Fifteenth Edition | Summer 2023
Airbnb Plus Boosts Bookings and Earnings, Study Finds
With Recession Looming, UCI Researchers Seek to Uncover Whether Foreclosures Hurt Appraised Property Values
China’s Port Investment are Raising Security Fears. How to Deal With Them
It may be easy to claim a product or service is high quality, but it is much harder to convince online consumers the claim is true. Shoppers are increasingly skeptical, going to great lengths to read reviews and research a product or service before purchasing. But even those reviews and performance reports are proving unreliable as it becomes easier to create fake ones or pay an influencer for an endorsement.
Sanjeev Dewan and Tingting Nian, both of the UCI Paul Merage School of Business, along with Jooho Kim of the Zicklin School of Business, Baruch College, City University of New York, decided to explore these issues by studying Airbnb after it launched its Plus certification in an effort to communicate quality to would-be guests.
“Sharing-economy platforms like Airbnb, Uber, and others have a problem with review inflation,” Dewan explained. “That is, people are reluctant to post negative reviews for various reasons. As consumers are figuring this out, they are becoming uncertain of how to gauge quality.”
The Airbnb Plus program started in 2018 and offers quality certification to rental properties that meet certain standards. Certification is meant to signal the quality of the property and the reliability of the host. But does it actually do so? That’s what the research team aimed to find out.
“We wanted to understand whether the certification had real value for the host, the guest, and for Airbnb itself,” Dewan said. “Is it a gimmick? Or does it yield tangible results?”
Both Dewan and Nian have previously researched similar topics within the world of sharing economies. In one study, Dewan and his research partners found there is considerable quality uncertainty on eBay, which impacts how much buyers are willing to pay.
Nian and her colleagues studied Uber to find out how its entry into a new region impacted the local economy and the workers who signed up as drivers. This research found that new Uber drivers are less likely to default on debt payments because they found a reliable source of supplemental income.
“Sharing-economy jobs can be a lifeline for people who need flexible work schedules that accommodate their other responsibilities,” Nian said. “The bar for entry is fairly low, so these jobs are good for a variety of workers who would struggle to make ends meet otherwise.”
Building on these findings, Dewan, Nian, and Kim dug deeper into the intricacies of Airbnb Plus to determine whether the certification leads to more revenue for the
platform, the hosts, or both. The short answer is yes; the certification increases the weekly booking rate of Plus listings by about 6.8% on average.
“An increase in the booking rate is good for both Airbnb and the hosts,” Dewan explained. “They are both making more money on those properties than they did before the certification.”
In fact, this study found that the net impact of the Airbnb Plus certification for the platform itself is an increase in revenue of about $37,500 per year for the average two-kilometer zone in a U.S. city that includes one or more Plus listings. This revenue is compared to matched zones without any Plus listings.
But what does this mean for the guests booking these properties? Are they actually receiving a quality rental experience? It’s a question the research team considered.
“...The Plus badge signals the quality of the product (i.e., short-term rental property) in addition to the reliability of the provider (i.e., host). However, [with] the relatively low one-time inspection fee and lack of capacity for ongoing monitoring of quality, one may wonder if the Airbnb Plus certification is a credible signal of quality—or just ‘cheap talk,’” the research article explained.
Dewan and Nian admitted this is still an open question. After all, the platform itself serves as both inspector and certifier, creating a potential conflict of interest. However, they pointed to several factors that might offset the concern.
“The properties and the hosts still receive reviews from guests, so if there is too much misalignment between what the Plus program claims as quality and what the guests actually experience, that will start to show up in the reviews,” Nian said. “And to meet the standards and
pass inspection in the first place, the properties do have to be designed well and furnished with nice amenities, which not every property will be able to achieve. There is at least some exclusivity to the certification.”
Dewan added, “Airbnb is putting its brand name and reputation at stake if they hand out certifications willynilly. They have one of the most respected brands in the short-term rental industry, and I imagine they want to protect that.”
The researchers were not surprised that the results showed an increase in bookings and revenue due to the Plus program, but they were not expecting those results to be quite so clear and strong. For instance, the positive effects for hosts do not vanish right away. Even several months after certification, the Plus properties are still seeing favorable impacts.
Furthermore, the increase of 6.8% in booking rate translates to over $3,100 in additional revenue for the average certified property. Considering the inspection fee is only $149, for properties that already meet all or most of the quality standards, pursuing certification is pretty much a no-brainer.
The relevance of this study for property owners and sharing-economy platforms is fairly obvious: Quality certification will likely lead to increased demand and revenue.
“We believe this study has relevance for other companies in the sharing-economy space,” Dewan said. “Many platforms are rolling out similar certifications, so they might benefit from understanding the specific and detailed financial impact of doing so.”
Both Dewan and Nian are currently exploring other topics related to sharing economies. Nian is again studying Airbnb, this time addressing the problem of guests and hosts taking their business off the platform where they can make their own arrangements. Her research uses consumer location data and Airbnb’s new instant booking feature to determine whether the platform can successfully combat this issue.
Dewan’s research is using machine learning to identify counterfeit products on Amazon. With this, he hopes to uncover what consumers and platforms can do to avoid purchasing and selling counterfeits and whether current efforts to eliminate counterfeits are effective.
Sanjeev Dewan is a professor and the faculty director of the Master of Science in Business Analytics program at the UCI Paul Merage School of Business. He has served as senior editor of Information Systems Research, associate editor of Management Science, and on the program committee for several academic conferences. His research and teaching interests include the economics of digital platforms and customer and social analytics.
Tingting Nian is an assistant professor of Information Systems and a Hellman fellow at the UCI Paul Merage School of Business. She has received several grants and awards from institutions including Think Forward Initiative, Hellman Foundation, Wharton Customer Analytics Initiative, and INFORMS. Her current research interests include sharing economy, platform economics, gender bias, and social media marketing.
For more than a decade, homeowners have been concerned that the use of foreclosed homes in appraisals has a negative impact on home values. The study may put homeowners’ minds at ease.
Since the 2008 housing crash, many people have been concerned that their homes would lose value due to the abundance of foreclosed homes nearby that can be used to calculate the worth of their property. Appraisers will use nearby homes that were recently sold to determine the price of a residence. Sometimes, they will use foreclosed properties to come up with the value. Because this has been a lingering concern for many, and with a potential recession on the rise, professors James Conklin, N. Edward Coulson, and Moussa Diop decided to find out whether there was any truth to this anxiety. The researchers set out to determine whether the use
of distressed properties, or comparables, made an impact in appraisals. Foreclosed homes are considered distressed comps.
Researchers found that they are not a drag on appraised value because appraisers learn to make the right adjustments over time. Coulson said that appraisers adjust the comps so that they become an “apples to apples” comparison with the subject property. This is a particularly notable finding because industry experts traditionally have suggested that using distressed comps in an appraisal isn’t desirable. Furthermore, researchers’ personal conversations with appraisers revealed that they tend to avoid using foreclosures as comps due to the uncertainty surrounding the properties, and the difficulties of determining the correct price adjustment.
“The worry was if you use foreclosed property to evaluate a new property, how is that going to have an impact because the foreclosed property is going to have a lower sales price, and then they’re going to lower the appraisers valuation of the subject property,” Coulson said. “We found that had a tiny bit of validity in the beginning of our sample period. But then by the end, it was basically a non-issue.”
With a potential recession on the horizon, Coulson said there isn’t yet an uptick of foreclosures around the country. But, if the economy takes a downturn, the findings may bring some peace of mind to property owners looking to sell.
“Even though property values are falling, they’re not yet falling like they were during the recession,” Coulson said. “But if there were a wave of foreclosures, people who read about our results can know that appraisers make the right adjustments.”
The distressed comps study is part of a larger real estate analysis from Coulson and his fellow researchers. In the paper, the researchers note their investigation
“Even though property values are falling, they’re not yet falling like they were during the recession.”
also raises a number of interesting questions, like whether the impact of distressed comps varies with area demographics. This was informed by the finding that distressed comps are more common in areas with a greater share of Hispanics and minorities.
Coulson said there are a handful of related research projects underway. One he is particularly interested about delves into whether there is systemic racial discrimination against minority populations in the appraisal process.
“There’s been a wave of news articles about African
American households getting really low appraisals, and then doing things like having white stand-ins or taking all the family pictures out and replacing them with white family pictures before having an appraiser come in,” Coulson said. “The articles point out that all of a sudden the appraisal gets a lot higher after these families do this and it raises the question of whether there’s any kind of systematic discrimination against African American or Hispanic or Asian populations when appraisals are being done. That’s a major project that we’re working on right now.”
N. Edward Coulson teaches in the area of Economics and Public Policy and serves in the school’s Center for Real Estate as Director of Research. Coulson’s research is focused on the mismeasurement of rent in the Consumer Price Index, and its implications for macroeconomic policy; the bias in residential appraisals; the impact of homeownership on people’s lives and neighborhoods; home prices; multifamily housing and its management; historic districts; the relationship between REITs and other asset markets; and many others. His co-edited book Energy Efficiency and the Future of Real Estate was published by Palgrave Press in 2017.
As China continues to build ports and military bases across the world, U.S. officials are concerned about potential security risks stemming from the expansion.
“In The January 25th issue of Barrons, UC Irvine senior lecturer Leonard Lane and Distinguished Professor at UCLA Christopher Tang seek to solve the issue by providing recommendations to prevent China from gaining control of U.S. ports and to impede the development of military bases. But the co-authors have made sure to maintain balance in their analysis so that global trade is not negatively affected by their suggestions. Lane and Tang also provide an important rundown of China’s worrisome foreign developments.
“We are really interested in this because these ports and terminals, including those owned by Chinese companies, are used for commercial purposes and they play a vital role in global trade,” Lane said. “So disrupting or restricting the operation of those facilities could have a significant impact and consequences that may not be in the interest of any country.”
While the United States, United Kingdom, and European Union have been planning to minimize how dependent they are on Chinese goods, the trade titan has been
investing in more than 100 ports in dozens of countries spanning across Southeast Asia, the Middle East, Africa, Europe, the Mediterranean, and the Americas. Lane and Tang believe that this expansion strengthens China’s influence on other nations.
“When 7 of the world’s 10 busiest ports are already in China, additional investment of over 100 foreign ports would certainly provide China’s global dominance in international shipping,” they wrote in the paper.
Lane and Tang note that seaports have been used throughout history to develop economic and military power, so China could eventually use these seaports as military bases for its navel ambitions, which can “pose new threats to the free world.”
U.S. officials have been concerned with China’s establishment of a few military bases in the last several years. The co-authors outlined in their paper that U.S. intelligence initially raised surveillance concerns when China opened a military base in Djibouti next to the Pentagon’s only military base a few years ago. Since then, the U.S. has been concerned with China’s intention to build a naval base in Equatorial Guinea. Also, after Chinese and Cambodian officials broke ground at Ream Naval Base in Cambodia last year, the Biden administration pressured Cambodia to clarify whether this naval base gives the Chinese Navy exclusive access. China did not explain its plans for any of these military bases.
It’s incumbent on the U.S. to take proactive steps to impede the development of military bases around the world. To accomplish this task, Lane and Tang provide three suggestions.
The first recommendation is to utilize the power of the Indo-Pacific Economic Framework for Prosperity
“When 7 of the world’s 10 busiest ports are already in China, additional investment of over 100 foreign ports would certainly provide China’s global dominance in international shipping.”
launched in May 2021 to bring Cambodia and other Asian countries into the issue. The framework is an economic partnership between the U.S. and several Asian countries, including Japan, Malaysia, Thailand, Singapore, and Vietnam, among others. Backed by the power of the framework, the U.S. can negotiate with Cambodia to ensure the naval base has equal access for other countries.
Another strategic proposal from Lane and Tang includes developing countermeasures for China’s Belt and Road Initiative, which is a global infrastructure development strategy adopted by the Chinese government in 2013 to invest in about 150 countries. The authors note that it is already facing setbacks, funding shortfalls and political pushback that has stalled certain projects. The final suggestion is to form a plan based on the Americas Partnership for Economic Prosperity, which is an agreement
announced by Biden last year to drive the Western hemisphere’s economic recovery and growth. This partnership aims to mobilize new investments in the region, but the U.S. can negotiate deals that can preempt China’s infrastructure investments in the future.
The authors conclude that a “smart deployment of U.S. economic influence now would reduce the risk of military confrontation going forward” and hope their suggestions help guide U.S. officials as they respond to China’s unprecedented moves
“Chris and I have been looking at supply chain issues like this for years Lane said. “We’ll be continuing to look at how the Belt Road Initiative, the changing international alliance landscape and related economic, and political events impact global trade.”
Leonard Lane is a continuing lecturer in the area of Strategy and Entrepreneurship at the Merage School with extensive global work experience. During his work career he served as Vice President for Global Strategy for Divine, Inc.; President, Partner and Director of LLA Strategic Development Group (Alaska and Seattle) and LLA Pacific (Hong Kong); Executive Vice President of Alaska International Air; Assistant to the Chairman, Alaska Airlines, Senior Consultant Peat, Marwick Mitchell, Special Assistant to the Governor of Alaska and held senior management positions in two major Manufacturing organizations.
Professor Chuchu Liang
Title: “Advertising Rivalry and Discretionary Disclosure”
Accepted at: Journal of Accounting and Economics (Journal on Financial Times Top 50 list)
Abstract: Advertising is a critical competitive tool that shapes interactions among firms in the product market. Using third-party tracked data on advertising outlet costs, I find that a nontrivial portion of public firms, even those with intense advertising activities, do not disclose advertising expenses in their financial statements, indicating significant disclosure discretion. I further use product category-level advertising data to develop a firm-specific measure of advertising rivalry. I predict and find that advertising rivalry is negatively associated with the likelihood of disclosing advertising expenses. This negative association is more pronounced when firms advertise on less trackable media outlets or have more mature products. These findings suggest that firms consider their advertising expenses proprietary and that concerns about advertising competition discourage the disclosure of advertising expenses.
Title: “MiFID II and the unbundling of analyst research from trading execution?”
Accepted at: Contemporary Accounting Research (Journal on Financial Times Top 50 list)
Abstract: The revised Markets in Financial Instruments Directive (MiFID II) requires the unbundling of research payments from trading execution, fundamentally changing the way in which investors typically pay for analyst research in Europe. We examine the effectiveness of the regulation in changing the link between analyst research and trading, the research-trading link, and the analyst response to this potential change in incentives. Using a difference-in-differences research design, we find that forecast frequency, optimism, and accuracy are less associated with the brokerage trading share after MiFID II, suggesting that MiFID II weakened the link between the brokerage share of trading and analyst research. Following MiFID II, analysts in Europe are less likely than analysts in the United States to continue high forecast frequency, optimism, and accuracy for stocks with high share importance for the analyst’s brokerage house. We find similar results throughout for buy/sell recommendations. Overall, our evidence suggests that MiFID II is at least partially successful in unbundling research from execution, and impacts both the trading effects and the production of analyst research.
Title: “Enterprise system implementation and cash flow volatility”
Co-authors: Alfred Z. Liu (PhD alumnus) and Sean X. Xu (PhD alumnus)
Accepted at: Contemporary Accounting Research (Journal on Financial Times Top 50 list)
Abstract: This study investigates the financial and operational implications of enterprise systems (ESs) in corporate risk management. Using matched difference-indifferences analyses based on ES implementation events, we document a significant reduction in the volatility of operating cash flows following ES implementation. We further show that ES implementers have better post-implementation operational efficiency than matched non-ES firms and better manage sales, costs, working capital, and expenditures to reduce operating cash flow volatility. Consistent with the benefits of lower cash flow volatility documented in prior literature, we find ES implementers demonstrate higher investment efficiency, lower reliance on external financing, and higher debt capacity post-ES-implementation than the matched non-ES firms. Our study sheds light on the economic benefits of utilizing enterprise systems in corporate risk management and in so doing, responds to the paucity of empirical research in this area.
Title: “Tax knowledge diffusion through shared audit partners: Evidence from China”
Co-authors: Chee Yeow Lim, Kun Wang, and Yanping Xu
Accepted at: Journal of Accounting, Auditing and Finance
Abstract: This study investigates how tax knowledge is diffused through auditors at the individual partner level. We find that firms sharing the same audit partner with low tax firms exhibit lower effective tax rates (ETRs), but not for firms that share the same audit office but with different partners. Using a difference-in-difference (DID) research design, we show that firms’ ETRs decline significantly after their existing audit partners start auditing a low-tax firm. Our findings suggest that the transfer of tax planning knowledge from low tax firms to focal firms occurs mainly through common individual partners. Moreover, benefits to focal firms are stronger when their top executives have a social connection to the shared partners. Further analysis shows that audit partners are more likely to retain existing clients and charge higher audit fees for tax planning diffusion, indicating how audit partners benefit from sharing tax planning knowledge with their clients.
Title: “Tech-Enabled Financial Data Access, Retail Investors, and Gambling-Like Behavior in the Stock Market”
Co-authors: Taha Havakhor, Mohammad S. Rahman, and Tianjian Zhang
Accepted at: Management Science (Journal on Financial Times Top 50 list)
Abstract: Advancements in technology have reduced information acquisition costs, creating an improved information environment for retail investors. Specifically, new technologies such as application programming interface (API) deliver high-volume, institutional-like raw data directly to Main Street investors. Although greater availability of information should be beneficial, it may also exacerbate retail investors’ existing trading deficiencies. Exploiting the sudden shutdown of Yahoo! Finance API, the largest free API for retail investors, this study examines how access to tech-enabled raw financial data affects retail investment. We find that retail trading volumes in stocks favored by active retail investors dropped by 8.6% to 10.5% within one month of the API shutdown. The remaining retail trades collectively became more predictive of future returns, suggesting less gambling-like behavior after the API shutdown. Moreover, our randomized controlled experiment affirms the underlying mechanism: tech-enabled access to high-volume historical price data increases individuals’ overconfidence, which further leads them to engage in excessive trading. The study reveals an unintended consequence of technology-led, wider data access for retail investors.
Title: “Women Directors and Board Dynamics: Qualitative Insights from the Boardroom”
Co-author: Louise Mors
Accepted at: Journal of Management (Journal on Financial Times Top 50 list)
Abstract: Despite increasing attention to gender diversity on corporate boards, we have only limited understanding of what occurs within the boardroom when women are present. Prior empirical research has used various theories to infer how board gender diversity may influence firm outcomes, but without identifying the theoretical mechanisms underlying women directors’ influence on the board. To address this gap, we conducted interviews with women and men who have collectively served as directors with over 200 publicly listed companies in the U.S. and Europe. While prior research has suggested that the diverse cognitive perspectives women directors bring influence board decision-making, our study reveals novel insights as to the underlying mechanisms. Specifically, we contribute to the board gender diversity literature with the finding that women behave in ways contrary to existing board norms. By coming to board meetings highly prepared, being willing to acknowledge they don’t know something, asking questions, and getting things on the table, women impact the dialogue and interactions in the boardroom. Thus, our study sheds light on how the presence of women influences board dynamics, which has implications for corporate governance. Our findings also challenge prevailing gender theories as to how women are likely to behave, in that we do not find that women conform to gender stereotypes. Yet we also find impediments to women directors’ ability to gain influence, in that men directors may not always acknowledge them or afford them respect as equal board members.
