Reconstruction following Destruction: Entrepreneurship in the Aftermath of a Natural Disaster

by Richard Lombardo

Abstract

Entrepreneurship is thought to be the engine of growth in many developing countries. There is, however,
a paucity of evidence on the role that entrepreneurship plays in rebuilding economic livelihoods both in
the short and longer-term in the aftermath of a large-scale shock. This is an important gap in the literature
given the increasing frequency and severity of shocks across the globe. This paper contributes to filling that
gap by investigating the evolution of entrepreneurial success following the 2004 Indian Ocean tsunami, a
large-scale and unexpected shock. Using longitudinal survey data, the Study of the Tsunami Aftermath and
Recovery (STAR), I find large declines in business ownership, profits, and capital for those most exposed
to the tsunami that persisted through 10 years following the tsunami. These estimates can be given a causal
interpretation under the plausible assumption that exposure to the tsunami can be treated as exogenous after
taking into account individual-specific unobserved heterogeneity with fixed effects, including pre-tsunami
geographical features that drove exposure. Individuals living in rural areas and individuals with the least
resources pre-tsunami fared the worst in terms of developing new businesses. However, the massive Build
Back Better reconstruction program promoted entrepreneurship. Receipt of housing aid as part of that
program is linked to an increase in the development of non-agricultural businesses that spurred gains in real
profits.

Duncan Thomas, Faculty Advisor
Michelle Connolly, Faculty Advisor

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JEL classification: D1; H84; L26; Q54

An Analysis of the Labor Market Returns to Community College and Vocational Training

by Eli Levine

Abstract 

Education and training are fundamentally linked with labor market performance. There is a significant body of work analyzing the role of education in wages with an emphasis on a comparison between a college degree and a high school diploma. However, as states have begun to shift their education policies to make community college and trade school more accessible, it is important to understand the expected labor market returns to these forms of education. In this paper, using data from the National Longitudinal Survey of Youth’s cohort that began in 1997, the returns for different levels of education using the Mincer equation are found. While there was a data limitation surrounding trade school, it was possible to analyze the impact of adding a vocational license or a training certificate to a high school diploma. When controlling for experience in three different ways, specifically by age, time at highest training and labor market experience, it was found that returns to a training certificate relative to high school are between 18.7% and 36.3% higher than a high school diploma. Furthermore for community college, the wage returns are between 26.4% and 45.8% higher relative to a high school diploma. These findings highlight that additional training and certification can be an effective tool for increasing labor market returns for high school graduates even without a bachelor’s degree.

V. Joseph Hotz, Faculty Advisor

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To What Extent Does Relative Maturity Affect Test Scores Between Tracked and Untracked Education Systems? Evidence From TIMSS 2019

by Qi Xuan Khoo

Abstract 

Most education systems enforce a cutoff birth date for school entry, and some group students based on their perceived ability—a practice known as tracking. While the former policy leads to maturity gaps among early learners, the concomitant performance gaps may or may not be exacerbated by the latter. Analyzing the Trends in International Mathematics and Science Study (TIMSS) 2019 dataset to study how relative maturity affects test scores with tracking, this paper finds that older students outperform their younger peers. This relative maturity test score premium is accentuated by tracking, and these effects are found to be more significant in mathematics than in science.

Robert Garlick, Faculty Advisor

JEL codes: I2, I24, I28

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What Affects Post-Merger Innovation Outcomes? An Empirical Study of R&D Intensity in High Technology Transactions Among U.S. Firms

by Neha Karna

Abstract 

High levels of global M&A activity have characterized the past decade, making the policy debate
over the impact of mergers on innovation even more pertinent. Innovation is a significant driver
of economic growth and therefore a negative effect of mergers on innovation outcomes may have
detrimental consequences. Nevertheless, the existing literature demonstrates mixed results
leaving it unclear whether the overall effect is positive or negative. This paper contributes to
existing literature on the relationship between mergers and innovation and examines the effects
of M&A on the subsequent innovative activity of acquiring firms that operate in high technology
(high-tech) industries. I construct a sample of U.S.-based public-to-public deals from 2010-2019
involving high-tech acquiring firms. Using multivariable regression with robust considerations, I
analyze factors that may explain post-merger R&D intensity defined as the merged entity’s R&D
expenditure divided by its total assets one year after deal completion. I consider firm
characteristics of the target and acquirer, including size, industry, and age, and industry
competition. I find potential positive impact of relative target size on post-merger R&D intensity
and significant interaction effects between relative target size and firm age, relative target size
and industry relatedness, and target industry competition and industry relatedness. My results
suggests that beyond the occurrence of a merger, specific deal characteristics may affect postmerger
innovation outcomes.

Grace Kim, Faculty Advisor

JEL Classification: G3; G34; L40; O31; O32;

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Private Equity IPOs: Long-term Performance and Drivers of Success

by Ignacio Hidalgo Perea

Abstract 

In this paper, I explore the impact Private Equity ownership has on portfolio companies post-exit. This thesis aims to add to the discussion of whether the proliferation of Private Equity in the United States is a positive development for the country. Using a proprietary dataset that compiles thousands of IPOs between the years 2000 and 2016, I look at whether there are significant differences in performance between IPOs that come from Private Equity firms and those that go public on their own. Specifically, I use empirical analysis with robust regression to estimate the effects of Private Equity ownership on four key measures of financial success: MCAP growth, Revenue Growth, EBITDA Margin, and EV / EBITDA multiple. By looking at the changes in these measures of performance across three different time windows: 3 years post-IPO, 6 years post-IPO, and 9 years post-IPO, this paper determines how Private Equity ownership affects company performance post-exit and whether those effects persist over time.

Grace Kim, Faculty Advisor

JEL Codes: G23, G24

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Impact of Language Access Laws on LEP Infant Mortality Rates

by Andrew Ryan Griffin

Abstract 

Starting with Executive Order 13166 in 2000, the United States federal government
began to address the language disparity issues in health care. Around the same time, several
states have begun to pass language access (LA) legislation mandating translation and
interpretation services at hospitals for limited English proficient (LEP) individuals. This study
uses these multiple discontinuities to evaluate the effect of language access laws on infant
mortality rates, adequacy of care, Apgar scores, and the number of prenatal visits from the years
1995 to 2004 for limited English proficient families. I find ambiguous results of language access
laws positively impacting infant mortality rates or Apgar scores, but I find clear positive impacts
on the adequacy of care and the number of prenatal visits. These findings suggest that language
access laws have a clear effect on reducing barriers for limited English proficient mothers, and
improving the care mothers receive. Furthermore, there is limited evidence that it improves
infant health or outcomes, but the increase of prenatal visits and adequacy of care likely
indirectly leads to improving infant mortality rates and Apgar scores. More research is needed
into discovering how those mechanisms work and the costs of language services.

Michelle Conolly, Faculty Advisor

JEL codes: I10, I18, I19

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Bailing on Justice: Plea Bargain Sentencing Outcomes

by Esmé Lise Mailloux Govan

Abstract 

In 2020, over 630,000 American adults were detained in local jails each day, 74% of whom had not yet been convicted of a crime. These defendants were detained before going to court because they did not make bail. There is a large body of work documenting the negative impacts of pretrial detention on a variety of outcomes, both short term such as sentencing and long term such as labour market outcomes. However, most of these studies take place in the largest cities in the U.S., which is partly a result of data availability. Thus, it is unclear if these results replicate outside of these urban cores. This paper uses data from Berkshire, which is disproportionately rural and White, to test whether the negative effects of pretrial detention extend to these less studied areas. First, using Durham data, the negative effects of pretrial detention in urban areas that previous studies have reported are replicated. Then, using Berkshire data, the negative effects of pretrial detention are shown to not only extend to rural populations, but are in fact more severe.

Bocar A. Ba, Faculty Advisor
Jason E. Baron, Faculty Advisor

JEL classification: K14; K41; K42

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The Effect of Algae Blooms on Property Values located on Florida’s Indian River Lagoon

by Cameron DeChurch

Abstract 

Florida’s Indian River Lagoon has algae blooms that devastate ecosystems, water quality,
and markets for seafood, recreation, and housing. This study estimates part of their economic
impact by examining water quality’s relationship with prices of properties sold near the estuary
from 2007 to 2016. Using water quality scores from 0 to 100, my regression analysis estimates
that one-unit increases in water quality are associated with one-percent increases in sale price.
Upon summing this relationship over all properties in the sample, my paper estimates that these
algae blooms have cost the housing market between $756 million to $3.6 billion.

Christopher D. Timmins, Faculty Advisor
Kent P. Kimbrough, Faculty Advisor

JEL Classification: Q5, Q51, R21

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Bias in Fact Checking?: An Analysis of Partisan Trends Using PolitiFact Data

by Thomas A. Colicchio

Abstract

Fact checking is one of many tools that journalists use to combat the spread of fake news in American politics. Like much of the mainstream media, fact checkers have been criticized as having a left-wing bias. The efficacy of fact checking as a tool for promoting honesty in public discourse is dependent upon the American public’s belief that fact checkers are in fact objective arbiters. In this way, discovering whether this partisan bias is real or simply perceived is essential to directing how fact checkers, and perhaps the mainstream media at large, can work to regain the trust of many on the right. This paper uses data from PolitiFact, one of the most prominent fact checking websites, to analyze whether or not this bias exists. Prior research has shown that there is a selection bias toward fact checking Republicans more often and that they on average receive worse ratings. However, few have examined whether this differential treatment can be attributed to partisan bias. While it is not readily apparent how partisan bias can be objectively measured, this paper develops and tests some novel strategies that seek to answer this question. I find that among PolitiFact’s most prolific fact checkers there is a heterogeneity in their relative ratings of Democrats and Republicans that may suggest the presence of partisanship.

Peter Arcidiacono, Faculty Advisor
Michelle Connolly, Faculty Advisor

JEL codes: D83, D84, L82

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Shades of Green: An Examination Into Second Party ESG Ratings In The Municipal Green Bond Market

by Harrison Zane Cole

 

Abstract

Since the end of the pandemic the market capitalization of green bonds and investor interest in sustainable investments has grown massively. The tidal wave of ESG funds has accompanied many claims of greenwashing and extreme variation in investment quality. While many investors focus on doing their own due diligence, second party ratings are an important source of information for capturing overall risk and characteristics of a security. This paper aims to take a deeper look at how HIP Investor’s (a popular ESG rating firm) ratings correlate to real-world yield and bond characteristics. Yield refers to the annualized return that investors receive from a bond, and lower yields at issuance reduce borrowing costs for the issuer. It is generally established in popular and academic literature that green bond designation does not directly lead to a benefit for issuers in terms of their cost of capital expressed through interest rates. This paper examines the yield at issuance effects for degrees of “actual greenness” and other inputs that may lead to a security to fit well in an ESG focused or impact fund. Within a sample of green bonds, the estimated yield to worst spread premium for a best-in-class (environmentally) ESG issuer is -23.9 basis points compared to a worst-in-class issuer holding all else equal. When considering non-environmental factors such as human health, the effect is larger at -71.4 basis points. For social wealth considerations, the directionality is reversed at 17.9 basis points. More research is needed to better understand and apply these results. This decrease in interest rates can result in millions of dollars of savings for larger issuances.

Lawrence Kreicher, Faculty Advisor
Michelle Connolly, Faculty Advisor

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Questions?

Undergraduate Program Assistant
Matthew Eggleston
dus_asst@econ.duke.edu

Director of the Honors Program
Michelle P. Connolly
michelle.connolly@duke.edu