they are often reported to workers and the Internal Revenue Service (IRS) through 1099 tax forms. A new study examined what happened when the reporting threshold for many gig workers unexpectedly increased from $600 to $20,000.

Researchers from Carnegie Mellon University, Michigan State University, the University of Chicago, and the IRS conducted the study, which was published in the Journal of Public Economics. They investigated whether changes in information reporting affected how much income gig workers reported when filing their taxes.

In 2017, a policy change meant that many gig workers with low to moderate earnings suddenly stopped receiving 1099 forms for their platform work. Andrew Garin, assistant professor of economics at Carnegie Mellon University’s Heinz College and lead author of the study, said the change provided an opportunity to examine whether workers reported their income differently when their earnings were no longer independently reported to the IRS.

The researchers focused on a gap in information reporting for gig economy payments between $600 and $20,000 following the adoption of the 1099-K form, which is used to report certain third-party network transactions. They examined how the change affected individual tax-filing behaviour and the overall reporting of income earned through gig work.

To measure the effect, the researchers used state-level information returns from Massachusetts and Vermont, where the reporting threshold remained at $600. They merged these records with federal tax returns filed with the IRS. They then compared platform workers living within the same labour market but on opposite sides of the Massachusetts border, allowing them to assess how different reporting requirements influenced tax-filing behaviour.

The results showed a substantial effect. For every dollar in gig payments that was no longer reported on a 1099 form, workers reported 17 cents less in self-employment net earnings on their own income tax returns. The findings suggest that third-party information reporting can play an important role in encouraging workers to accurately report their self-employment income.

The researchers also used state-level filings to estimate the size of the national online platform workforce in 2017 and 2018. They calculated that approximately 770,000 gig workers did not receive information returns because of changes in third-party reporting practices by online platforms. As a result, they estimated that about $560 million in profits went unreported on federal income tax filings.

The findings could have implications as policymakers continue to modify information-reporting requirements for freelancers and gig workers. Emilie Jackson, assistant professor of economics at Michigan State University and a co-author of the study, noted that evidence on how these changes influence taxpayer behaviour remains limited. With recent rule changes meaning millions more freelancers may no longer be subject to 1099 reporting, the researchers say their findings provide insight into how reporting thresholds could affect tax compliance and federal revenues in the years ahead.

More information: Andrew Garin et al, The impact of third-party reporting on tax compliance: Evidence from gig workers, Journal of Public Economics. DOI: 10.1016/j.jpubeco.2026.105697

Journal information: Journal of Public Economics Provided by Carnegie Mellon University

Cost Savings From Company Mergers Don’t Always Benefit Consumers, Study Finds

Leave a Reply

Merging companies may become cheaper and more efficient to operate, but those savings do not necessarily translate into lower prices for consumers, according to new research. In some cases, shoppers may even end up paying more after a merger, suggesting that greater corporate efficiency does not automatically produce benefits for customers.

The study examined the 2019 merger of the consumer healthcare businesses of pharmaceutical giants GSK and Pfizer. Researchers from Loughborough University, the University of East Anglia (UEA), the Philippine Competition Commission, the University of the Philippines and E.CA Economics analysed how the deal affected the market. Their findings were published in the Southern Economic Journal.

Researchers focused on prices for over-the-counter cough and cold medicines in the Philippines before and after the merger. GSK and Pfizer had predicted that combining their consumer healthcare operations would eventually generate annual savings of around £500 million. The researchers found evidence that the merger did create genuine efficiencies, particularly for products previously supplied by Pfizer.

The estimated cost of supplying Pfizer products fell by 9.43% following the merger, while their prices declined by 6.57%. However, the benefits were not seen across the entire market. GSK product prices increased by an estimated 3.25%, while Sanofi, a major international competitor, raised its prices by 8.55%. Prices from lower-cost local manufacturer Unilab remained broadly unchanged.

Lead author Professor Farasat Bokhari of Loughborough University explained that companies seeking approval for mergers often argue that combining their operations will create efficiencies. A larger company, for example, may be able to manufacture, distribute or sell products at a lower cost. These savings can potentially offset some of the negative effects caused by reducing the number of competing businesses in a market.

However, the researchers said the findings demonstrate that the relationship between efficiency and consumer prices can be more complicated. Professor Sean Ennis of UEA’s Norwich Business School said the study confirmed efficiencies for one of the merging companies, an area that has not been widely studied. Still, those efficiencies ultimately did not produce lower prices across all products in the market.

The researchers also found evidence consistent with greater coordination between GSK/Pfizer and Sanofi following the merger. Bokhari stressed that this does not mean the companies explicitly agreed to set prices. Instead, when fewer independent competitors remain in a market, companies may find it easier to coordinate their pricing behaviour without making an explicit agreement, potentially resulting in higher prices than would be expected under stronger competition.

The findings could have important implications for competition authorities considering future mergers between large companies. The researchers argue that regulators should examine more than whether a proposed merger can reduce operating costs or create efficiencies. They should also assess whether reduced competition could make coordination between remaining companies more likely, potentially preventing cost savings from reaching consumers or even contributing to higher prices.

More information: Farasat Bokhari et al, Merger Efficiency and Coordinated Effects: Nothing to Sneeze at? Evidence From Cough and Cold Medicines in the Philippines, Southern Economic Journal. DOI: 10.1002/soej.70063

Journal information: Southern Economic Journal Provided by University of East Anglia

Tariffs Had an Unexpected Effect on U.S. Whiskey Prices

Leave a Reply

A new study has found an unexpected consequence of the Trump-era trade wars: cheaper American whiskey across much of the United States. However, consumers in the major whiskey-producing states of Kentucky and Tennessee experienced the opposite effect, with prices for locally produced whiskey actually increasing.

In 2018, the Trump administration introduced a series of tariffs that triggered trade disputes with several major trading partners. In response, Mexico, the European Union, Canada and China imposed substantial retaliatory tariffs on whiskey produced in the United States. These measures reduced overseas demand for American whiskey and created new challenges for domestic producers.

“Distilled spirits are an interesting sector because consumers have significant preferences, which can influence pricing on a market-to-market basis,” said Carly Burd, co-author of the study and an assistant professor of accounting at North Carolina State University’s Poole College of Management. Because whiskey accounted for the vast majority of U.S. liquor exports before 2018, the researchers wanted to understand how producers responded when foreign sales suddenly declined.

The researchers analysed sales data from 8,674 stores throughout 2018, examining prices for 2,514 different whiskey products, each sold in 750-millilitre bottles. Altogether, the dataset covered approximately 11.4 million whiskey sales, allowing the team to examine how prices changed across different parts of the country following the introduction of the retaliatory tariffs.

To identify the effects of the tariffs, the researchers compared price changes for American whiskey before and after the export tariffs were introduced with changes in the prices of imported whiskey over the same period. Imported products served as a control group because they were not subject to the U.S. export tariffs imposed by trading partners in 2018.

Overall, American whiskey producers responded to declining exports by lowering domestic prices in an effort to encourage sales at home. However, Kentucky and Tennessee were notable exceptions. Producers increased prices for locally made whiskey in these states, which together account for the vast majority of American whiskey production. The researchers suggest consumers there may have been willing to pay more for products associated with their local whiskey-making traditions.

The results showed that whiskey prices generally remained unchanged or increased slightly in states where demand was already relatively strong. Prices declined elsewhere. One factor influencing producers’ response was the nature of whiskey production itself. Because whiskey must be aged before it can be sold, producers cannot quickly reduce production when overseas demand unexpectedly falls, leaving them with limited options for adjusting supply.

Instead, producers appear to have relied on flexible pricing strategies to respond to changing market conditions. The researchers said the findings demonstrate how political tensions, trade disputes and changes in taxation can create challenges for domestic businesses while prompting them to adapt their pricing strategies. The study also highlights how the effects of international trade policy can differ considerably within a country, with consumers in some regions benefiting from lower prices while those in major production centres may end up paying more.

More information: Carlyle S. Burd et al, Domestic Product Market Impacts of Politically Motivated Foreign Tariffs, The Accounting Review. DOI: 10.2308/TAR-2024-0708

Journal information: The Accounting Review Provided by North Carolina State University

Workplace First Impressions Can Influence Hiring and Promotions Within Seconds

Leave a Reply

Making a good impression at work may depend less on polishing a résumé and more on strengthening communication skills. A large analysis of more than 200 studies found that workplace first impressions are shaped primarily by how people communicate, both verbally and nonverbally. At the same time, substantive information such as experience and qualifications plays a smaller role.

These impressions can form in less than a minute, yet their influence may last for weeks or even months. Researchers found that early perceptions can be associated with important workplace decisions and relationships, including hiring, performance evaluations, mentorship opportunities, promotions and whether colleagues want to work with or seek advice from someone.

The analysis identified three main factors that shape first impressions: communication style, physical appearance and “content cues”, meaning the substance of what a person says or writes. Surprisingly, content cues were the weakest predictors. “The single most shocking finding of this study is that content cues were the weakest predictors of first impressions,” said Brian Swider, Ph.D., a professor of business at the University of Florida and co-author of the study.

Swider explained that information contained in a résumé, comments from others and even the substance of what someone says during an initial interaction may have less influence than communication and appearance. Swider and colleagues at the University of Florida’s Warrington College of Business, along with T. Brad Harris of HEC Paris, published their findings on August 3 in Personnel Psychology.

The researchers combined 204 independent samples from 145 studies examining first impressions in workplace settings. By bringing together findings across different occupations, countries, education levels and research designs, the meta-analysis allowed the team to identify patterns that appeared consistently across a wide range of workplace situations rather than relying on a single experiment or setting.

The findings suggest that people generally form a broad positive or negative impression of another person instead of separately evaluating characteristics such as competence, warmth or trustworthiness. Once established, this overall impression may influence how later information about that individual is interpreted. “People want to think that they are making really high-level analytical decisions based on effectively evaluating evidence,” Swider said. Still, research on first impressions suggests that quick judgments continue to play an important role.

Those initial judgments can also be surprisingly durable. Although their influence gradually weakened over time, first impressions remained associated with how people viewed one another weeks later. According to Swider, an impression formed within the first few minutes of meeting someone can remain strongly related to how that person is perceived more than a month later. The findings linked first impressions with both achievement-related outcomes, including hiring and performance evaluations, and relationship-related outcomes in the workplace.

For employers, the findings highlight the difficulty of preventing subjective impressions from affecting important decisions. While organisations cannot stop people from forming rapid judgments, the researchers suggest their influence can be reduced through structured interviews and evaluations and by involving multiple people in decision-making. The study does not prove that first impressions directly cause later workplace outcomes, and their influence varies by situation and over time. For employees facing interviews, meeting a new manager or entering other high-stakes situations, however, Swider recommends focusing on controllable factors and making the strongest first impression possible.

More information: Junhui Yang et al, First Impressions at Work: A Meta-Analytic Review, Personnel Psychology. DOI: 10.1111/peps.70037

Journal information: Personnel Psychology Provided by University of Florida

Women Compete Equally for Top Positions and Win More Often, New Research Shows

Leave a Reply

Previous research on gender and competition has often relied on laboratory tasks in which participants decide whether to compete for a fixed reward or withdraw. These short, controlled experiments have generally found that women are less likely than men to enter competitions. However, Andrej Angelovski, Associate Professor in Economics at Xi’an Jiaotong-Liverpool University (XJTLU), says such experiments represent a very particular type of competitive environment.

To examine competitiveness differently, Angelovski and co-authors Jordi Brandts from the Barcelona School of Economics and Werner Güth from the Max Planck Institute for Research on Collective Goods used an auction-style experiment. Rather than simply asking whether participants wanted to compete, the researchers measured how much they were willing to sacrifice to secure a desired job, offering a different way to capture the intensity of competition.

Over 32 rounds, participants bid for positions offering different salaries using Experimental Currency Units (ECU), later converted into euros. A bid represented the maximum amount of resources—such as effort, training or time—a participant was willing to sacrifice from the salary to obtain a position. Winners paid the second-highest bid in their group, while those who did not secure a position received a default payment of 50 ECU.

Participants competed in either “flat” companies, where salary differences between lower and higher positions were relatively small, or “steep” companies, where the gaps were much larger. Initially, groups of four competed for positions within their own company. Later, groups merged into markets of eight, allowing participants to compete for any available position.

The results challenge the conventional view that women are less competitive than men. Women competed just as strongly as men and, in some circumstances, even more aggressively. Both men and women generally underbid for the highest positions and showed a preference for middle-ranking jobs, with few significant gender differences. However, in flatter organisations, women accounted for most of the highest bids for top positions. “Now that we’ve changed how we study competition, we find the typical results no longer hold,” Angelovski says.

The study also uncovered a surprising cost associated with reaching the top. Although the highest positions offered the largest salaries, competition was so intense that successful bidders often sacrificed nearly all of the additional financial benefit. After accounting for the cost of winning, those securing top positions could end up no better off—and sometimes worse off—than participants who obtained middle-ranking jobs. Women were disproportionately represented among these top-position winners.

This finding was particularly striking because neither income nor social recognition fully explained the intense competition. Winners of middle-ranking positions consistently earned more than the 50 ECU benchmark, whereas winners of top positions did not. The experiment also removed the status normally associated with reaching the top because participants were not publicly identified as winners. Despite this, some participants remained willing to make substantial sacrifices for the highest positions.

The researchers stress that the experiment examines the “supply side”—people’s willingness to compete—rather than discrimination, institutional barriers or other factors affecting who ultimately reaches senior positions. The findings therefore challenge the idea that a lack of competitive ambition can explain women’s underrepresentation at the top. As Angelovski puts it, gender differences in senior positions are “not because women do not want to get there.”

More information: Andrej Angelovski et al, Bidding for better jobs: an experiment on gender differences in competitiveness without a real-effort task, Theory and Decision. DOI: 10.1007/s11238-026-10132-9

Journal information: Theory and Decision Provided by Xi’an Jiaotong-Liverpool University

From Pizza to Products: Rethinking Delivery Services Across Industries

Leave a Reply

What can a pizza shop teach us about the dramatic shifts taking place in consumer marketing? Quite a lot. New research on pizza delivery suggests that consumer impatience has become a powerful force in purchasing decisions—so powerful that delivery speed can sometimes outweigh location, price, and quality. Although the study focused on pizza, its findings have important implications for business-to-consumer firms across many industries.

Published in the INFORMS journal Marketing Science, the study examined how faster delivery influences consumer choice and competition. The researchers found that impatience, or consumers’ desire to receive products quickly, reduces comparison shopping and substitution among sellers. It can also soften price competition and allow lower-quality providers to remain viable in the market.

These findings challenge the conventional assumption that faster delivery gives consumers more choices and intensifies competition. Instead, delivery speed can actually fragment markets by encouraging consumers to choose whichever seller can reach them fastest rather than searching more broadly for better prices or higher quality.

The researchers analysed nearly 98,000 pizza-delivery orders placed by more than 6,800 consumers across 51 independently owned pizzerias in a major Northern Italian city between 2010 and 2011. The study was conducted by Chaewon Seol and Federico Rossi of Purdue University, Sara Valentini of Bocconi University, and Elisa Montaguti of the University of Bologna.

The results reveal just how much consumers value their time. For the median consumer, a 50% reduction in delivery time was worth more than 20% of the order price. This willingness to pay for speed can significantly limit competition because consumers may favour the fastest seller rather than comparing prices, quality, or other alternatives.

However, major technological improvements in delivery can change this pattern. When delivery times fall substantially across the market, proximity becomes less important. Higher-quality businesses can then reach customers who previously might have chosen a nearby, lower-quality competitor simply because it offered faster delivery. As a result, higher-quality firms gain market share while some lower- and mid-quality providers exit.

The research also highlights opportunities for online platforms to monetise consumers’ impatience. The researchers found that offering a premium service with delivery that is 10% faster, for an additional fee equal to 10% of the basic menu price, could increase platform profits by 18.7%. For platforms and marketing decision-makers, delivery speed therefore represents more than an operational issue—it can become an important element of pricing and competitive strategy.

While pizza provided the setting for this research, the implications extend far beyond foodservice. From groceries and household products to clothing and other online purchases, businesses increasingly compete not only on price and quality but also on how quickly they can put products into customers’ hands. The study suggests that consumer impatience can reshape how people compare sellers, how businesses compete, and which firms succeed. In an increasingly delivery-driven economy, understanding the value consumers place on speed may be essential to understanding the future of consumer marketing.

More information: Chaewon Seol et al, Consumer Impatience, Technological Innovation, and Market Structure, Marketing Science. DOI: 10.1287/mksc.2024.0885

Journal information: Marketing Science Provided by Institute for Operations Research and the Management Sciences

Good News, Better Returns? How People Interpret Stock Market Opportunities

Leave a Reply

A study involving the Cluster of Excellence ECONtribute at the Universities of Bonn and Cologne suggests that people often interpret stock market opportunities differently from what standard financial models predict. This pattern is found not only among retail investors but also among financial professionals. The study, “Mental Models of the Stock Market,” was published in the Quarterly Journal of Economics.

Consider a company announcing that it expects to reduce its production costs by 20 per cent. Even if the announcement was made four weeks ago, many investors may still see it as a reason to buy the company’s shares. They assume that lower costs will lead to higher future profits and, in turn, better investment returns.

Standard financial models, however, suggest otherwise. Stock prices generally react quickly to new information. By the time four weeks have passed, positive news about lower production costs should already be reflected in the company’s share price. Investors buying the stock later would therefore be paying a higher price and should not expect additional returns simply because of the earlier announcement.

“When a company announces some good news, many people take this primarily to mean the company’s earnings prospects have improved,” explains Johannes Wohlfart, professor at the University of Cologne and a member of ECONtribute. What investors may overlook is that other market participants have received the same information and that the share price may already have adjusted accordingly.

To examine how people think about such situations, Wohlfart and fellow economists Peter Andre of Goethe University Frankfurt and Philipp Schirmer of the University of Bonn surveyed more than 7,000 people in the United States and Germany. Participants included members of the general public, retail investors, financial advisers, fund managers and financial market researchers.

Participants were presented with two scenarios involving company announcements that were already four weeks old. In one scenario, a company announced a reduction in production costs, representing positive news. In the other, the company announced that it was maintaining a supplier partnership, which was considered neutral news. Participants were then asked how they expected these announcements to affect future stock returns.

The findings revealed substantial differences in how participants interpreted the same information. After receiving the positive news, 60 per cent of the German general public and 74 per cent of German retail investors still expected higher future returns. Similar expectations were reported by 58 per cent of fund managers and 63 per cent of financial advisers. In contrast, 67 per cent of financial market researchers expected the old news not to affect future returns.

The researchers suggest that these differences reflect contrasting “mental models” of how the stock market works. Financial market researchers tend to consider both a company’s future profits and its current share price, consistent with the idea that markets rapidly incorporate new information. Retail investors, by comparison, often focus more heavily on future earnings while overlooking the price they must pay for the shares. As Schirmer explains, investors may correctly recognise that a company could become more profitable but fail to consider that its share price has already risen in response to that expectation.

More information: Peter Andre et al, Mental Models of the Stock Market, The Quarterly Journal of Economics. DOI: 10.1093/qje/qjag039

Journal information: The Quarterly Journal of Economics Provided by University of Cologne

Negotiation Is More Common in Everyday Life Than Previously Thought, Study Finds

Leave a Reply

The study Daily Negotiation and Its Effects on Short-term Pleasantness and Longer-term Well-being, led by Katherine Qianwen Sun of UCLA Anderson School of Management, alongside Martin Schweinsberg of ESMT Berlin, Matteo Di Stasi of CUNEF Universidad, and Jordi Quoidbach of ESADE Business School, was published in the peer-reviewed journal Negotiation and Conflict Management Research. Using an app-based experience-sampling method, the researchers followed 302 participants for one week, collecting 5,286 observations about their moods and whether their most recent social interactions involved negotiation.

The findings challenge several assumptions about how negotiation is understood, studied, and taught. Most notably, negotiation appears to be far more common in everyday life than previous research has suggested. More than 30 percent of participants’ social interactions involved at least one negotiation process, including reaching an agreement, making a joint decision, resolving a disagreement, persuading someone, bargaining, or mediating between others.

The study also shows that everyday negotiation looks quite different from its conventional portrayal. Classic bargaining—the exchange of offers and concessions most closely associated with negotiation—accounted for only 2.7 percent of interactions. By comparison, reaching an agreement was nearly four times as common, occurring in 10.4 percent of interactions.

These results suggest that everyday negotiation is less about competitive, zero-sum bargaining and more about agreement-seeking and joint decision-making. Negotiation is therefore not limited to formal situations involving contracts, salaries, or major purchases, but is embedded in the routine interactions through which people coordinate their needs, preferences, and decisions.

Negotiation was also not confined to the workplace. Although it was most prevalent among coworkers, occurring in 54 percent of those interactions, it was also common in personal relationships. Around 30 percent of interactions with friends, family members, and romantic partners involved some form of negotiation, demonstrating how broadly negotiation extends across social life.

The researchers also examined how negotiation relates to mood and well-being. Interactions involving negotiation were associated with a measurable decline in participants’ momentary mood. However, people who negotiated more frequently also reported higher levels of general well-being, suggesting a possible relationship between a greater willingness to negotiate and longer-term well-being.

The study found no significant differences in negotiation frequency by gender or age, challenging common stereotypes, including the assumption that women negotiate less frequently than men. “Negotiation has a reputation as something confined to boardrooms and big-ticket purchases,” says Martin Schweinsberg, professor at ESMT. “But our data shows that people are negotiating constantly. Negotiation is woven into the ordinary give-and-take of daily life.”

The authors emphasise that the relationship between negotiation frequency and well-being is correlational rather than causal. People with higher baseline well-being may be more inclined to negotiate. They therefore call for longitudinal and intervention-based research to determine whether negotiation contributes directly to well-being, as well as further studies examining what people negotiate about and the outcomes they achieve.

More information: Katherine Qianwen Sun et al, Daily Negotiation and Its Effects on Short-term Pleasantness and Longer-term Well-being, Negotiation and Conflict Management Research. DOI: 10.34891/nsmm-y845

Journal information: Negotiation and Conflict Management Research Provided by ESMT Berlin

AI-Enabled Shopping Trolleys Increase Shopper Spending by 32%, Study Finds

Leave a Reply

Shoppers who use supermarket trolleys equipped with digital screens spend nearly a third more than those using traditional trolleys, according to new research from Bayes Business School at City St George’s, University of London. The findings suggest that digital technology designed to make supermarket trips easier may also influence how much consumers buy and spend.

AI-powered “smart trolleys”, currently being trialled in major supermarkets, feature tablets attached to their handlebars. The devices allow shoppers to digitalise shopping lists, receive personalised product recommendations, navigate stores and make checkout-free payments. By providing information and prompts throughout a shopping trip, the technology aims to create a more convenient and personalised experience.

Researchers analysed 12,418 unique shopping sessions over one month at a major German supermarket chain, including 9,422 sessions involving smart trolleys. They collected information on basket value, number of items purchased and time spent in store, while also examining differences according to time of day, weekdays and weekends, and the ways shoppers interacted with the technology.

The study found that smart-trolley users spent 32% more on average (€30.18 compared with €22.89) than shoppers who did not use the technology. They also purchased 25% more items, averaging 12.02 products compared with 9.61 among non-users. Differences in spending were particularly noticeable during afternoons and weekends, while smart-trolley users tended to purchase more items during afternoons and evenings.

Smart-trolley users also spent considerably longer in stores. Their shopping trips averaged 40.40 minutes, compared with 32.75 minutes for non-users, representing a 23% increase. The longest trips occurred during the evening. Researchers also found that higher temperatures were associated with shorter shopping trips across all customers, regardless of the type of trolley used.

The researchers separately examined “superusers” who recorded more than 20 interactions with the trolley screen during a shopping session. These highly engaged shoppers bought significantly more items and remained in stores longer, but did not spend more overall. At particularly high levels of screen interaction, both spending and basket size began to decline, suggesting that excessive engagement with the technology may not necessarily translate into greater sales.

Lead author Dr Sabrina Gottschalk, Lecturer in Marketing at Bayes Business School, said the findings demonstrate the potential financial benefits of using technology effectively in retail environments. Digital tools can guide shoppers towards promotions and new products while creating additional opportunities for advertising and customer engagement. However, she cautioned consumers to remain aware of how digital prompts and personalised recommendations may influence their purchasing decisions.

Dr Yusuf Oc, Senior Lecturer in Marketing at Bayes Business School, said the research shows clear increases in spending and purchasing among shoppers who choose digital assistance. The findings suggest supermarkets could encourage adoption through incentives such as loyalty rewards while tailoring promotions to different shopping periods. Overall, the study highlights both the commercial potential of AI-enabled shopping trolleys and the importance of understanding how digital technology can subtly shape consumer behaviour.

More information: Sabrina A. Gottschalk et al, Customer responses to smart shopping carts in supermarkets, Journal of Business Research. DOI: 10.1016/j.jbusres.2026.116337

Journal information: Journal of Business Research Provided by City St George’s, University of London

Credit Ratings and Corporate Financing Strategies

Leave a Reply

On the surface, credit rating agencies assess a company’s financial health by examining its debt, equity, and ability to meet financial obligations. They assign letter grades that indicate the likelihood that a company will repay its debts. However, new research suggests that rating agencies may do more than evaluate financial risk. Their assessments can also influence how companies make financing and investment decisions.

Cesare Fracassi, associate professor of finance at the McCombs School of Business at The University of Texas at Austin, and Gregory Weitzner of McGill University examined how a change in Moody’s rating methodology affected corporate behaviour. They found that when Moody’s reclassified certain securities on companies’ balance sheets, affected firms subsequently borrowed an average of 22% more, even though their underlying financial circumstances had not changed.

A key factor in credit ratings is leverage, or the ratio of debt to equity. Generally, higher debt relative to equity indicates greater financial risk because a company has more obligations to repay. Yet not every financial security fits neatly into the categories of debt or equity. Some securities have characteristics of both, creating a grey area in determining a company’s leverage.

One example is preferred equity, also known as preferred stock. Like a bond, preferred stock generally pays a fixed dividend, making it resemble debt. Unlike conventional debt, however, it does not necessarily have to be repaid, and failure to pay a dividend does not automatically trigger default. Because of this hybrid nature, rating agencies traditionally treated preferred stock as 50% debt and 50% equity.

In July 2013, Moody’s changed its methodology for companies rated below investment grade, which were already considered relatively risky. Instead of treating preferred stock as half debt and half equity, Moody’s began classifying it as 100% equity. The accounting fundamentals and business operations of these companies had not changed, but the new classification made their financial positions appear stronger from a credit-rating perspective.

The researchers studied 475 companies rated below investment grade, including 44 that held preferred stock. Following Moody’s change, the affected companies appeared safer because their average leverage declined from 61.9% to 57.1%. According to the researchers, this reduction was comparable to receiving a one-notch improvement in a credit rating and effectively gave the companies additional capacity to borrow.

The companies took advantage of that capacity. During the remainder of 2013, affected firms increased their overall leverage by an average of 3.1 percentage points compared with other companies. They also increased assets and equipment by approximately 8%, suggesting that much of the additional financing supported business investment and growth. Their stock prices also rose by approximately 2.8%.

The findings demonstrate how credit ratings can shape corporate financing strategies even when a company’s underlying financial condition has not materially changed. Although increased borrowing and investment may benefit shareholders, additional debt can create greater risks for creditors. For investors, the research highlights the importance of looking beyond a company’s credit rating and examining its underlying financial position, financing choices, and risk exposure before making investment decisions.

More information: Cesare Fracassi et al, What’s in a Debt? Rating Agency Methodologies and Firms’ Financing and Investment Decisions, The Review of Corporate Finance Studies. DOI: 10.1093/rcfs/cfag026

Journal information: The Review of Corporate Finance Studies Provided by University of Texas at Austin

Chonnam National University Research Reveals the Financial Benefits of Environmental Responsibility

Leave a Reply

Consumers are increasingly choosing products from companies that demonstrate genuine environmental responsibility. Although many studies have linked environmental, social, and governance (ESG) performance with stronger financial outcomes, the mechanism through which environmental responsibility translates into greater profitability has remained unclear. New research suggests that sustainability may improve corporate financial performance indirectly by increasing sales.

A study led by Professor Sang-Ho Lee from the Department of Economics at Chonnam National University, South Korea, in collaboration with Professor Arturo Garcia from Universidad Autónoma de Nuevo León, Mexico, has identified sales as a key mechanism connecting environmental responsibility with financial performance. The study was published online on May 22, 2026, in Corporate Social Responsibility and Environmental Management.

Growing concern about climate change has encouraged companies across industries to reduce greenhouse gas emissions, adopt greener technologies, and strengthen their environmental practices. At the same time, consumers are becoming increasingly conscious of the environmental consequences of their purchasing decisions, making environmental responsibility an important factor influencing consumer behaviour and corporate strategies.

“As green consumerism is increasing, the escalating global concern over climate change has compelled firms across numerous industries to integrate eco-friendly practices, such as greenhouse gas reduction and the adoption of green technologies, into their core operations,” explained Prof. Lee. This shift raises an important question for businesses: whether investments in environmental responsibility can generate measurable financial benefits and, if so, how those benefits emerge.

To investigate this relationship, the researchers analysed ESG ratings from the Korea Corporate Governance Service and financial information from the KIS Value database. Their sample included 579 publicly listed Korean companies, representing 2,316 firm-year observations between 2019 and 2022. Using mediation and moderated mediation analyses, they examined whether sales explain the relationship between environmental responsibility and financial performance and whether the effect differs across firm types and periods surrounding the COVID-19 pandemic.

The results showed that environmental responsibility did not directly improve financial performance. Instead, companies with stronger environmental performance achieved higher sales, which subsequently contributed to improved returns on assets and equity. This finding suggests that consumers’ responses to credible environmental practices can provide an important pathway through which corporate sustainability efforts ultimately create financial value.

The effect, however, was not the same for all companies. The sales-mediated relationship was significant among large Chaebol firms but not among non-Chaebol firms, suggesting that larger, more visible companies may be better positioned to translate environmental initiatives into consumer demand through their established reputations. The effect also became significantly stronger after the COVID-19 pandemic, potentially reflecting greater consumer and stakeholder attention to sustainability.

The findings provide businesses, investors, and policymakers with a clearer understanding of how environmental responsibility can contribute to economic performance. “This approach can be potentially applied to other countries that have different business styles and different degree of green consumerism,” said Prof. Lee. He concluded, “Our study emphasises not only the importance of green consumerism to improve environmental quality for a longer time horizon but also the financial performance-based sustainability of business strategies, as a win-win project for the earth and the people.”

More information: Arturo Garcia et al, Environmental Responsibility and Financial Performance: The Mediating Role of Sales in Korean Firms, Corporate Social Responsibility and Environmental Management. DOI: 10.1002/csr.70672

Journal information: Corporate Social Responsibility and Environmental Management Provided by Chonnam National University, The Research Information Management Team, Office of Research Promotion