Bridging the gap between business school research and policymaking

How does business school research shape how our world is governed?

Overton, a start-up that tracks the impact of academic research on policy, has some answers. It is the world’s largest database of policy documents, guidelines, think-tank publications and working papers, containing more than 13mn items. The fully searchable resource allows researchers, experts and policymakers to track impact and understand how ideas are feeding into government action. In the words of one user, it is “like Google for policy documents”.

Euan Adie, Overton founder and managing director, says he was driven by a knowledge of the distance between researchers and the “real world”, especially as governments were taking a renewed interest in evidence-based policy. “It was one of the ways we could bridge that gap,” he says. “What is the best evidence for policymaking? Can we improve the quality . . . make sure the right evidence goes to the right place?”

Three main groups use the tool, he says: universities, which are required to show the impact of their research for rankings; think-tanks, which want to know what available research is saying and how they can add to it; and researchers themselves, to understand what governments want from their work, and where they can best direct it. 

Overton has selected some of the business school papers that it has found to have the greatest impact globally. On subjects ranging from grocery prices to interest rate policy, these papers have altered understanding of their fields and influenced policy.

Many of the most effective papers in the list begin by identifying a clear gap in knowledge that is leading to confusion about what actions companies or governments should take.

Carbon pricing

For Patrick Bolton and his colleague Marcin Kacperczyk, in their paper ‘‘Do Investors Care about Carbon Risk”, the problem was a “lack of consensus among institutional investors around climate change”, raising the possibility that “carbon risk may not yet be reflected in asset prices”. This implied that future regulation and the complex effects of climate change were failing to filter through to investment decisions. 

The authors explored whether investors demanded a carbon risk premium, by looking at how stock returns varied with CO₂ emissions across businesses. 

Their results showed clearly that stock returns were positively linked to the level of a company’s carbon emissions — a finding “largely consistent with the view that investors are pricing in a carbon risk premium”, the authors said. Investors in more carbon-intensive companies, that is, were requiring compensation for problems down the line. “We find this across all sectors, and all countries,” says Bolton. It has been most striking since the 2015 Paris agreement on climate change, when sweeping goals for emissions mitigation were introduced.

“The main conclusion for policymakers is that investors are forward-looking in their valuation of companies,” Bolton explains. “From the point of view of the value of the companies they’re investing in, it’s not so good to invest in highly emitting companies.”

The impact of the paper, he adds, has been “enormous”. Along with Kacperczyk, he is “amazed at the literature it’s spawned”. In the policy world, it is having an impact on mandatory carbon-disclosure policies, as well as influencing a range of net zero-aligned portfolio management solutions, including low-carbon leader market indices. “Investors now need to pay attention to corporate carbon emissions,” Bolton says. “It’s not going away.”

Central banking

At a time when central banking was in the spotlight, Matteo Benetton and Davide Fantino’s paper, “Targeted monetary policy and bank lending behavior”, hit a sweet spot. Published in 2021, It considered the effects of more targeted central bank measures in increasing the level of loans to businesses.

To do that, it analysed the European Central Bank’s first series of targeted longer-term refinancing operations. This €400bn programme of long-term cheap funding had the explicit goal of “enhanc[ing] the functioning of the monetary policy transmission mechanism by supporting lending to the real economy”.

Combining transaction-level data from the Italian credit register, and using allocation rules set by the bank, the researchers analysed the programme’s effects. They found it resulted in additional liquidity, decreased interest rates and larger loan amounts to businesses — all consequences that would stimulate the economy. 

The paper was conceived, Benetton says, in response to “unconventional policy tools” adopted by central banks in the wake of the financial crisis — and a fear these were not filtering through to households and businesses. “If the goal was to support the real economy, there could be room for improvement,” he says.

Lessons from the paper have proved relevant, as data emerges showing inefficiencies in untargeted schemes, such as the Paycheck Protection Program in the US. The UK’s Funding for Lending Scheme was also tweaked to direct cash to businesses more effectively, says Benetton. “There is a difficult trade-off between targeting funds and providing them fast,” he adds. “I’m not saying it’s because of our paper, but still this type of intervention has continued over time, in some cases in a more subtle way . . . Allocating credit is a very complex job.”

Holding to account

More than a decade ago, India’s central government was transitioning its public works programme, a large-scale employer of low-income people, from paying workers in cash to paying into their bank accounts. However, few women had access to bank accounts that would allow them to receive payments in this way.

There is a difficult trade-off between targeting funds and providing them fast

Addressing this presented an opportunity not just to increase banking access, but to learn about its impact. Researchers, including Erica Field, of Duke University School of Economics, used the programme to explore the relationship between women having access to government wages and being motivated to find paid employment. The researchers randomly varied whether women in rural areas were simply set up with bank accounts, given training in their use, or received wage deposits in their own bank accounts, rather than their husband’s account.

The results were striking. They clearly showed that women who received training and wages deposited in their bank account were more likely to find work. This applied to employment in both the public and private sectors. 

Charity Moore, the paper’s co-author, says that, when researchers followed up with their subjects, even as much as eight years later, the researchers found “really strong persistent impacts on labour supply” and higher levels of autonomy among those women who had benefited. “The potential income coming to them had shifted the balance of power in the household,” she says. “These women become more liberal. They think it’s more appropriate now for women to be working outside the household.” 

Although the state has struggled to scale the programme, separate government efforts have made banking enrolment more common. The widely cited paper also offers a strong evidence base for policy beyond India, Moore adds. “It’s a small thing the government can do . . . but it has these repercussions long term.”

Killer acquisitions

For young companies, an acquisition by a large, established group can seem like a dream scenario, a ticket to dramatically greater resources, support and new markets. But, according to the paper “Killer acquisitions”, the opposite may be the case.

It found incumbent groups may acquire innovative companies in their fields not to build them up but to put an end to their work, eliminating competition. Such “killer acquisitions”, the authors warned, “potentially harm innovation and competition”. 

Colleen Cunningham, Florian Ederer and Song Ma, of the University of Utah, Boston University and the Yale School of Management respectively, analysed data from the pharmaceutical industry, showing that acquired businesses were less likely to receive the support and investment they needed to grow if they overlapped with the acquiring company’s existing portfolio.

By conservative estimates, the paper found 5.3-7.4 per cent of acquisitions in the sample were these “killer acquisitions”. Alternative explanations, the authors concluded, did not explain the results. 

The paper, from 2020, made waves beyond the pharmaceuticals sector that the authors had focused on. It warned that other areas could show similar patterns, and recommended both further research and greater antitrust scrutiny.

By challenging the idea that acquisitions necessarily encourage innovation, it could prompt a broader reassessment, forcing policymakers to rethink a popular form of start-up exit, and the ways larger companies foster innovation — or do not.