Tax Efficiency of Exchange-Traded Funds
Ke Shen, assistant professor of finance at Lehigh Business, and his coauthors at Villanova University, study a lesser-known yet economically significant tax-deferral feature of ETFs’ security design, which is crucial to their success in attracting investor capital. By relying on the in-kind redemption exemption, authorized participants help ETFs avoid distributing capital gains and reduce their tax overhang, partly by deploying heartbeat trades. The authors estimate that ETFs’ tax efficiency has increased long-term investors’ after-tax returns by 0.92% per year relative to similar mutual funds in recent years. Exploiting cross-sectional and time-series variations in investors’ tax burden, the authors show that tax efficiency is a significant driver of the capital migration by high-net-worth investors from mutual funds into ETFs.
Girding the Grid
With the growing integration and anticipated increase of renewable energy sources, the electricity grid is expected to face greater uncertainty and volatility in day-ahead and real-time markets. Albert J. Lamadrid, associate professor of economics at Lehigh Business and his coauthors’ research includes developing robust frameworks to evaluate the risk of generators deviating from their unit commitments within electricity systems. Their approach was to utilize optimal outputs from simulations of Security Constrained Economic Dispatch and Security Constraint Unit Commitment to train machine learning and estimation models. This framework quantitatively assessed the likelihood of generators causing grid imbalances due to variability and uncertainty. They tested their model using real-world data from the New York Independent System Operator, highlighting the model’s practical applicability and reliability in real-world conditions.
Designing AI That’s Fair
In artificial intelligence and machine learning, the accuracy-fairness tradeoff refers to the challenge of balancing algorithmic performance (e.g., accuracy) with its fairness across different subgroups (e.g., race and gender). This phenomenon has led to the development of several solutions to tackle this tradeoff “problem” in fair algorithms. Given that algorithmic accuracy is a key factor for AI adoption, Kofi Arhin, assistant professor, DATA department at Lehigh Business investigates the contexts in which these tradeoffs occur. He highlights four data contexts in which this tradeoff can be understood. Preliminary results show that, in some contexts, the so-called tradeoffs are adjustments or corrections for discrimination rather than algorithmic errors. These findings have important implications for fair AI systems design.
Whistle While You Work
Enjoy the work you do? Don’t sell yourself short! Daniel Zane, associate professor of marketing at Lehigh Business, and coauthors show the power of “production enjoyment.” When sellers, especially in peer-to-peer marketplaces like Etsy, signal to buyers that they really enjoy making a product, this increases the amount buyers are willing to pay for the product because it signals high quality. However, sellers rarely mention production enjoyment in their messaging—in their study, only 1% of 30,000 sellers mentioned enjoyment at all. Even more interestingly, sellers charge lower prices for the products they enjoy making most (likely because it feels less like work)! This creates an interesting marketplace asymmetry that could be leading sellers to leave some potential profits on the table.
Short-Termism
Should a CEO hold an external board position and, if so, how many positions should be permitted? Jae B. Kim, associate professor of accounting at Lehigh Business, and his coauthors examined how CEOs’ external directorships are related to their actions at their current employer. They found that CEOs’ outside directorships have a negative relation with short-term-oriented behaviors and this association is restricted only up to two outside directorships. They also documented that CEO outside board service has a positive relation with long-term-oriented behaviors and long-term firm performance. Their findings suggest that outside board service has a positive influence on CEOs’ decision-making as holding external directorships can enhance their capabilities, relieve job-related concerns, and have a signaling impact in the CEO labor market.
Networking Post Downsizing
Ozias Moore, assistant professor of management at Lehigh Business, and his coauthors examine the micro-dynamics of networking in complex work environments, focusing on resource-acquisition strategies following downsizing events. Their research reveals that employees adapt their tie-seeking behaviors after downsizing, temporarily suspending within-unit homophily and preferring connections with long-tenured colleagues to acquire betweenness centrality. The research demonstrates that survivors with lower pre-downsizing degree centrality achieve greater gains, positively correlating with post-downsizing performance during the disruption period. However, these tie-making logics are abandoned during stabilization, with pre-disruption patterns resuming. These findings offer valuable insights for managers who are navigating organizational changes and highlight the importance of understanding network dynamics.