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| Paper ID | SRRN | Downloads | Citations | Title | Journal | Year | Volume | Page | Description |
| 1 | http://ssrn.com/abstract=2989030 | 17 | Board changes and CEO turnover: The unanticipated effects of the Sarbanes–Oxley Act | JBF | 2014 | 41 | 97-108 | The board independence requirements enacted in conjunction with the Sarbanes Oxley Act of 2002 (SOX) provided motivation for firms that were already compliant with the regulations to alter their board structure. We consider actual board changes made by compliant firms and how such changes affect the monitoring efficiency of the boards. We find that the majority of compliant firms (approximately 56%) add independent directors following SOX. However; we find a nontrivial number of firms (approximately 26%) actually decrease the number of independent directors to move closer to the stated 50% requirement. For firms that decrease independence; the CEO turnover performance sensitivity significantly decreases following SOX. We also find that large board independence changes seem to be most detrimental to the monitoring function of the board. Our results highlight that SOX may have had unintended consequences. | |
| 2 | http://ssrn.com/abstract=2882658 | 4549 | Effective Macroprudential Policy: Cross-Sector Substitution from Price and Quantity Measures | IMF Working Paper No.16/94 | 2016 | Macroprudential policy is increasingly being implemented worldwide. Its effectiveness in influencing bank credit and its substitution effects beyond banking have been a key subject of discussion. Our empirical analysis confirms the expected effects of macroprudential policies on bank credit; both for advanced economies and emerging market economies. Yet we also find evidence of substitution effects towards nonbank credit; especially in advanced economies; reducing the policies’ effect on total credit. Quantity restrictions are particularly potent in constraining bank credit but also cause the strongest substitution effects. Policy implications indicate a need to extend macroprudential policy beyond banking; especially in advanced economies | |||
| 3 | http://ssrn.com/abstract=2430465 | 958 | 3 | Say on pay laws; executive compensation; pay slice; and firm valuation around the world | JFE | 2016 | 122 | 500–520 | Using a large sample of firms from 38 countries over the 2001–2012 period; this study finds evidence that; following the adoption of say on pay (SoP) laws; chief executive officer (CEO) pay growth rates decline and the sensitivity of CEO pay to firm performance improves. These changes are concentrated in firms with high excess pay and shareholder dissent; long CEO tenure; and less independent boards. Further; the portion of top management pay captured by CEOs is lower in the post-SoP period; which is associated with higher firm valuations. Overall; these results suggest that SoP laws are associated with significant changes in CEO pay policies. |
| 4 | http://ssrn.com/abstract=2443792 | 725 | Does Mandatory Shareholder Voting Prevent Bad Acquisitions? | RFS | 2016 | 29 | 3035–3067 | hareholder voting on corporate acquisitions is controversial. In most countries; acquisition decisions are delegated to boards; and shareholder approval is discretionary; which makes existing empirical studies inconclusive. We study the U.K. setting in which shareholder approval is imposed exogenously via a threshold test that provides strong identification. U.K. shareholders gain 8 cents per dollar at announcement with mandatory voting; or | |
| 5 | http://ssrn.com/abstract=2665727 | 58 | The effect of poison pill adoptions and court rulings on firm entrenchment | JCF | 2015 | 35 | 286-296 | We challenge a common presumption that poison pills and two Delaware case rulings in 1995 validating such pills materially entrench firms. Based on unsolicited takeover attempts from 1985 to 2009; we find that poison pills enhance takeover premiums; but do not reduce completion rates. Furthermore; the 1995 Delaware rulings affected neither the use of poison pills among the targets; the effectiveness of the pills that were used; the completion rate of the takeover attempts; nor the takeover premiums. | |
| 6 | http://ssrn.com/abstract=2544223 | 640 | Employee Representation and Financial Leverage | JFE | We analyze how direct employee voice affects financial leverage. German law mandates that firms' supervisory boards consist of an equal number of employees' and owners' representatives. This requirement; however; applies only to firms with over 2;000 domestic employees. We exploit this discontinuity and the law's introduction in 1976 for identification and find that direct employee power increases financial leverage. This is explained by a supply side effect: as banks' interests are similar to those of employees; higher employee power reduces agency conflicts with debt providers; leading to better financing conditions. These findings reveal a novel mechanism of direct employee influence. | ||||
| 7 | http://ssrn.com/abstract=2361401 | 357 | The Impact of Borrowing Diversity on Firm Value; Financing and Real Decisions | Working Paper | Does borrowing diversity (i.e.; borrowing via a larger number of debt types) affect how firms respond to an exogenous credit supply shock? To answer this question I use the recent 2007-2009 credit crisis as a negative exogenous credit supply shock to U.S. non-financial companies. Applying a difference-in-differences methodology; I find that during the crisis companies that ex ante borrowed from many debt types had significantly higher capital expenditures than otherwise similar companies that borrowed from fewer debt types. The former group also had higher market valuations; a lower cost of debt; a lower reduction in debt issuance; higher leverage ratios; and a lower need to use internal cash during the crisis. This evidence is robust to applying an instrumental variable estimation; which takes into account the endogenous nature of the diversity measure. Finally; further tests suggest that borrowing diversity could represent a valid measure for financial constraints. | ||||
| 8 | http://ssrn.com/abstract=2787062 | 284 | Empty Creditors and Strong Shareholders: The Real Effects of Credit Risk Trading | Swiss Finance Institute Research Paper No. 16-17 | 2016 | Credit derivatives allow creditors to transfer debt cash flow rights to other market participants while retaining control rights. Theory predicts that this transfer can create empty creditors that do not fully internalize liquidation costs and liquidate borrowers excessively often. This empty creditor problem is concentrated in firms whose creditors would face powerful shareholders in distressed debt renegotiations. Consistent with this prediction; we show that (1) creditors buy more CDS protection when facing strong shareholders; and that (2) CDS trading reduces the distance-to-default; investment; and value of firms with powerful shareholders. | |||
| 9 | Centralization of intragroup equity ties and performance of business group affiliates | Strategic Management Journal | 2017 | 38 | 1082–1100 | Research summary: Although prior research has suggested that equity ties are important for business groups; less attention has been paid to the specific mechanisms through which equity ties create value. We develop a framework that specifies how centralization of intragroup equity ties affects the performance of group affiliates. We use the exogenous shock of the 2008 financial crisis and a difference-in-differences analysis of 51;730 observations of business group affiliates in Taiwan to show that centralization of equity ties enhances affiliate performance; but such effects weaken when the environment becomes turbulent. Moreover; we find that listed affiliates obtain fewer benefits from centralization than unlisted affiliates. Overall; our study deepens scholarly understanding of not only how groups create value; but also how value is differentially appropriated among affiliates. | |||
| 11 | http://ssrn.com/abstract=2607785 | 703 | Board reforms and firm value: Worldwide evidence | JFE | 2017 | 125 | 120-142 | We examine the impact of corporate board reforms on firm value in 41 countries. Using a difference-in-differences design; we find that board reforms increase firm value. Reforms involving board and audit committee independence; but not reforms involving separation of chairman and chief executive officer positions; drive the valuation increases. In addition; while comply-or-explain reforms result in a greater increase in firm value than rule-based reforms; the effects of reforms are similar across civil law and common law countries. Further investigation shows that the subsequent change in board independence plays an important role in explaining the effectiveness of the reforms. | |
| 12 | http://ssrn.com/abstract=2807421 | 97 | Does Distance Impede Regulatory Monitoring? Evidence from the Banking Industry | Working Paper | 2016 | We examine how the information environment influences bank regulatory monitoring. Using the distance between banks and regulatory field offices as a proxy for information asymmetry; we show that an increase in distance reduces the quality of financial reporting. To establish causality; we use a quasi-natural experiment that exploits multiple exogenous shocks to distance; an instrumental variable approach as well as the enactment of the FDICIA Act of 1991 as a shock to the information environment. We provide evidence that regulators make use of local informational advantages to enforce better quality financial reporting. We further show that despite informational advantages; regulators choose when to increase regulatory scrutiny and chose not to do so during the financial crisis. Overall; our study underscores the importance of local information in regulatory monitoring. | |||
| 13 | http://ssrn.com/abstract=2640111 | 325 | The Political Dynamics of Corporate Tax Avoidance: The Chinese Experience | Working Paper | One institutional feature behind China’s spectacular economic growth is its political selection system; which it uses to promote officials who are capable of growing local economies. Against this backdrop; we examine how political turnovers cyclically influence firms’ tax avoidance behavior. Consistent with the prediction that newly appointed local leaders tend to collect more taxes to expand fiscal expenditures and boost local economies; we find that state-owned enterprises (SOEs) decrease their tax avoidance behavior after new leaders take office. However; this finding does not hold for non-SOEs. Our analyses also reveal that the political turnover effect on SOEs’ tax positions is stronger when the incoming leaders have more political clout to command favors from SOEs; managers’ incentives to divert resources are stronger; or politician-manager networks are more likely to work. Furthermore; SOEs that undertake less aggressive tax positions following turnovers receive more government subsidies in the future. Overall; our findings suggest that political incentives shape the tax planning activities of local SOEs in a “two-way favor exchange” manner. | ||||
| 14 | http://ssrn.com/abstract=2849969 | 24 | Does the Establishment of the Ministry of Environmental Protection Matter for Addressing China’s Pollution Problems? Empirical Evidence from Listed Companies | Economics of Governance | 2018 | 19 | 195-224 | This paper uses an event study methodology to examine the stock price reactions of polluting companies traded on stock exchanges in mainland China to an exogenous environmental event; i.e.; the establishment of the Ministry of Environmental Protection in 2008; which showed the Chinese government’s ambition to enforce the environmental protection rules more strictly. We find that; on average; these listed companies experienced a statistically and economically significant abnormal return of -3.6% on the event date; indicating that these companies are expected to face a harsher regulatory environment as a result of this administrative reform. The market apparently has placed great expectations on the administrative reform to address China’s environmental pollution problems. In addition; we find that; compared to their counterparts in private sector; state-owned enterprises (SOEs) experienced a smaller price decline during the event window; which suggests that SOEs are more likely to enjoy favorable treatment from regulatory agencies. Our empirical evidence therefore shows that the selective enforcement of environmental law is a significant concern and tends to undermine the effects of such reform. | |
| 15 | http://ssrn.com/abstract=2909638 | 267 | Does a CEO’s Cultural Heritage Affect Performance under Competitive Pressure? | RFS | We exploit variation in the cultural heritage across U.S. CEOs who are the children or grandchildren of immigrants to demonstrate that the cultural origins of CEOs matter for corporate outcomes. Following shocks to industry competition; firms led by CEOs who are second- or third-generation immigrants are associated with a 6.2% higher profitability compared with the average firm. This effect weakens over successive immigrant generations and cannot be detected for top executives apart from the CEO. Additional analysis attributes this effect to various cultural values that prevail in a CEO’s ancestral country of origin. | ||||
| 17 | http://ssrn.com/abstract=2138348 | 819 | The effect of governance reforms on financial reporting fraud | JLFA: Journal of Law; Finance & Accounting | In response to financial reporting scandals; Congress and the securities exchanges mandated increases in board and audit committee independence and banned most non-audit services. We exploit these exogenous shocks to examine whether these governance reforms reduced financial reporting fraud. Comparing firms forced to comply with the reforms to firms already in compliance; we find that mandated increases in overall board independence significantly reduced the rate of fraud; while mandating a fully independent audit committee had a weaker effect. Further; banning non-audit services did not reduce the incidence of fraud. | ||||
| 19 | http://ssrn.com/abstract=2912606 | 59 | Understanding Public Enforcement of Securities Law in China: An Empirical Analysis of the Enforcement Outcomes of CSRC's Regional Offices | Working Paper | Using a sample of the enforcement outputs of Regional Offices (ROs) of the China Securities Regulatory Commission (CSRC) between 2011 and 2016; this paper examines the effects of the local enforcer’s actions on stock prices of listed firms. We find that sanctioned firms experience an abnormal return of -0.594% (estimated with an event study model) or -0.441% (estimated with a controlled firm model on the event day). The results indicate that the sanctions imposed by ROs generate statistically but not economically significant impacts on the listed firms who commit illegal actions. In addition; we show that the stocks of those firms that are sanctioned for misconducts in information disclosure suffer from additional negative shocks; which may be attributed to the potential civil litigation initiated by harmed investors against such firms. | ||||
| 20 | Does Political Giving Impact Shareholder Wealth? Evidence from State Campaign Finance Reforms | Dissertation | Does corporate political giving actually affect shareholder wealth? While firms value political participation; some lawmakers oppose corporate involvement in politics. Yet; the existing literature has established a correlation between campaign finance and corporate outcomes without fully documenting a causal relation. I use an innovative database of political giving to exploit changes in state campaign finance laws as an exogenous shock to political giving. Specifically; I use the staggered adoption of externally imposed legal limits to political giving across U.S. states to expose how shareholder wealth responds. I find shareholder wealth declines following legally imposed reductions in political giving. The causal effect of political giving on shareholder wealth that I find speaks to the larger role of politics in firms and the economy. The results suggest corporate political giving leads to greater shareholder wealth; and reforms reduce corporate political participation; informing the debate around campaign finance reform. | ||||||
| 21 | The impacts of economic importance difference of a joint venture (JV) held by partners and partners' size difference on the extraction of rivalrous and non-rivalrous private benefits in a JV | IRFA: International Review of Financial Analysis | 2016 | 48 | 46-54 | We investigate the impacts of economic importance difference of a JV held by partners and partners' size difference on the extraction of rivalrous and non-rivalrous private benefits in a JV. Focusing on 824 JV events during the period 2001–2012 in the global markets we find that; where the economic importance difference of a JV held by partners is large; a partner with a more economically important JV extracts more rivalrous type and non-rivalrous type of private benefits. Under the situation where partners' size difference is large; a smaller partner extracts more non-rivalrous type of private benefits. Whether arbitrage trading between two partners' shares outperforms the trading strategy of buy-hold two partners' shares during the JV announcement period depends on whether there are large private benefits available or not. | |||
| 22 | http://ssrn.com/abstract=2728222 | 38 | How Does Bank Lending React to a Catastrophic Weather Event? Evidence from the Indian Ocean Tsunami | Working Paper | we assess the impact of the Indian Ocean Tsunamiof2004onaggregateprovinciallendinginThailand. The results of a Difference-in-Differences investigation suggest that aggregate lending declines in provinces affected by the Tsunami compared to unaffected counterparts. The overall effects of the tsunami on bank lending appear to be long lasting. Further analysis reveals that the overall change in aggregate lending is driven by a decline in lending in the mostseverelyaffectedprovinces. | ||||
| 23 | http://ssrn.com/abstract=901769 | 1490 | 16 | Going-Private Decisions and the Sarbanes-Oxley Act of 2002: A Cross-Country Analysis | JLEO | 2009 | 25 | 107-133 | This article investigates whether the passage and the implementation of the Sarbanes-Oxley Act of 2002 (SOX) drove firms out of the public capital market. To control for other factors affecting exit decisions; we examine the post-SOX change in the propensity of American public targets to be bought by private acquirers rather than public ones with the corresponding change for foreign public targets; which were outside the purview of SOX. Our findings are consistent with the hypothesis that SOX induced small firms to exit the public capital market during the year following its enactment. In contrast; SOX appears to have had little effect on the going-private propensities of larger firms. (JEL G30; G34; G38; K22) |
| 24 | http://ssrn.com/abstract=2671935 | 207 | Tax Distractions: The Effects of Temporary Tax Law on Capital Markets | Working Paper | This paper investigates the extent to which the expiration of a temporary tax law reduces market participants’ ability to understand corporate performance. Examining evidence from eight separate expirations of the R&D tax credit; I find that analysts’ forecast errors; abnormal bid-ask spreads; and abnormal volume increase surrounding quarterly earnings announcements for firms affected by the R&D tax credit. These increases suggest difficulties in interpreting performance that are affected by the expired R&D tax credit. The results of this study call attention to previously unexplored costs of temporary tax laws; namely; capital market confusion related to temporary tax laws. | ||||
| 25 | http://ssrn.com/abstract=2254620 | 42 | Internal governance and creditor governance: Evidence from credit default swaps | ;IWH Discussion Papers;Halle Institute for Economic Research (IWH) | I study the relation between internal governance and creditor governance. A deterio- ration in creditor governance may increase the agency costs of debt and managerial opportunism at the expense of shareholders. I exploit the introduction of credit default swaps (CDS) as a negative shock to creditor governance. I provide evidence consistent with shareholders pushing for a substitution effect between internal governance and creditor governance. Following CDS introduction; CDS firms reduce managerial risk-taking incentives relative to other firms. At the same time; after the start of CDS trading; CDS firms increase managerial wealth-performance sensitivity; board independence; and CEO turnover performance-sensitivity relative to other firms. | ||||
| 26 | Off-Balance Sheet Arrangements and Company Performance during the Recent Financial Crisis | Working Paper | 2014 | We investigate whether company performance during the 2007-2009 financial crisis is related to the use of off-balance sheet arrangements (OBSAs); specifically those related to transferred financial assets and variable interest entities. Using propensity-score matching for a sample of non-bank companies; we show that the use of these OBSAs is associated with almost 10 percent lower buy-and-hold returns during the crisis. We do not find a significant negative relation for a placebo test one year before the crisis. In addition; we find no relation for companies that use only on-balance sheet accounting. | |||||
| 27 | http://ssrn.com/abstract=301873 | 557 | 14 | Identifying the Effect of Managerial Control on Firm Performance | JAE: Journal of Accounting and Economics | 2006 | 41 | 55-85 | Using a unique sample; we attempt to identify the consequence of the separation between inside ownership and control for firm performance. We exploit the fact that banking institutions may hold their own shares in trust to construct a clean measure of the wedge between inside voting control and cash flow rights. These shares provide managers with no monetary incentives; since their dividends accrue to trust beneficiaries. However; managers may have the authority to vote these shares. Contrary to the belief that managerial control is purely detrimental; we find that it has positive effects on performance over at least some range. |
| 28 | http://ssrn.com/abstract=925650 | 1232 | 117 | Inside the Family Firm: The Role of Families in Succession Decisions and Performance | QJE: Quarterly Journal of Economics | 2007 | 122 | 647-691 | This paper uses a unique dataset from Denmark to investigate the impact of family characteristics in corporate decision making and the consequences of these decisions on firm performance. We focus on the decision to appoint either a family or external chief executive officer (CEO). The paper uses variation in CEO succession decisions that result from the gender of a departing CEO's firstborn child. This is a plausible instrumental variable (IV); as male first-child firms are more likely to pass on control to a family CEO than are female first-child firms; but the gender of the first child is unlikely to affect firms' outcomes. We find that family successions have a large negative causal impact on firm performance: operating profitability on assets falls by at least four percentage points around CEO transitions. Our IV estimates are significantly larger than those obtained using ordinary least squares. Furthermore; we show that family-CEO underperformance is particularly large in fast-growing industries; industries with highly skilled labor force; and relatively large firms. Overall; our empirical results demonstrate that professional; nonfamily CEOs provide extremely valuable services to the organizations they head. |
| 29 | http://ssrn.com/abstract=1235104 | 117 | 50 | Financial Expertise of Directors | Journal of Financial Economics | 2008 | 88 | 323-354 | We analyze how directors with financial expertise affect corporate decisions. Using a novel panel data set; we find that financial experts exert significant influence; though not necessarily in the interest of shareholders. When commercial bankers join boards; external funding increases and investment-cash flow sensitivity decreases. However; the increased financing flows to firms with good credit but poor investment opportunities. Similarly; investment bankers on boards are associated with larger bond issues but worse acquisitions. We find little evidence that financial experts affect compensation policy. The results suggest that increasing financial expertise on boards may not benefit shareholders if conflicting interests (e.g.; bank profits) are neglected. |
| 30 | http://ssrn.com/abstract=689562 | 3458 | 57 | Corporate Tax Avoidance and Firm Value | REStat | 2009 | 91 | 537 - 546 | Do corporate tax avoidance activities advance shareholder interests? This paper tests alternative theories of corporate tax avoidance using unexplained differences between income reported to capital markets and to tax authorities. OLS estimates indicate that the effect of tax avoidance on firm value is a function of firm governance; as predicted by an agency perspective on corporate tax avoidance. Instrumental variables estimates based on exogenous changes in tax regulations yield larger overall effects and reinforce the basic result; as do several robustness checks. The results suggest that the simple view of corporate tax avoidance as a transfer of resources from the state to shareholders is incomplete given the agency problems characterizing shareholder-manager relations. [ABSTRACT FROM AUTHOR] |
| 31 | http://ssrn.com/abstract=966185 | 621 | 19 | Pension Reform; Ownership Structure and Corporate Governance: Evidence from a Natural Experiment | Review of Financial Studies | 2009 | 22 | 4091-4127 | Sweden offers a unique natural experiment to analyze the effects of institutionalized saving on the ownership structure; corporate governance; and firm performance. The Swedish pension reform increased the stock market participation of pension funds; causing a significant reshuffling in the ownership of pension funds. We show that the effects of institutional investment on firm performance depend on the industry structure of pension funds. Firm valuation improves if public pension funds and large independent private pension funds increase their shareholdings. Additionally; controlling shareholders appear reluctant to relinquish control and the control premium increases if public pension funds acquire shares. |
| 32 | http://ssrn.com/abstract=2697098 | 161 | Comments on “The Trouble with Instruments: Re-examing Shock-Based IV Designs” by Atanasov and Black | 2005 | Atanasov and Black (2015) (AB) analyzes potential limitations of empirical studies that use shock-based IV designs; focusing specifically on our article that studies the effect of board independence on firm value (Duchin et al.; 2010). With regard to our study; AB raises three concerns with our analysis. This note presents our reaction to AB’s analysis. We agree with two of the concerns in the abstract; it turns out they do not matter for the substance of our analysis. We disagree on the critical issue concerning selection of covariates. As a guide to future research; we highlight the nature of the disagreement; and explain why we believe covariates should be motivated by theory; and why an a theoretical approach to selecting covariates can result in failure to identify effects that actually exist. An important lesson from the analysis is that researchers should exercise caution when including ad-hoc covariates in empirical specifications. We offer concluding thoughts about empirical research and causal inference. | ||||
| 33 | http://ssrn.com/abstract=1026488 | 2385 | 62 | When are outside directors effective? | Journal of Financial Economics | 2010 | 96 | 195-214 | This paper uses recent regulations that have required some companies to increase the number of outside directors on their boards to generate estimates of the effect of board independence on performance that are largely free from endogeneity problems. Our main finding is that the effectiveness of outside directors depends on the cost of acquiring information about the firm: when the cost of acquiring information is low; performance increases when outsiders are added to the board; and when the cost of information is high; performance worsens when outsiders are added to the board. The estimates provide some of the cleanest estimates to date that board independence matters; and the finding that board effectiveness depends on information cost supports a nascent theoretical literature emphasizing information asymmetry. We also find that firms compose their boards as if they understand that outsider effectiveness varies with information costs. |
| 34 | http://ssrn.com/abstract=983772 | 3863 | 25 | The Effect of SOX Section 404: Costs; Earnings Quality; and Stock Prices | Journal of Finance | 2010 | 65 | 1163-1196 | This paper exploits a natural quasi-experiment to isolate the effects that were uniquely due to the Sarbanes–Oxley Act (SOX): U.S. firms with a public float under $75 million could delay Section 404 compliance; and foreign firms under $700 million could delay the auditor's attestation requirement. As designed; Section 404 led to conservative reported earnings; but also imposed real costs. On net; SOX compliance reduced the market value of small firms. |
| 35 | http://ssrn.com/abstract=1337206 | 1321 | 12 | Watch What I Do; Not What I Say: The Unintended Consequences of the Homeland Investment Act | JF | 2011 | 66 | 753787 | The Homeland Investment Act provided a tax holiday for the repatriation of foreign earnings. Advocates argued the Act would alleviate financial constraints by reducing the cost to U.S. multinationals of accessing internal capital. This paper shows that repatriations did not increase domestic investment; employment; or R&D—even for firms that appeared to be financially constrained or lobbied for the holiday. Instead; a $1 increase in repatriations was associated with a $0.60 to $0.92 increase in shareholder payouts. Regulations intended to restrict such payouts were undermined by the fungibility of money. Results indicate that U.S. multinationals were not financially constrained and were well-governed. |
| 36 | http://ssrn.com/abstract=890884 | 423 | 18 | The Effect of Bank Mergers on Loan Prices: Evidence from the United States | Review of Financial Studies | 2011 | 24 | 1068-1101 | Bank mergers can increase or decrease loan spreads; depending on whether the increased market power outweighs efficiency gains. Using proprietary loan-level data for U.S. commercial banks; I find that; on average; mergers reduce loan spreads; with the magnitude of the reduction being larger when postmerger cost savings increase. My results suggest that the relation between spreads and the extent of the market overlap between merging banks is nonmonotonic. The market overlap increases cost savings and consequently lowers spreads; but when the overlap is sufficiently large; spreads increase; potentially due to the market-power effect dominating the cost savings. Furthermore; the average reduction in spreads is significant for small businesses. |
| 37 | http://ssrn.com/abstract=1213358 | 1617 | 42 | External Networking and Internal Firm Governance | Journal of Finance | 2012 | 67 | 153-194 | We use panel data on S&P 1500 companies to identify external network connections between directors and CEOs. We find that firms with more powerful CEOs are more likely to appoint directors with ties to the CEO. Using changes in board composition due to director death and retirement for identification; we find that CEO-director ties reduce firm value; particularly in the absence of other governance mechanisms to substitute for board oversight. Moreover; firms with more CEO-director ties engage in more value-destroying acquisitions. Overall; our results suggest that network ties with the CEO weaken the intensity of board monitoring. |
| 38 | http://ssrn.com/abstract=1100635 | 5006 | 12 | Does Algorithmic Trading Improve Liquidity? | Journal of Finance | 2011 | 66 | Jan-33 | Algorithmic trading (AT) has increased sharply over the past decade. Does it improve market quality; and should it be encouraged? We provide the first analysis of this question. The New York Stock Exchange automated quote dissemination in 2003; and we use this change in market structure that increases AT as an exogenous instrument to measure the causal effect of AT on liquidity. For large stocks in particular; AT narrows spreads; reduces adverse selection; and reduces trade-related price discovery. The findings indicate that AT improves liquidity and enhances the informativeness of quotes. |
| 39 | http://ssrn.com/abstract=1440693 | 438 | 24 | Bank Corporate Loan Pricing Following the Subprime Crisis | Review of Financial Studies | 2011 | 24 | 1916-1943 | The massive losses that banks incurred with the meltdown of the subprime mortgage market have raised concerns about their ability to continue lending to corporations. We investigate these concerns. We find that firms paid higher loan spreads during the subprime crisis. Importantly; the increase in loan spreads was higher for firms that borrowed from banks that incurred larger losses. These results hold after we control for firm-; bank-; and loan-specific factors; and account for endogeneity of bank losses. These findings; together with our evidence that borrowers took out smaller loans during the crisis when they borrowed from banks that incurred larger losses; lend support to the concerns about bank lending following their subprime losses. |
| 40 | http://ssrn.com/abstract=1230856 | 132 | 14 | Hiring Cheerleaders: Board Appointments of “Independent” Directors | Management Science | 2012 | 58 | 1039-1058 | We provide evidence that firms appoint independent directors who are overly sympathetic to management; while still technically independent according to regulatory definitions. We explore a subset of independent directors for whom we have detailed; microlevel data on their views regarding the firm prior to being appointed to the board: sell-side analysts who are subsequently appointed to the boards of companies they previously covered. We find that boards appoint overly optimistic analysts who are also poor relative performers. The magnitude of the optimistic bias is large: 82.0% of appointed recommendations are strong buy/buy recommendations; compared with 56.9% for all other analyst recommendations. We also show that appointed analysts' optimism is stronger at precisely those times when firms' benefits are larger. Last; we find that appointing firms are more likely to have management on the board nominating committee; appear to be poorly governed; and increase earnings management and chief executive officer compensation following these board appointments. |
| 41 | https://ssrn.com/abstract=2794065 | 28 | 4 | Bank Bailouts and Moral Hazard: Evidence from Germany | Review of Financial Studies | 2012 | 25 | 2343–2380 | We use a structural econometric model to provide empirical evidence that safety nets in the banking industry lead to additional risk taking. To identify the moral hazard effect of bailout expectations on bank risk; we exploit the fact that regional political factors explain bank bailouts but not bank risk. The sample includes all observed capital preservation measures and distressed exits in the German banking industry during 1995–2006. A change of bailout expectations by two standard deviations increases the probability of official distress from 6.6% to 9.4%; which is economically significant |
| 43 | http://ssrn.com/abstract=1507762 | 1388 | 21 | Monitoring Managers: Does It Matter? | Journal of Finance | 2013 | 68 | 431-481 | We study how well-incentivized boards monitor CEOs and whether monitoring improves performance. Using unique; detailed data on boards' information sets and decisions for a large sample of private equity–backed firms; we find that gathering information helps boards learn about CEO ability. “Soft” information plays a much larger role than hard data; such as the performance metrics that prior literature focuses on; and helps avoid firing a CEO for bad luck or in response to adverse external shocks. We show that governance reforms increase the effectiveness of board monitoring and establish a causal link between forced CEO turnover and performance improvements. |
| 44 | http://ssrn.com/abstract=2226090 | 284 | 2 | Mitigating Incentive Conflicts in Inter-Firm Relationships: Evidence from Long-Term Supply Contracts | Journal of Accounting and Economics | 2013 | 56 | 19-39 | Using a sample of long-term supply contracts collected from SEC filings; I show that hold-up concerns and information asymmetry are important determinants of contract design. Asymmetric information between buyers and suppliers leads to shorter term contracts. However; when longer duration contracts facilitate the exchange of relationship specific assets; the parties substitute short-term contracts with financial covenants in order to reduce moral hazard. Covenant restrictions are more prevalent when direct monitoring is costly and the products exchanged are highly specific. Finally; I find that buyers and suppliers are less likely to rely on financial covenants when financial statement reliability is low. |
| 45 | http://ssrn.com/abstract=2191269 | 52 | Flow and Stock Effects of Large-scale Treasury purchases: Evidence on the Importance of Local Supply | Journal Financial Economics | 2013 | 108 | 425-448 | The Federal Reserve’s 2009 program to purchase $300 billion of US Treasury securities represented an unprecedented intervention in the Treasury market and provides a natural experiment with the potential to shed light on the price elasticities of Treasuries and theories of supply effects in the term structure. Using security-level data on Treasury prices and quantities during the course of this program; we document a ‘local supply’ effect in the yield curve—yields within a particular maturity sector responded more to changes in the amounts outstanding in that sector than to similar changes in other sectors. We find that this phenomenon was responsible for a persistent downward shift in yields averaging about 30 basis points over the course of the program (the “stock effect”). In addition; except at very long maturities; purchase operations caused an average decline in yields in the sector purchased of 3.5 basis points on the days when those operations occurred (the “flow effect”). The sensitivity of our results to security characteristics generally supports a view of segmentation or imperfect substitution within the Treasury market during this time. | |
| 46 | http://ssrn.com/abstract=2012235 | 130 | 3 | Identifying the Valuation Effects and Agency Costs of Corporate Diversification: Evidence from the Geographic Diversification of U.S. Banks | Review of Financial Studies | 2013 | 26 | 1787-1823 | This paper assesses the impact of the geographic diversification of bank holding company (BHC) assets across the United States on their market valuations. Using two new identification strategies based on the dynamic process of interstate bank deregulation; we find that exogenous increases in geographic diversity reduced BHC valuations. We also find that the geographic diversification of BHC assets increased insider lending and reduced loan quality. Taken together; these findings are consistent with theories predicting that geographic diversity intensifies agency problems. |
| 47 | http://ssrn.com/abstract=2094494 | 71 | 1 | Appropriability Mechanism and the Platform Partnership Decision: Evidence from Enterprise Software | Management Science | 2013 | 59 | 102-121 | We examine whether ownership of intellectual property rights (IPR) or downstream capabilities is effective in encouraging entry into markets complementary to a proprietary platform by preventing the platform owner from expropriating rents from start-ups. We study this question in the context of the software industry; an environment where evidence of the efficacy of IPR as a mechanism to appropriate the returns from innovation has been mixed. Entry; in our context; is measured by an independent software vendor's (ISV's) decision to become certified by a platform owner and produce applications compatible with the platform. We find that ISVs with a greater stock of formal IPR (such as patents and copyrights); and those with stronger downstream capabilities (as measured by trademarks and consulting services) are more likely to join the platform; suggesting that these mechanisms are effective in protecting ISVs from the threat of expropriation. We also find that the effects of IPR on the likelihood of partnership are greater when an ISV has weak downstream capabilities or when the threat of imitation is greater; such as when the markets served by the ISV are growing quickly. |
| 48 | http://ssrn.com/abstract=1357385 | 698 | Risk Management and Firm Value: Evidence from Weather Derivatives | Journal of Finance | 2013 | 68 | 2143-2175 | This paper shows that active risk management policies lead to an increase in firm value. To identify the effect of hedging and to overcome endogeneity concerns; we exploit the introduction of weather derivatives as an exogenous shock to firms’ ability to hedge weather risks. This innovation disproportionately benefits weather-sensitive firms; irrespective of their future investment opportunities. Using this natural experiment and data from energy firms; we find that derivatives lead to higher valuations; investments; and leverage. Overall; our results demonstrate that risk management has real consequences on firm outcomes. | |
| 49 | Connected Stocks | Journal of Finance | 2014 | 69 | 1099-1127 | We connect stocks through their common active mutual fund owners. We show that the degree of shared ownership forecasts cross-sectional variation in return correlation; controlling for exposure to systematic return factors; style and sector similarity; and many other pair characteristics. We argue that shared ownership causes this excess comovement based on evidence from a natural experiment—the 2003 mutual fund trading scandal. These results motivate a novel cross-stock-reversal trading strategy exploiting information contained in ownership connections. We show that long-short hedge fund index returns covary negatively with this strategy; suggesting these funds may exacerbate this excess comovement. | |||
| 50 | http://ssrn.com/abstract=2031801 | 832 | Do Independent Directors Cause Improvements in Firm Transparency? | Journal of Financial Economics | 2014 | 113 | 383-403 | Although recent research documents a positive relation between corporate transparency and the proportion of independent directors; the direction of causality is unclear. We examine a regulatory shock that substantially increased board independence for some firms; and find that information asymmetry; and to some extent management disclosure and financial intermediation; changed at firms affected by this shock. We also examine whether these effects vary as a function of management entrenchment; information processing costs; and required changes to audit committee independence. Our results suggest that firms can alter their corporate transparency to suit the informational demands of a particular board structure. | |
| 51 | Are Small Businesses Worthy of Financial Aid? Evidence from a French Targeted Credit Program | Review of Finance | 2014 | 18 | 877-919 | We ask whether public financial aid reduces small businesses’ credit constraints. To answer the question; we analyze a policy of bank loans made from subsidized funds. Extensions of this large program are plausibly exogenous and help identify its effects. Using firm-level data; we find that the program substantially increases debt financing without substitution between subsidized and unsubsidized finance. Returns on subsidized debt are significantly above its market cost; with no subsequent surge in default risk. We interpret this as evidence that targeted firms are credit-constrained and underline the implied welfare differences between upfront financial aid and public guarantees. | |||
| 52 | http://ssrn.com/abstract=1950123 | 1695 | 10 | Shaping Liquidity: On the Causal Effects of Voluntary Disclosure | Journal of Finance 2237-2278 | 2014 | 69 | 2237-2278 | Can managers influence the liquidity of their firms’ shares? We use plausibly exogenous variation in the supply of public information to show that firms actively shape their information environments by voluntarily disclosing more information than regulations mandate and that such efforts improve liquidity. Firms respond to an exogenous loss of public information by providing more timely and informative earnings guidance. Responses appear motivated by a desire to reduce information asymmetries between retail and institutional investors. Liquidity improves as a result and in turn increases firm value. This suggests that managers can causally influence their cost of capital via voluntary disclosure. |
| 53 | http://ssrn.com/abstract=1317298 | "1 | 780" | Smart Money? The Effect of Education on Financial Outcomes | Review of Financial Studies | 2014 | 27 | 2022-2051 | |
| 54 | http://ssrn.com/abstract=1787086 | 526 | The Role of Investment Banker Directors in M&A: Can Experts Help? | Journal of Financial Economics | 2014 | 112 | 269-286 | We examine how directors with investment banking experience affect a firm’s acquisition behavior. We find that the presence of investment banker directors is associated with a higher probability of subsequent acquisitions; and such positive relation is not driven by reverse causality. Focusing on firms that make acquisitions; we find that acquirers with investment banker directors on the board have significantly higher announcement returns. The positive effect is more pronounced when the deal is more important and when the bankers’ experience and/or network is current. For the sample of large deals; we find that the presence of investment banker directors is associated with lower target announcement returns and takeover premium; consistent with the view that investment banker directors assist in determining and/or negotiating the price for their shareholders in important deals. In addition; we find financial advisory fees paid to outside advisors are significantly lower when there are investment bankers on the board. The presence of investment banker directors is also positively related to the long-run operating and stock performance. Overall; our results suggest that directors with investment banking experience can affect a firm’s acquisition policy and that they help firms make better acquisitions. | |
| 55 | http://ssrn.com/abstract=2097005 | 190 | Did Regulation Fair Disclosure; SOX; and Other Analyst Regulations Reduce Security Mispricing? | Journal of Accounting Research | 2014 | 52 | 733-774 | Between 2000 and 2003 a series of disclosure and analyst regulations curbing abusive financial reporting and analyst behavior were enacted to strengthen the information environment of U.S. capital markets. We investigate whether these regulations reduced security mispricing and increased stock market efficiency. After the regulations; we find a significant reduction in short-term stock price continuation following analyst forecast revisions and earnings announcements. The effect was more pronounced among higher information uncertainty firms; where we expect security valuation to be most sensitive to regulation. Analyst forecast accuracy also improved in these firms; consistent with reduced mispricing being due to an improved corporate information environment following the regulations. Our findings are robust to controls for time trends; trading activity; the financial crisis; analyst coverage; delistings; and changes in information uncertainty proxies. We find no concurrent effect among European firms and a regression discontinuity design supports our identification of a regulatory effect. | |
| 56 | http://ssrn.com/abstract=2323251 | 1252 | 2 | CEO Connectedness and Corporate Frauds | Journal of Finance | 2015 | 70 | 1203-1252 | We find connections CEOs develop with top executives and directors through their appointment decisions heighten the risk of corporate fraud. Appointment-based CEO connectedness in executive suites and boardrooms increases the likelihood of committing fraud and decreases the likelihood of detection. Additionally; it decreases expected costs of fraud by helping to conceal frauds; making CEO dismissal less likely upon fraud discovery; and lowering the coordination costs of carrying out illegal activities. Connections based on network ties through past employment; education; or social organization memberships have insignificant effects on frauds. Appointment-based CEO connectedness warrants attention from regulators; investors; and corporate governance specialists. |
| 57 | http://ssrn.com/abstract=1991430 | 383 | 1 | Financial Integration; Housing; and Economic Volatility | Journal of Finance | 2015 | 115 | 24-41 | The Financial Crisis and the Great Recession that followed illustrate the sensitivity of the economy to a housing bust. This paper shows that financial integration both amplified the volatility of housing prices and economic sensitivity to housing-price shocks. We exploit variation credit-supply subsidies across local markets from the Government-Sponsored Enterprises to construct an instrument for housing price changes unrelated to fundamentals. Using this instrument; we find that a 1% rise in housing prices causes a 0.25% increase in economic growth. This effect is larger in localities more financially integrated with other markets through bank ownership ties. Financial integration thus raised the effect of collateral shocks on the economy; thereby increasing economic volatility. |
| 58 | http://ssrn.com/abstract=1344407 | 694 | 6 | Liquidity and Shareholder Activism | Review of Financial Studies | 2014 | 28 | 486-520 | Blockholders' incentives to intervene in corporate governance are weakened by free-rider problems and high costs of activism. Theory suggests activists may recoup expenses through informed trading of target firms' stock when stocks are liquid. We show that stock liquidity increases the probability of activism; but less so for potentially overvalued firms where privately informed blockholders may have greater incentives to sell their stake than to intervene. We also document that activists accumulate more stocks in targets the more liquid is the stock. We conclude that liquidity helps overcome the free-rider problem and induces activism via pre-activism accumulation of target firms' shares. |
| 59 | http://ssrn.com/abstract=1082046 | 407 | Information Asymmetry and Capital Structure: Evidence from Regulation FD | Journal of Accounting and Economics | 2015 | 59 | 143-162 | This study uses Regulation Fair Disclosure (FD) as a plausibly exogenous shock to the information environment to identify the causal effect of information asymmetry on corporate financing behavior. Although Regulation FD prevents firms from selectively disclosing material information to market professionals in the equity market; firms can still do so to banks and rating agencies in the debt market. The standard’s differential disclosure requirements lead to differential changes in the information environments between the two markets; providing a reasonably useful setting to examine the effect of information asymmetry on firms’ capital structure. I find that firms with a high level of information asymmetry increase debt more than firms with a low level of information asymmetry post-Regulation FD. The results suggest that managers adjust the target leverage ratios to rely more on debt when facing higher costs of equity. | |
| 60 | http://ssrn.com/abstract=1971038 | 672 | 4 | The Effect of Succession Taxes on Family Firm Investment: Evidence from a Natural Experiment | Journal of Finance | 2015 | 70 | 649-688 | This paper provides causal evidence on the impact of succession taxes on firm investment decisions and transfer of control. I exploit a 2002 policy change in Greece that substantially reduced the tax on intra-family transfers of businesses and show that succession taxes lead to more than a 40% decline in investment around family successions; slow sales growth; and depletion of cash reserves. Furthermore; succession taxes strongly affect the decision to sell or retain the firm within the family. I conclude by discussing implications of my findings for firms in the United States and Europe. |
| 61 | Can corporatization improve the performance of state-owned enterprises even without privatization? | JCF | 2005 | 11 | 791 - 808 | This paper examines an important reform program in China concerning State Owned Enterprises (SOEs); namely; corporatization without privatization. It finds that corporatization has had a significantly positive impact on SOE performance. It further shows that the sources of efficiency engendered by corporatization can be traced to the reform of the internal governance structure of these firms. The results indicate that; even without privatization; corporate governance reform is potentially an effective way of improving the performance of SOEs; such reforms represent a policy alternative for countries seeking to restructure SOEs without massive privatization. The results also suggest that it may be optimal for governments to carry out corporatization of SOEs before eventual privatization. | |||
| 62 | The Effects of Accelerated Revenue Recognition on Earnings Management and Earnings Informativeness: Evidence from SEC Staff Accounting Bulletin no. 101 | TAR | 2005 | 80 | 373 - 401 | The SEC issued Staff Accounting Bulletin (SAB) No. 101 to address its concern that firms were masking true performance by managing earnings using accelerated revenue recognition. Critics of this Accounting Bulletin stated that it would eliminate industry-accepted revenue recognition practices and reduce the quality of reported earnings. The FASB's revenue recognition discussions echo these concerns stating that revenues recorded prior to the completion of the earnings process contain value-relevant information about future performance. This paper investigates these two hypotheses using a sample of firms that accelerated revenue recognition prior to SAB No. 101 adoption (SAB 101 firms) and a matched set of firms that were unaffected by this regulation (unaffected firms). Our earnings distribution tests indicate that SAB 101 firms are more likely to meet earnings benchmarks. Specifically; we find that; in the pre-adoption period; SAB 101 firms report fewer small negative and more small positive earnings than they do in the post-adoption period and than do unaffected firms in the pre-adoption period; SAB 101 firms report fewer small negative and more small positive earnings changes in the pre-adoption period compared to the post-adoption period. We also document that SAB 101 firms are more likely to have weaker corporate governance and more likely to have financial covenants; providing them with greater incentives to manage earnings. However; we find that the association between earnings and future cash flows and between unexpected earnings and earnings announcement period returns were higher for SAB 101 firms than for unaffected firms in the pre-adoption period; indicating higher earnings informativeness for SAB 101 firms. These associations declined for SAB 101 firms in the post-adoption period; suggesting that SAB No. 101 caused a decline in earnings informativeness. Overall; our results suggest that; although the revenue recognition practices targeted by SAB No. 101 have been used by some firms to manage earnings; the regulation's prohibition of revenue recognition prior to completion of the earnings process; on average; results in less informative earnings since these unearned revenues provide value-relevant information. | |||
| 63 | http://ssrn.com/abstract=930690 | 2661 | 24 | How does internal control regulation affect financial reporting? | JAE | 2010 | 49 | 58 - 74 | Internal control regulation effectiveness remains controversial given the recent financial crisis. To address this issue we examine the financial reporting effects of the Federal Depository Insurance Corporation Improvement Act (FDICIA) internal control provisions. Exemptions from these provisions for banks with assets under $500 million and for non-US banks provides two unaffected control samples. Our difference-in-differences method suggests that FDICIA-mandated internal control requirements increased loan-loss provision validity; earnings persistence and cash-flow predictability and reduced benchmark-beating and accounting conservatism for affected versus unaffected banks. More pronounced effects in interim versus fourth quarters suggest that greater auditor presence substitutes for internal control regulation. |
| 64 | http://ssrn.com/abstract=902766 | 1288 | 15 | How does law affect finance? An examination of equity tunneling in Bulgaria | JFE | 2010 | 96 | 155 - 173 | We model and test the mechanisms through which law affects tunneling and tunneling affects firm valuation. In 2002; Bulgaria adopted legal changes which limit equity tunneling through dilutive equity offerings and freezeouts. Following the changes; minority shareholders participate equally in equity offerings; where before they suffered severe dilution; freezeout offer price ratios quadruple; and Tobin's q rises sharply for firms at high risk of tunneling. The paper shows the importance of legal rules in limiting equity tunneling; the role of equity tunneling risk as a factor in determining equity prices; and substitution by controlling shareholders between different forms of tunneling. |
| 65 | http://ssrn.com/abstract=1670397 | 202 | 5 | Equity market liberalization and corporate governance | JCF | 2010 | 16 | 609 - 621 | Equity market liberalizations open up domestic stock markets to foreign investors. A puzzle in the literature is why developing countries exhibit relatively small financial impacts associated with liberalizations. We use cross-firm variation in corporate governance at the time of the official liberalization of the equity market in Korea to test whether governance can explain the extent to which firms benefit when countries liberalize. The results show that better-governed firms experience significantly greater stock price increases upon equity market liberalization. Following the liberalization in Korea; foreign ownership in firms with strong corporate governance was significantly higher than that in firms with weak governance. Better-governed firms also exhibit higher rates of physical capital accumulation after liberalization. |
| 66 | http://ssrn.com/abstract=265108 | 4919 | 169 | Ownership Structure; Corporate Governance; and Firm Value: Evidence from the East Asian Financial Crisis | JF | 2003 | 58 | 14451468 | We use a sample of 800 firms in eight East Asian countries to study the effect of ownership structure on value during the region's financial crisis. The crisis negatively impacted firms' investment opportunities; raising the incentives of controlling shareholders to expropriate minority investors. Crisis period stock returns of firms in which managers have high levels of control rights; but have separated their control and cash flow ownership; are 10–20 percentage points lower than those of other firms. The evidence is consistent with the view that ownership structure plays an important role in determining whether insiders expropriate minority shareholders. |
| 67 | http://ssrn.com/abstract=348401 | 1352 | 86 | Corporate governance and firm value: evidence from the Korean financial crisis | JFE | 2004 | 71 | 265 - 313 | During the 1997 Korean financial crisis; firms with higher ownership concentration by unaffiliated foreign investors experienced a smaller reduction in their share value. Firms that had higher disclosure quality and alternative sources of external financing also suffered less. In contrast; chaebol firms with concentrated ownership by controlling family shareholders experienced a larger drop in the value of their equity. Firms in which the controlling shareholders' voting rights exceeded cash flow rights and those who borrowed more from the main banks also had lower returns. Our results suggest that change in firm value during a crisis is a function of firm-level differences in corporate governance measures. |
| 68 | http://ssrn.com/abstract=1108731 | 1138 | 22 | Information Content of Insider Trades before and after the Sarbanes-Oxley Act | TAR | 2010 | 85 | 419 - 446 | This study examines the information content of Form 4 filings under the more timely disclosure regime introduced by Section 403 of the Sarbanes-Oxley Act of 2002 (SOX). Abnormal returns and trading volumes around filings of insider stock purchases are significantly greater after SOX than before. Abnormal trading volumes around filings of insider sales are also greater post-SOX; on average; but stock returns are not more negative. However; once controlling for pre-planned transactions; reporting lag; litigation risk; and news following insider trades; I find a negative association between returns around filings of insider sales and SOX. Overall; the evidence suggests that the prompt public disclosures about insider transactions mandated by the new rule are relevant to the pricing of securities. The results are also consistent with SOX and regulatory actions reducing the incentives to sell ahead of privately known negative news. [ABSTRACT FROM AUTHOR] |
| 69 | Information Asymmetry Determinants of Sarbanes-Oxley Wealth Effects | FM | 2010 | 39 | 1253 - 1272 | We investigate the roles of information asymmetry and governance in the wealth effects associated with passage of the Sarbanes-Oxley Act (SOX) for a sample of 1;158 firms. For events suggesting adoption of stringent reform legislation; we find more (less) favorable abnormal returns (ARs) for firms with high (low) information asymmetry and for firms with weak (strong) governance. More favorable effects could result from expected improvements for firms with high information asymmetry or weak governance. Firms with positive ARs experience information asymmetry reductions post-SOX; indicating the market was able to discern the firms that would most benefit from the legislation's passage. | |||
| 70 | http://ssrn.com/abstract=1014054 | 888 | 27 | Unintended Consequences of Granting Small Firms Exemptions from Securities Regulation: Evidence from the Sarbanes-Oxley Act | JAR | 2009 | 47 | 459506 | This paper provides evidence about the unintended consequences arising when small companies are exempted from costly regulations—these firms have incentives to stay small. Between 2003 and 2008; the SEC postponed compliance with Section 404 of the Sarbanes-Oxley Act of 2002 (SOX) for “non-accelerated filers†(firms with public float less than $75 million). We hypothesize and find that some of these firms had an incentive to remain below this bright line threshold. Moreover; we document that these firms remained small by undertaking less investment; making more cash payouts to shareholders; reducing the number of shares held by non-affiliates; making more bad news disclosures; and reporting lower earnings than control firms. Finally; there is no evidence that firms remaining small are doing so to maintain insiders' private control benefits. These findings have implications beyond SOX because numerous federal and state regulations exempt small firms via bright line size thresholds. |
| 71 | http://ssrn.com/abstract=1394631 | 31 | 36 | A Lobbying Approach to Evaluating the Sarbanes-Oxley Act of 2002 | JAR | 2009 | 47 | 519583 | We evaluate the impact of the Sarbanes-Oxley Act (SOX) on shareholders by studying the lobbying behavior of investors and corporate insiders in order to affect the final implemented rules under the Act. Investors lobbied overwhelmingly in favor of strict implementation of SOX; while corporate insiders and business groups lobbied against strict implementation. We identify firms most affected by the law as those whose insiders lobbied against strict implementation. Such firms appear to be characterized by agency problems; rather than motivated by concerns over compliance costs. Cumulative stock returns during the five and a half months leading up to SOX passage were approximately 7 percent higher for corporations whose insiders lobbied against SOX disclosure-related provisions than for similar non-lobbying firms; consistent with an expectation that SOX would reduce agency problems. Analysis of returns in the post-passage implementation period suggests that investors’ positive expectations with regards to the effects of these provisions were warranted. |
| 72 | http://ssrn.com/abstract=1568930 | 685 | 5 | Increased Disclosure Requirements and Corporate Governance Decisions: Evidence from Chief Financial Officers in the Pre- and Post–Sarbanes-Oxley Periods | JAR | 2010 | 48 | 885920 | I study how increased internal control disclosure requirements mandated by the Sarbanes-Oxley Act (SOX) affect annual corporate governance decisions regarding CFOs. Using non-CEO; non-COO executive officers as a control group; I find that CFOs of firms with weak internal controls receive lower compensation and experience higher forced turnover rates after the passage of SOX. In contrast; CFOs of firms with strong internal controls receive higher compensation and do not experience significant changes in forced turnover rates. These results are consistent with the “disclosure of type†hypothesis; which suggests that the mandatory internal control disclosures under SOX are a credible mechanism that effectively distinguishes good CFOs from bad ones by revealing the firm's internal control quality. The empirical evidence thus supports the notion that mandated increases in disclosure reduce information asymmetry in the executive labor market. |
| 73 | http://ssrn.com/abstract=1533527 | 726 | 5 | Do Control Effectiveness Disclosures Require SOX 404(b) Internal Control Audits? A Natural Experiment with Small U.S. Public Companies | JAR | 2011 | 49 | 413448 | We use incremental and joint implementation of multiple SOX-based control effectiveness disclosure and audit mandates to assess relative performance of alternatives for small U.S. public companies. Using data from several low- and high-effort management disclosure and audit regimes implemented from 2003 to 2008; we find substantial and statistically significant increases in material weakness disclosure rates for small firms undergoing initial SOX 404(b) internal control audits; but find quantitatively and statistically similar increases for initial management reports of small firms exempt from such audits. As to audit cost; fees more than double for initial 404(b) audits in 2004 and remain high; while 404(b)-exempt firms’ fees grow about 10% annually. Our results support the view that; for small firms; management internal control reports and traditional financial audits may be a cost effective disclosure alternative to full application of SOX 404(b). Also; our results suggest that; even without management reports on internal control; analysis of the cause of known accounting mistakes may yield substantial material weakness disclosures. |
| 74 | http://ssrn.com/abstract=1029886 | 1152 | 15 | Political Connections and Minority-Shareholder Protection: Evidence from Securities-Market Regulation in China | JFQA | 2010 | 45 | 1391-1417 | We examine the wealth effects of 3 regulatory changes designed to improve minority-shareholder protection in the Chinese stock markets. Using the value of a firm’s related-party transactions as an inverse proxy for the quality of corporate governance; wefind that firms with weaker governance experienced significantly larger abnormal returns around announcements of the new regulations than did firms with stronger governance. We also find that firms with strong ties to the government did not benefit from the regulations; suggesting that minority shareholders did not expect regulators to enforce the new rules on firms where blockholders have strong political connections. |
| 75 | Corporate Governance and Dividend Payout Policy: A Test Using Antitakeover Legislation | FM | 2011 | 40 | 83112 | Managers strongly prefer not to pay dividends as dividend payouts reduce the amount of cash subject to managerial discretion (Easterbrook; 1984; Jensen; 1986). Previous empirical tests of the relationship between corporate governance and dividend payout policy employ endogenous measures of this agency problem. Using a relatively exogenous measure that incorporates state antitakeover laws and the differences-in-differences approach; our analysis indicates that dividend payout ratios and propensities fall when managers are insulated from takeovers. The impact of antitakeover laws on dividend payouts is more pronounced for firms with poor corporate governance and small firms. | |||
| 76 | http://ssrn.com/abstract=1733788 | 2 | 4 | Managerial Entrenchment and Capital Structure: New Evidence | JELS | 2010 | 7 | 693742 | Prior research has often taken the view that entrenched managers tend to avoid debt. Contrary to this view; we find that firms with entrenched managers; as measured by the Gompers et al. (2003) governance index; use more debt finance and have higher leverage ratios. To address the potential endogeneity of the governance index; we use instrumental variables analysis and the exogenous shock to corporate governance generated by the adoption of state anti-takeover laws. We find that firms incorporated in states that adopt restrictive anti-takeover laws increase the debt component of their external financing. Our evidence is consistent with entrenched managers receiving better access to debt markets (better credit ratings) and better financing terms (perhaps in response to the conservative investment policy that they pursue). |
| 77 | http://ssrn.com/abstract=1329854 | 353 | 10 | The market for corporate control and the cost of debt | JFE | 2009 | 93 | 505 - 524 | How do bondholders view the existence of an open market for corporate control? Between 1985 and 1991; 30 states in the U.S. enacted business combination (BC) laws; raising the cost of corporate takeovers. Relying on these exogenous events; we estimate the influence of the market for corporate control on the cost of debt. We identify different channels through which an open market for corporate control can benefit or harm bondholders: a reduction in managerial slack or the |
| 78 | http://ssrn.com/abstract=890870 | 565 | 13 | The effect of state antitakeover laws on the firm's bondholders | JFE | 2010 | 96 | 127 - 154 | We examine how state antitakeover laws affect bondholders and the cost of debt; and report four findings. First; bonds issued by firms incorporated in takeover-friendly states have significantly higher at-issue yield spreads than bonds issued by firms in states with restrictive antitakeover laws. Second; firms in takeover friendly states have significantly higher leverage than their counterparts in restrictive law states. Third; bond issues are associated with negative average stock price reactions among firms in takeover-friendly states; but positive stock price reactions among firms in restrictive law states. Fourth; existing bond values increase; on average; upon the introduction of Business Combination antitakeover law. These results indicate that state antitakeover laws tend to decrease bond yields and increase bond values; which is the opposite of their effect on equity values. This; in turn; implies that state laws help mitigate the agency cost of debt by shielding bondholders from expropriation in takeovers. Overall; the empirical evidence suggests that the effect of antitakeover provisions on firm value must take into account the impacts of both bondholders and stockholders. |
| 79 | http://ssrn.com/abstract=1006118 | 1723 | 72 | Does corporate governance matter in competitive industries? | JFE | 2010 | 95 | 312 - 331 | By reducing the threat of a hostile takeover; business combination (BC) laws weaken corporate governance and increase the opportunity for managerial slack. Consistent with the notion that competition mitigates managerial slack; we find that while firms in non-competitive industries experience a significant drop in operating performance after the laws' passage; firms in competitive industries experience no significant effect. When we examine which agency problem competition mitigates; we find evidence in support of a ‘‘quiet-life’ ’hypothesis. Input costs; wages; and overhead costs all increase after the laws’passage; and only so in non-competitive industries. Similarly; when we conduct event studies around the dates of the first newspaper reports about the BC laws; we find that while firms in non-competitive industries experience a significant stock price decline; firms in competitive industries experience a small and insignificant stock price impact. |
| 80 | http://ssrn.com/abstract=441963 | Enjoying the Quiet Life? Corporate Governance and Managerial Preferences | JPE | 2003 | 111 | 1043-1075 | Much of our understanding of corporations builds on the idea that managers; when they are not closely monitored; will pursue goals that are not in shareholders’ interests. But what goals would managers pursue? This paper uses variation in corporate governance generated by state adoption of antitakeover laws to empirically map out managerial preferences. We use plantâ€level data and exploit a unique feature of corporate law that allows us to deal with possible biases associated with the timing of the laws. We find that when managers are insulated from takeovers; worker wages (especially those of whiteâ€collar workers) rise. The destruction of old plants falls; but the creation of new plants also falls. Finally; overall productivity and profitability decline in response to these laws. Our results suggest that active empire building may not be the norm and that managers may instead prefer to enjoy the quiet life. | ||
| 81 | http://ssrn.com/abstract=888423 | 719 | 31 | The Choice of Corporate Liquidity and Corporate Governance | RFS | 2009 | 22 | 1447-1475 | In this paper; I study how corporate governance influences firms' choices between cash and lines of credit. Stakeholders may disagree about firms' liquidity choices because they differ in the allocation of ex-post control rights for the firms' liquidity reserves. Using state-level changes in takeover protection as exogenous shocks to corporate governance; I find that firms increase cash relative to lines of credit when the threat of takeover weakens. Consistent with the theory; this tendency is weaker for firms with good internal governance. Overall; my findings suggest the choice of corporate liquidity is a channel through which corporate governance works. |
| 82 | Own company stock in defined contribution pension plans: A takeover defense? | JFE | 2006 | 81 | 379 - 410 | If managers induce employees to hold company stock in defined contribution pension plans as a form of takeover defense; then changes in state laws that enhance managerial protection should lead to a reduction in employer stock in 401(k) plans. Delaware's mid-1990s validation of the poison pill in conjunction with a staggered board was followed by a significant decline in employee ownership within defined contribution plans for firms incorporated in Delaware. Evidence using governance data suggests that this is due to responses of firms with staggered boards. Binary choice models confirm that employee ownership in defined contribution plans lowers takeover probabilities. | |||
| 83 | http://ssrn.com/abstract=934857 | 1105 | 48 | Managerial risk-taking behavior and equity-based compensation | JFE | 2009 | 92 | 470 - 490 | Equity-based compensation affects managers' risk-taking behavior; which in turn has an impact on shareholder wealth. In response to an exogenous increase in takeover protection in Delaware during the mid-1990s; managers lower firm risk by 6%. This risk reduction is concentrated among firms with low managerial equity-based incentives; in particular firms with low chief executive officer portfolio sensitivity to stock return volatility. Furthermore; the risk reduction is value-destroying. Finally; firms respond to the increased protection accorded by the regime shift by providing managers with greater incentives for risk-taking. |
| 84 | http://ssrn.com/abstract=311275 | 11001 | 113 | Does Corporate Governance Predict Firms' Market Values? Evidence from Korea | JLEO | 2006 | 22 | 366-413 | We report strong OLS and instrumental variable evidence that an overall corporate governance index is an important and likely causal factor in explaining the market value of Korean public companies. We construct a corporate governance index (KCGI; 0∼100) for 515 Korean companies based on a 2001 Korea Stock Exchange survey. In OLS; a worst-to-best change in KCGI predicts a 0.47 increase in Tobin's q (about a 160% increase in share price). This effect is statistically strong (t = 6.12) and robust to choice of market value variable (Tobin's q; market/book; and market/sales); specification of the governance index; and inclusion of extensive control variables. We rely on unique features of Korean legal rules to construct an instrument for KCGI. Good instruments are not available in other comparable studies. Two-stage and three-stage least squares coefficients are larger than OLS coefficients and are highly significant. Thus; this article offers evidence consistent with a causal relationship between an overall governance index and higher share prices in emerging markets. We also find that Korean firms with 50% outside directors have 0.13 higher Tobin's q (roughly 40% higher share price); after controlling for the rest of KCGI. This effect; too; is likely causal. Thus; we report the first evidence consistent with greater board independence causally predicting higher share prices in emerging markets. |
| 85 | http://ssrn.com/abstract=914440 | 2086 | 28 | Can Corporate Governance Reforms Increase Firm Market Values? Event Study Evidence from India | JELS | 2007 | 4 | 749796 | A central problem in conducting an event study of the valuation effects of corporate governance reforms is that most reforms affect all firms in a country. Share price changes may reflect the reforms; but could also reflect other information. We address this identification issue by studying India's adoption of major governance reforms (Clause 49). Clause 49 requires; among other things; audit committees; a minimum number of independent directors; and CEO/CFO certification of financial statements and internal controls. The reforms were sponsored by the Confederation of Indian Industry (an organization of large Indian public firms); applied initially to larger firms; and reached smaller public firms only after a several-year lag. The difference in effective dates offers a natural experiment: large firms are the treatment group for the reforms; small firms provide a control group for other news affecting India generally. The May 1999 announcement by Indian securities regulators of plans to adopt what became Clause 49 is accompanied by a 4 percent increase in the price of large firms over a two-day event window (the announcement date plus the next trading day); relative to smaller public firms; the difference grows to 7 percent over a five-day event window and 10 percent over a two-week window. Mid-sized firms had an intermediate reaction.Faster-growing firms gained more than other firms; consistent with firms that need external equity capital benefiting more from governance rules. Cross-listed firms gained more than other firms; suggesting that local regulation can sometimes complement; rather than substitute for; the benefits of cross-listing. The positive reaction of large Indian firms contrasts with the mixed reaction to the Sarbanes-Oxley Act (which is similar to Clause 49 in important respects); suggesting that the value of mandatory governance rules may depend on a country's prior institutional environment. |
| 86 | http://ssrn.com/abstract=631182 | 468 | 49 | Executive Financial Incentives and Payout Policy: Firm Responses to the 2003 Dividend Tax Cut | JF | 2007 | 62 | 19351965 | We test whether executive stock ownership affects firm payouts using the 2003 dividend tax cut to identify an exogenous change in the after-tax value of dividends. We find that executives with higher ownership were more likely to increase dividends after the tax cut in 2003; whereas no relation is found in periods when the dividend tax rate was higher. Relative to previous years; firms that initiated dividends in 2003 were more likely to reduce repurchases. The stock price reaction to the tax cut suggests that the substitution of dividends for repurchases may have been anticipated; consistent with agency conflicts. |
| 87 | http://ssrn.com/abstract=609222 | 121 | 91 | Dividend Taxes and Corporate Behavior: Evidence from the 2003 Dividend Tax Cut | QJE | 2005 | 120 | 791-833 | This paper analyzes the effects of dividend taxation on corporate behavior using the large tax cut on individual dividend income enacted in 2003. We document a 20 percent increase in dividend payments by nonfinancial; nonutility publicly traded corporations following the tax cut. An unusually large number of firms initiated or increased regular dividend payments in the year after the reform. As a result; the number of firms paying dividends began to increase in 2003 after a continuous decline for more than two decades. Firms with high levels of nontaxable institutional ownership did not change payout policies; supporting the causality of the tax cut in increasing aggregate dividend payments. The response to the tax cut was strongest in firms with strong principals whose tax incentives changed (those with large taxable institutional owners or independent directors with large share holdings); and in firms where agents had stronger incentives to respond (high share ownership and low options ownership among top executives). Hence; principal-agent issues appear to play an important role in corporate responses to taxation. |
| 88 | http://ssrn.com/abstract=1024240 | 12185 | 172 | Mandatory IFRS Reporting around the World: Early Evidence on the Economic Consequences | JAR | 2008 | 46 | 10851142 | This paper examines the economic consequences of mandatory International Financial Reporting Standards (IFRS) reporting around the world. We analyze the effects on market liquidity; cost of capital; and Tobin's q in 26 countries using a large sample of firms that are mandated to adopt IFRS. We find that; on average; market liquidity increases around the time of the introduction of IFRS. We also document a decrease in firms' cost of capital and an increase in equity valuations; but only if we account for the possibility that the effects occur prior to the official adoption date. Partitioning our sample; we find that the capital-market benefits occur only in countries where firms have incentives to be transparent and where legal enforcement is strong; underscoring the central importance of firms' reporting incentives and countries' enforcement regimes for the quality of financial reporting. Comparing mandatory and voluntary adopters; we find that the capital market effects are most pronounced for firms that voluntarily switch to IFRS; both in the year when they switch and again later; when IFRS become mandatory. While the former result is likely due to self-selection; the latter result cautions us to attribute the capital-market effects for mandatory adopters solely or even primarily to the IFRS mandate. Many adopting countries make concurrent efforts to improve enforcement and governance regimes; which likely play into our findings. Consistent with this interpretation; the estimated liquidity improvements are smaller in magnitude when we analyze them on a monthly basis; which is more likely to isolate IFRS reporting effects. |
| 89 | http://ssrn.com/abstract=1693003 | 1099 | 22 | The Effect of Mandatory IFRS Adoption on Financial Analysts' Information Environment | JAR | 2011 | 49 | 6996 | This paper examines the effect of the mandatory adoption of International Financial Reporting Standards (IFRS) by the European Union on financial analysts’ information environment. To control for the effect of confounding concurrent events; we use a control sample of firms that had already voluntarily adopted IFRS at least two years prior to the mandatory adoption date. We find that analysts’ absolute forecast errors and forecast dispersion decrease relative to this control sample only for those mandatory IFRS adopters domiciled in countries with both strong enforcement regimes and domestic accounting standards that differ significantly from IFRS. Furthermore; for mandatory adopters domiciled in countries with both weak enforcement regimes and domestic accounting standards that differ significantly from IFRS; we find that forecast errors and dispersion decrease more for firms with stronger incentives for transparent financial reporting. These results highlight the important roles of enforcement regimes and firm-level reporting incentives in determining the impact of mandatory IFRS adoption. |
| 90 | http://ssrn.com/abstract=1473889 | 1134 | 25 | The impact of mandatory IFRS adoption on foreign mutual fund ownership: The role of comparability | JAE | 2011 | 51 | 240 - 258 | Proponents of IFRS argue that mandating a uniform set of accounting standards improves financial statement comparability that in turn attracts greater cross-border investment. We test this assertion by examining changes in foreign mutual fund investment in firms following mandatory IFRS adoption in the European Union in 2005. We measure improved comparability as a credible increase in uniformity; defined as a large increase in the number of industry peers using the same accounting standards in countries with credible implementation. Consistent with this assertion; we find that foreign mutual fund ownership increases when mandatory IFRS adoption leads to improved comparability. |
| 91 | http://ssrn.com/abstract=989224 | 1077 | 29 | CEOs vs. CFOs: Incentives and Corporate Policies | JFE | 2010 | 97 | 263 - 278 | We undertake a broad-based study of the effect of managerial risk-taking incentives on corporate financial policies and show that the risk-taking incentives of chief executive officers (CEOs) and chief financial officers (CFOs) significantly influence their firms' financial policies. In particular; we find that CEOs' risk-decreasing (-increasing) incentives are associated with lower (higher) leverage and higher (lower) cash balances. CFOs' risk-decreasing (-increasing) incentives are associated with safer (riskier) debt-maturity choices and higher (lower) earnings-smoothing through accounting accruals. We exploit the stock option expensing regulation of 2004 to establish a causal link between managerial incentives and corporate policies. Our findings have important implications for optimal corporate compensation design. |
| 92 | The Impact of Investment Opportunities and Free Cash Flow on Financial Liberalization: A Cross-Firm Analysis of Emerging Economies | FM | 2009 | 38 | 543566 | This study undertakes firm-level analysis of investment opportunities and free cash flow in an attempt to explain the source of the wealth effect of financial liberalization for 14 emerging countries. We find that the market's responses to stock market liberalization announcements are more favorable for high-growth firms than for low-growth firms; a result that is consistent with the investment opportunities hypothesis. We also demonstrate that firms with high cash flow experience lower announcement-period returns associated with stock market liberalization than do firms with low cash flow. Our findings suggest that the free cash flow hypothesis dominates the corporate governance hypothesis in terms of the net effect of stock market liberalization on a firm's stock returns. We further document similar evidence with regard to banking liberalization. Finally; we demonstrate that stock market liberalization leads to the more efficient allocation of capital. | |||
| 93 | Dual-class premium; corporate governance; and the mandatory bid rule: Evidence from the Brazilian stock market | JCF | 2007 | 13 | 24-Jan | This paper conducts a systematic analysis of the determinants of the relative price difference between voting and non-voting shares; i.e.; the | |||
| 94 | The Cadbury Committee; Corporate Performance; and Top Management Turnover | JF | 2002 | 57 | 461483 | In 1992; the Cadbury Committee issued the Code of Best Practice which recommends that boards of U.K. corporations include at least three outside directors and that the positions of chairman and CEO be held by different individuals. The underlying presumption was that these recommendations would lead to improved board oversight. We empirically analyze the relationship between CEO turnover and corporate performance. CEO turnover increased following issuance of the Code; the negative relationship between CEO turnover and performance became stronger following the Code’s issuance; and the increase in sensitivity of turnover to performance was concentrated among firms that adopted the Code. | |||
| 95 | http://ssrn.com/abstract=687429 | 1517 | 41 | Board Composition; Corporate Performance; and the Cadbury Committee Recommendation | JFQA | 2007 | 42 | 535-564 | During the 1990s and beyond; countries around the world witnessed calls and/or mandates for more outside directors on publicly traded companies' boards even though extant studies find no significant correlation between outside directors and corporate performance. We examine the connection between changes in board composition and corporate performance in the U.K. over the interval 1989–1996; a period that surrounds publication of the Cadbury Report; which calls for at least three outside directors for publicly traded corporations. We find that companies that add directors to conform with this standard exhibit a significant improvement in operating performance both in absolute terms and relative to various peer group benchmarks. We also find a statistically significant increase in stock prices around announcements that outside directors were added in conformance with this recommendation. We do not endorse mandated board structures; but the evidence appears to be that such a mandate is associated with an improvement in performance in U.K. companies. |
| 96 | http://ssrn.com/abstract=830744 | Politicians and banks: Political influences on government-owned banks in emerging markets | JFE | 2005 | 77 | 453 - 479 | Government ownership of banks is very common in countries other than the United States. This paper provides cross-country; bank-level empirical evidence about political influences on these banks. It shows that government-owned banks increase their lending in election years relative to private banks. This effect is robust to controlling for country-specific macroeconomic and institutional factors as well as bank-specific factors. The increase in lending is about 11% of a government-owned bank's total loan portfolio or about 0.5% of the median country's GDP per election per government-owned bank. | ||
| 97 | http://ssrn.com/abstract=1527190 | 166 | 27 | Why Do Foreign Firms Leave U.S. Equity Markets? | JF | 2010 | 65 | 15071553 | Foreign firms terminate their Securities and Exchange Commission registration in the aftermath of the Sarbanes–Oxley Act (SOX) because they no longer require outside funds to finance growth opportunities. Deregistering firms’ insiders benefit from greater discretion to consume private benefits without having to raise higher cost funds. Foreign firms with more agency problems have worse stock-price reactions to the adoption of Rule 12h-6 in 2007; which made deregistration easier; than those firms more adversely affected by the compliance costs of SOX. Stock-price reactions to deregistration announcements are negative; but less so under Rule 12h-6; and more so for firms that raise fewer funds externally. |
| 98 | http://ssrn.com/abstract=1031398 | 450 | 17 | Escape from New York: The market impact of loosening disclosure requirements | JFE | 2010 | 95 | 129 - 147 | We examine the first significant deregulation of U.S. disclosure requirements since the passage of the 1933/1934 Exchange and Securities Acts: the 2007 Securities and Exchange Commission (SEC) Rule 12h-6. Rule 12h-6 has made it easier for foreign firms to deregister with the SEC and thereby terminate their U.S. disclosure obligations. We show that the market reacted negatively to the announcement by the SEC that firms from countries with weak disclosure and governance regimes could more easily opt out of the stringent U.S. reporting and legal environment. We also find that since the rule's passage; an unprecedented number of firms have deregistered; and these firms often had been previous targets of U.S. class action securities lawsuits or SEC enforcement actions. Our findings suggest that shareholders of non-U.S firms place significant value on U.S. securities regulations; especially when the home country investor protections are weak. |
| 99 | http://ssrn.com/abstract=1342354 | 1087 | 17 | The value of independent directors: Evidence from sudden deaths | JFE | 2010 | 98 | 550 - 567 | We investigate contributions of independent directors to shareholder value by examining stock price reactions to sudden deaths in the US from 1994 to 2007. We find; first; that following director death stock prices drop by 0.85% on average. Second; the degree of independence and board structure determine the marginal value of independent directors. Third; independence is more valuable in crucial board functions. Finally; controlling for director-invariant heterogeneity using a fixed effect approach; we identify the value of independence over and above the value of individual skills and competences. Overall; our results suggest that independent directors provide a valuable service to shareholders. |
| 100 | http://ssrn.com/abstract=875808 | 855 | 35 | Sudden Deaths: Taking Stock of Geographic Ties | JFQA | 2009 | 44 | 683-718 | Analysis of a worldwide sample of sudden deaths of politicians reveals a market-adjusted 1.7% decline in the value of companies headquartered in the politician's hometown. The decline in value is followed by a drop in the rate of growth in sales and access to credit. Our results are particularly pronounced for family firms; firms with high growth prospects; firms in industries over which the politician has jurisdiction; and firms headquartered in highly corrupt countries. |
| 101 | http://ssrn.com/abstract=819564 | 568 | 14 | Entrenchment; governance; and the stock price reaction to sudden executive deaths | JBF | 2010 | 34 | 656 - 666 | To study managerial entrenchment; I use the stock price reaction to unexpected senior executive deaths. If a highly effective manager dies unexpectedly; the stock price reaction should be negative. If; however; death removes an entrenched manager when the board would or could not; the stock price reaction should be positive. While; individually; age and tenure only weakly correlate with the stock price reaction to a sudden death; the reaction is strongly positive (6.8%) if: (1) the executive’s tenure exceeds 10 years; and (2) abnormal stock returns over the last three years are negative. |
| 102 | http://ssrn.com/abstract=687412 | 940 | 76 | Financial fraud; director reputation; and shareholder wealth | JFE | 2007 | 86 | 306 - 336 | We investigate the reputational impact of financial fraud for outside directors based on a sample of firms facing shareholder class action lawsuits. Following a financial fraud lawsuit; outside directors do not face abnormal turnover on the board of the sued firm but experience a significant decline in other board seats held. This decline in other directorships is greater for more severe allegations of fraud and when the outside director bears greater responsibility for monitoring fraud. Interlocked firms that share directors with the sued firm also exhibit valuation declines at the lawsuit filing. Fraud-affiliated directors are more likely to lose directorships at firms with stronger corporate governance and their departure is associated with valuation increases for these firms. |
| 103 | http://ssrn.com/abstract=921672 | 404 | Does liberalization reduce agency costs? Evidence from the Indian banking sector | JBF | 2008 | 32 | 405 - 419 | On February 16; 2002; the Reserve Bank of India issued a circular that signaled a policy liberalization facilitating acquisition of private sector banks in India by foreign entities. Portfolios of private sector and nationalized banks posted significant value gains in the days surrounding the announcement. The gains by private sector banks were almost double those of nationalized banks. We further analyze the firm specific abnormal returns using cross-sectional regressions and find a significant relation between firm-specific abnormal returns and factors typically associated with a bank’s potential for takeover. These results provide the first empirical support for Stulz’s hypothesis that one cause of the valuation gains associated with liberalization is the expected gain from a reduction of agency costs. | |
| 104 | http://ssrn.com/abstract=891426 | 1471 | 63 | Do Politically Connected Boards Affect Firm Value? | RFS | 2009 | 22 | 2331-2360 | This article explores whether political connections are important in the United States. The article uses an original hand-collected data set on the political connections of board members of S&P 500 companies to sort companies into those connected to the Republican Party and those connected to the Democratic Party. The analysis shows a positive abnormal stock return following the announcement of the nomination of a politically connected individual to the board. This article also analyzes the stock-price response to the Republican win of the 2000 presidential election and finds that companies connected to the Republican Party increase in value; and companies connected to the Democratic Party decrease in value. |
| 105 | http://ssrn.com/abstract=529162 | 1811 | 40 | SEC Regulation Fair Disclosure; information; and the cost of capital | JCF | 2007 | 13 | 300 - 334 | Regulation Fair Disclosure ( |
| 106 | http://ssrn.com/abstract=789865 | 507 | 60 | Mandated Disclosure; Stock Returns; and the 1964 Securities Acts Amendments | QJE | 2006 | 121 | 399-460 | The 1964 Securities Acts Amendments extended the mandatory disclosure requirements that had applied to listed firms since 1934 to large firms traded Over-the-Counter (OTC). We find several pieces of evidence indicating that investors valued these disclosure requirements; two of which are particularly striking. First; a firm-level event study reveals that the OTC firms most affected by the 1964 Amendments had abnormal excess returns of about 3.5 percent in the weeks immediately surrounding the announcement thai they had begun to comply with the new requirements. Second; we estimate that the most affected OTC firms had abnormal excess returns ranging between 11.5 and 22.1 percent in the period between when the legislation was initially proposed and when it went into force. These returns are adjusted for the standard four factors and are relative to NYSE/AMEX firms; matched on size and book-to-market equity; that were unaffected by the legislation. While we cannot determine how much of shareholders' gains were a transfer from insiders of these same companies; our results suggest that mandatory disclosure causes managers to focus more narrowly on maximizing shareholder value. |
| 107 | http://ssrn.com/abstract=997864 | 818 | 42 | Managerial Empire Building and Firm Disclosure | JAR | 2008 | 46 | 591626 | This study tests the agency cost hypothesis in the context of geographic earnings disclosures. The agency cost hypothesis predicts that managers; when not monitored by shareholders; make self-maximizing decisions that may not necessarily be in the best interest of shareholders. These decisions include aggressively growing the firm; which reduces profitability and destroys firm value. Geographic earnings disclosures provide an interesting context to examine this issue. Beginning with Statement of Financial Accounting Standards No. 131 (SFAS 131); most U.S. multinational firms are no longer required to disclose earnings by geographic area (e.g.; net income in Mexico or net income in East Asia). Such nondisclosure potentially reduces the ability of shareholders to monitor managers' decisions related to foreign operations. Using a sample of U.S. multinationals with substantial foreign operations; we find that nondisclosing firms; relative to firms that continue to disclose geographic earnings; experience greater expansion of foreign sales; produce lower foreign profit margins; and have lower firm value in the post–SFAS 131 period. Our conclusions are strengthened by the fact that these differences do not exist in the pre–SFAS 131 period and do not relate to domestic operations. We find differences in the predicted direction only for foreign operations and only after adoption of SFAS 131. Our results are robust to the inclusion of an extensive set of control variables related to alternative corporate governance mechanisms; operating performance; and the firm's information environment. Overall; the results are consistent with the agency cost hypothesis and the important role of financial disclosures in monitoring managers. |
| 108 | Nonnegotiable shares; controlling shareholders; and dividend payments in China | JCF | 2011 | 17 | 122 - 133 | China has some unique institutional features. For example; the shares of listed firms are segmented into negotiable and nonnegotiable ones. The controlling shareholders; usually connected to the government; hold nonnegotiable shares. We examine how these institutional features affected cash dividend payments in China during the period 1994-2006. We find that dividend payments are positively associated with the proportion of nonnegotiable shares in a firm and the proportion of nonnegotiable shares held by the controlling shareholder; moreover; the 2001 China Securities Regulatory Commission stipulation requiring cash dividend payments does not benefit negotiable shareholders. However; we also find that dividend payments are downside flexible; and controlling shareholders cannot force firms to pay or to pay more dividends when firms' earnings decline significantly. The conventional factors; especially profitability or the capability to pay; still play an important role in determining the dividend policy. The propensity to pay and the payout ratio in China are not high compared to those of other countries. | |||
| 109 | CEOs'/CFOs' Swearing by the Numbers: Does It Impact Share Price of the Firm?. | TAR | 2006 | 81 | 27-Jan | We examine the impact on share prices of firms whose CEOs and CFOs certify their financial statements under oath; pursuant to the administrative order issued by the SEC on June 27; 2002. We hypothesize that (1) the certification provides assurance to investors by making disclosure more credible and by reducing information asymmetry between owners and management; and (2) the assurance value of certification is reflected in the stock price of the certifying company. Overall; the empirical results are consistent with our hypotheses. We observe; on average; positive abnormal returns for firms whose CEOs/CFOs certified their financial statements by August 14; 2002. Based on an analysis of bid-ask spreads; certifying firms experienced a significant decline in information asymmetry after certification. In cross-sectional analyses; we find abnormal returns are positively associated with firms that were under investigation; that used Andersen as their auditor; and that practiced aggressive rev | |||
| 110 | http://ssrn.com/abstract=1650333 | 1837 | 24 | The market reaction to corporate governance regulation | JFE | 2011 | 101 | 431 - 448 | This paper investigates the market reaction to recent legislative and regulatory actions pertaining to corporate governance. The managerial power view of governance suggests that executive pay; the existing process of proxy access; and various governance provisions [e.g.; staggered boards and Chief Executive Officer (CEO)-chairman duality] are associated with managerial rent extraction. This perspective predicts that broad government actions that reduce executive pay; increase proxy access; and ban such governance provisions are value-enhancing. In contrast; another view of governance suggests that observed governance choices are the result of value-maximizing contracts between shareholders and management. This perspective predicts that broad government actions that regulate such governance choices are value destroying. Consistent with the latter view; we find that the abnormal returns to recent events relating to corporate governance regulations are; on average; decreasing in CEO pay; decreasing in the number of large blockholders; decreasing in the ease by which small institutional investors can access the proxy process; and decreasing in the presence of a staggered board. |
| 111 | http://ssrn.com/abstract=1000834 | 317 | 3 | Does institutional activism increase shareholder wealth? Evidence from spillovers on non-target companies | JCF | 2009 | 15 | 488 - 504 | This paper presents evidence of the shareholder wealth effect of institutional activism using its spillovers on non-target companies. The spillovers are instructive because they are a response to an exogenous shock and thus create an environment to conduct a clean event study. In particular; we examine the spillover effects of the first target announcement of the Korea Corporate Governance Fund. As the very first sign of institutional activism in the country; this announcement creates an expectation of similar governance efforts even in non-target companies; especially in those companies whose governance is currently poorer and thus the scope for future activism is greater. Consistent with institutional activism contributing to shareholder wealth; we find that; among non-targets; those firms granting fewer rights to outside shareholders experience a more positive stock price reaction. Further analysis lends additional support to the positive wealth effect of institutional activism. |
| 112 | http://ssrn.com/abstract=244532 | 919 | 43 | Economic consequences of regulated changes in disclosure: the case of executive compensation | JAE | 2003 | 35 | 285 - 314 | The 1992 revision of executive compensation disclosure rules in the U.S. could have benefited shareholders by inducing corporate governance improvements or harmed them by increasing disclosure costs. Consistent with the governance improvement hypothesis; companies that lobbied against the regulation had; relative to control firms: (i) return-on-assets and return-on-equity that improved by 0.5% and 3%; respectively; and (ii) excess stock returns of 6% over the 8-month period between the announcement and the adoption of the proposed regulation. Also; firms lobbying more vigorously against the proposal had more positive abnormal stock returns during events that increased the probability of regulation. |
| 113 | http://ssrn.com/abstract=310520 | Discretionary disclosure and stock-based incentives | JAE | 2003 | 34 | 283 - 309 | We examine the relation between managers' disclosure activities and their stock price-based incentives. Managers are privy to information that investors demand and are reluctant to publicly disseminate it unless provided appropriate incentives. We argue that stock price-based incentives in the form of stock-based compensation and share ownership mitigate this disclosure agency problem. Consistent with this prediction; we find that firms' disclosures; measured both by management earnings forecast frequency and analysts' subjective ratings of disclosure practice; are positively related to the proportion of CEO compensation affected by stock price and the value of shares held by the CEO. | ||
| 114 | Who is in whose pocket? Director compensation; board independence; and barriers to effective monitoring | JFE | 2004 | 73 | 497 - 524 | We use a bargaining framework to examine empirically the relations between director compensation and board-of-director independence. Our evidence suggests that independent directors have a bargaining advantage over the CEO that results in compensation more closely aligned with shareholders' objectives. Firms with more outsiders on their boards award directors more equity-based compensation. When the CEO's power over the board increases; compensation provides weaker incentives to monitor. Firms with more inside directors and with entrenched CEOs use less equity-based pay. Furthermore; firms with entrenched CEOs and CEOs who also chair the board are less likely to replace cash pay with equity. | |||
| 115 | http://ssrn.com/abstract=961964 | 1493 | 155 | Economic consequences of the Sarbanes-Oxley Act of 2002 | JAE | 2007 | 44 | 74 - 115 | This paper investigates the economic consequences of the Sarbanes-Oxley Act (SOX) by examining market reactions to related legislative events. Using concurrent stock returns of non-U.S.-traded foreign firms to estimate normal U.S. returns; I find that U.S. firms experienced a statistically significant negative cumulative abnormal return around key SOX events. I then examine the cross-sectional variation of U.S. firms' returns around these events. Regression results are consistent with the non-audit services and governance provisions imposing net costs. Additional tests show that deferring the compliance of Section 404; which mandates an internal control test; resulted in significant cost savings for non-accelerated filers. |
| 116 | http://ssrn.com/abstract=546626 | 3113 | 89 | The Sarbanes-Oxley Act and firms' going-private decisions | JAE | 2007 | 44 | 116 - 145 | We investigate going-private decisions in response to the passage of the Sarbanes-Oxley Act of 2002 (SOX). We study firms that go private from 1998 to May 2005 and find: (1) the quarterly frequency of going-private transactions has increased after the passage of SOX; and (2) abnormal returns surrounding both the passage of SOX and the going-private announcement are significantly related to proxies for the costs and benefits of SOX and the net benefits of being a public firm. Our empirical evidence is broadly consistent with the notion that SOX has affected firms' going-private decisions. |
| 117 | http://ssrn.com/abstract=1104063 | 761 | 33 | Sarbanes-Oxley and corporate risk-taking | JAE | 2010 | 49 | 34 - 52 | We empirically examine whether risk-taking by publicly traded US companies declined significantly after adoption of the Sarbanes-Oxley Act of 2002 (SOX). Several provisions of SOX are likely to discourage risk-taking; including an expanded role for independent directors; an increase in director and officer liability; and rules related to internal controls. We find several measures of risk-taking decline significantly for US versus non-US firms after SOX. The magnitudes of the declines are related to several firm characteristics; including pre-SOX board structure; firm size; and R&D expenditures. The evidence is consistent with the proposition that SOX discourages risk-taking by public US companies. |
| 118 | http://ssrn.com/abstract=1463494 | 945 | 13 | Audit committee compensation and the demand for monitoring of the financial reporting process | JAE | 2010 | 49 | 136 - 154 | We examine the relation between audit committee compensation and the demand for monitoring of the financial reporting process. We find that total compensation and cash retainers paid to audit committees are positively correlated with audit fees and the impact of the Sarbanes-Oxley Act; our proxies for the demand for monitoring. Our results are robust to the inclusion of audit committee quality; measured as the committee chair financial expertise. Our results suggest a recent willingness by firms to deviate from the historically prevalent one-size-fits-all approach to director pay in response to increased demands on audit committees and differential director expertise. |
| 119 | Valuation impact of Sarbanes-Oxley: Evidence from disclosure and governance within the financial services industry | JBF | 2006 | 30 | 989 - 1006 | The Sarbaness-Oxley (Sarbox) legislation aimed to reduce the opacity of financial statements and improve the integrity of financial reporting by enhancing corporate disclosure and governance practices. We estimate the valuation effects of Sarbox for firms in the financial services industry and find that; except for securities firms; these firms significantly benefited from its adoption. As hypothesized; these positive effects may be attributed to expected improvement in the transparency of the relatively opaque financial services firms.We find that the cross-sectional variation in the valuation effects can be explained by disclosure and governance characteristics. Several of the significant factors are supportive of a compliance cost hypothesis. In particular; we find that the effects were less favorable for firms with less independent audit committees; without a financial expert on the audit committee; with less financial statement footnote disclosures; with less involved CEOs; and if they were smaller. In addition; reflecting the value of stronger governance; more favorable effects occurred for firms with a greater degree of independence of the board and the board committees; when there is greater motivation and ability of board members to monitor the firm; and with a greater degree of institutional ownership. Lastly; we find the wealth effects of firms viewed as non-compliant are significantly lower than firms viewed as compliant; and the variation across the group of non-compliant firms is explained by disclosure and governance measures. | |||
| 120 | http://ssrn.com/abstract=876624 | 3621 | 57 | The effect of the Sarbanes-Oxley act on non-US companies cross-listed in the US | JCF | 2007 | 13 | 195 - 228 | This paper uses a natural experiment to measure market response to the adoption of the Sarbanes-Oxley Act ([modifier letter reversed comma][modifier letter reversed comma]SOX). Because SOX applies to all US public companies; US-based studies have difficulty separating the effects of contemporaneous events. However; controlled analysis is available: SOX applies to some cross-listed firms (those listed on level 2 or 3); but not to others (listed on level 1 or 4). By comparing reactions of SOX-exposed foreign firms to reactions of otherwise similar SOX-unexposed foreign firms; we can test investor beliefs about the costs and benefits of SOX in a way that is not cleanly available for US-based studies. We find that stock prices of foreign firms subject to SOX declined (increased) significantly; compared to cross-listed firms not subject to SOX and to non-cross-listed firms; during key announcements indicating that SOX would (would not) fully apply to cross-listed issuers. In cross-sectional tests; high-disclosing firms and firms from high-disclosing countries experienced the strongest declines; while faster-growing companies experienced weaker declines. This evidence is consistent with the view that investors expected the Sarbanes-Oxley Act to have a net negative effect on cross-listed foreign companies; with high-disclosing and low-growth companies suffering larger net costs; and faster-growing companies suffering smaller costs; particularly when they are located in poorly governed countries.| |
| 121 | http://ssrn.com/abstract=968413 | 107 | 26 | Corporate boards and regulation: The effect of the Sarbanes-Oxley Act and the exchange listing requirements on firm value | JCF | 2007 | 13 | 229 - 250 | The Sarbanes-Oxley Act of 2002 and recently modified exchange listing requirements impose uniformly high levels of outside director monitoring on all firms. However; recent research in finance suggests that corporate governance structures; including boards of directors; are chosen endogenously by firms in response to their unique operating and contracting environments. Using the relative costs and benefits of outside director monitoring as a benchmark; I find significant cross-sectional variation in the wealth effects around the announcement and passage of these regulations. I find that firms which have high monitoring-costs and fewer benefits from outside monitoring benefited less from the regulations. In particular; I find that the wealth effects around the passage of these new regulations are positively related to firm size and age; and negatively related to growth opportunities and the uncertainty of the firm's operating environment. The results suggest that a blanket |
| 122 | http://ssrn.com/abstract=556990 | 2958 | 127 | Corporate Governance and Firm Value: The Impact of the 2002 Governance Rules | JF | 2007 | 62 | 17891825 | The 2001 to 2002 corporate scandals led to the Sarbanes–Oxley Act and to various amendments to the U.S. stock exchanges' regulations. We find that the announcement of these rules has a significant effect on firm value. Firms that are less compliant with the provisions of the rules earn positive abnormal returns compared to firms that are more compliant. We also find variation in the response across firm size. Large firms that are less compliant earn positive abnormal returns but small firms that are less compliant earn negative abnormal returns; suggesting that some provisions are detrimental to small firms. |
| 123 | http://ssrn.com/abstract=901642 | 1886 | 62 | CEO Compensation and Board Structure | JF | 2009 | 64 | 231261 | In response to corporate scandals in 2001 and 2002; major U.S. stock exchanges issued new board requirements to enhance board oversight. We find a significant decrease in CEO compensation for firms that were more affected by these requirements; compared with firms that were less affected; taking into account unobservable firm effects; time-varying industry effects; size; and performance. The decrease in compensation is particularly pronounced in the subset of affected firms with no outside blockholder on the board and in affected firms with low concentration of institutional investors. Our results suggest that the new board requirements affected CEO compensation decisions. |
| 124 | http://ssrn.com/abstract=1416906 | 524 | 8 | The Manipulation of Executive Stock Option Exercise Strategies: Information Timing and Backdating | JF | 2009 | 64 | 26272663 | I identify three option exercise strategies executives engage in; including (i) exercising with cash and immediately selling the shares; (ii) exercising with cash and holding the shares; and (iii) delivering some shares to the company to cover the exercise costs and holding the remaining shares. Stock price patterns suggest executives manipulate option exercises. They use private information to increase the profitability of all three strategies; and likely backdated some exercise dates in the pre-Sarbanes-Oxley period to enhance the profitability of the latter two strategies; where the executive's company is the only counterparty. Backdating is associated with reporting of internal control weaknesses. |
| 126 | http://ssrn.com/abstract=1026488 | 2384 | 62 | When are outside directors effective? | JFE | 2010 | 96 | 195 - 214 | This paper uses recent regulations that have required some companies to increase the number of outside directors on their boards to generate estimates of the effect of board independence on performance that are largely free from endogeneity problems. Our main finding is that the effectiveness of outside directors depends on the cost of acquiring information about the firm: when the cost of acquiring information is low; performance increases when outsiders are added to the board; and when the cost of information is high; performance worsens when outsiders are added to the board. The estimates provide some of the cleanest estimates to date that board independence matters; and the finding that board effectiveness depends on information cost supports a nascent theoretical literature emphasizing information asymmetry. We also find that firms compose their boards as if they understand that outsider effectiveness varies with information costs. |
| 127 | http://ssrn.com/abstract=475163 | 3640 | 82 | Market Reaction to Events Surrounding the Sarbanes-Oxley Act of 2002 and Earnings Management | JLE | 2008 | 51 | 111-134 | The Sarbanes-Oxley Act (SOX) of 2002 is the most important legislation affecting corporate financial reporting enacted in the United States since the 1930s. Its purpose is to improve the accuracy and reliability of accounting information that is reported to investors. We examine stock price reactions to legislative events surrounding SOX and focus on whether such stock price effects are related crossâ€sectionally to the extent firms had managed their earnings. Our univariate results suggest that significantly positive abnormal stock returns are associated with SOX events; and our primary analyses reveal considerable evidence of a positive relationship between SOX event stock returns and the extent of earnings management. These results are consistent with investors anticipating that the more extensively firms had managed their earnings; the more SOX would constrain earnings management and enhance the quality of financial statement information. |
| 128 | http://ssrn.com/abstract=901769 | 1490 | 16 | Going-Private Decisions and the Sarbanes-Oxley Act of 2002: A Cross-Country Analysis | JLEO | 2009 | 25 | 107-133 | This article investigates whether the passage and the implementation of the Sarbanes-Oxley Act of 2002 (SOX) drove firms out of the public capital market. To control for other factors affecting exit decisions; we examine the post-SOX change in the propensity of American public targets to be bought by private acquirers rather than public ones with the corresponding change for foreign public targets; which were outside the purview of SOX. Our findings are consistent with the hypothesis that SOX induced small firms to exit the public capital market during the year following its enactment. In contrast; SOX appears to have had little effect on the going-private propensities of larger firms. (JEL G30; G34; G38; K22) |
| 129 | http://ssrn.com/abstract=2922260 | 280 | The effect of health insurance on home payment delinquency: Evidence from ACA marketplace subsidies | Working Paper | We use administrative income tax data coupled with survey responses from roughly five thousand households living near the federal poverty line (FPL) to estimate the effect of health insurance coverage on rent and mortgage delinquency. Our identification strategy centers on states that did not expand Medicaid as part of the Affordable Care Act (ACA). We employ a fuzzy regression discontinuity (RD) design; exploiting the income eligibility threshold to receive Marketplace subsidies (100% FPL) as a source of exogenous variation in insurance coverage. Marketplace subsidies result in an 11 percentage point increase in coverage among intent-to-treat households. Households with subsidized coverage are 41 percentage points less likely to be delinquent relative to uninsured households. Eligibility for subsidies is associated with a 25 percent decline in the delinquency rate and reduced exposure to out-of-pocket medical expenditure risk. Subsidy program costs are partially offset by social welfare benefits accruing from fewer evictions/foreclosures. | ||||
| 130 | http://ssrn.com/abstract=2989266 | 8 | Bank Confidence Crisis and Information Acquisition by Institutional Depositors | Working Paper | We study informational determinants of depositor behavior during a confidence based banking crisis. We use detailed high-frequency data on wire transfers to explore the response of different groups of institutional depositors (non-financial companies and banks) to public and private information about bank closure risk as well as study informational flows between different groups of depositors. As a laboratory for our study we consider banking crisis in Russia during the Summer 2004 that was triggered by unexpected announcement of Russian Central Bank to close down banks involved in suspicious offshore operations. We find that only informed depositors – depositors with a well-established relationship with a given bank – react to private information on bank's involvement in suspicious activities; while depositors without such connection seem to base their decision on publicly observed bank capital adequacy ratios. We also find that uninformed depositors (i.e. those without a close business connection to a given bank) seem to partially uncover private information about the bank risk; by observing the behavior of informed depositors. Notably these latter effects are stronger for depositor-banks than depositor-companies suggesting that conditionally on not having a close business relationship with their bank depositor-banks might still have an information advantage over depositor-companies. | ||||
| 131 | http://ssrn.com/abstract=3076317 | 15 | Product Market Strategy and Capital Structure: Evidence from Resale Price Maintenance | Working Paper | This paper studies how a firm’s pricing strategy affects its financial leverage. Retailers vary in pricing strategy; ranging from low markup (i.e.; “discount”); no frills retailers to high markup retailers that offer extensive service. The choice of strategy affects the firm’s risks and opportunities and therefore debt capacity. The high-end strategy; for example; exposes the firm to price wars and free-riding by discount rivals that could drive it into financial distress. The cross-section of firms shows a negative relationship between markup and leverage; but the direction of causality is unclear. To establish causality; I exploit changes in the legality of discount pricing strategies to identify their effect on leverage. In various U.S. states and years; manufacturers could use resale price maintenance (RPM) to set the minimum price a retailer can charge. I find that allowing RPM leads discount retailers to reduce leverage and other retailers to increase it. The results show that firms choose a financial structure closely tied to their product market strategy. | ||||
| 132 | http://ssrn.com/abstract=3059128 | 60 | Do Index Funds' Family Ties Benefit the Firms They Own? | Working Paper | I investigate the impact of ties between index and non-index funds within the same mutual fund family on the value of firms in which both funds invest. Theoretically; I show that family ties increase non-index funds’ incentives to purchase additional shares and monitor a firm. This is because non-index funds are more likely to be able to influence management when index funds in the same family hold the same firm. Empirically; using exogenous variation in family ties following a firm’s addition to an index; I show that family ties are associated with higher non-index fund ownership. Furthermore; firms held by funds with family ties are more profitable and have higher valuations. The effect of family ties on valuation is larger for “dedicated” fund-firm relations and for firms in highly innovative industries; for which the potential gains from monitoring are the highest ex-ante. | ||||
| 133 | Liquidity Provision Under Stress: The Fast; the Slow; and the Dead (Evidence from Crude Oil Futures; 2006-2009) | Working Paper | We investigate the reliability and the consistency of liquidity provision by fast liquidity providers (“FLPs”) in periods of market stress. We draw on a comprehensive; non-public; account-level intraday dataset of trading activity in crude oil futures (the world’s largest commodity market); where liquidity provision has always been entirely voluntary. That market was transformed in 2006 by the onset of electronic trading; with liquidity provision since dominated by machines trading at ultra-high speeds. We ask if these FLPs significantly reduce their participation or liquidity provision amid liquidity shocks or in information-rich periods (characterized by persistently high volatility or elevated information asymmetry). Using market stress episodes from January 2006 to June 2009; we compare FLPs’ trading with the contemporaneous behaviors of the (now “Dead”) Locals in the trading pits and of the (“Slow”) e-Locals in the electronic market. Compared to slower liquidity providers; we find that FLPs withdraw more (and provide less liquidity to customers) during high-volatility and other information-rich periods but are less sensitive to liquidity shocks. In contrast; FLP-to-customer spreads are not substantially affected by high volatility per se but go up significantly in response to high informational asymmetries. | ||||||
| 134 | http://ssrn.com/abstract=2572683 | 611 | Governance and Taxes: Evidence from Regression Discontinuity | TAR | 2017 | 92 | 29-50 | We implement a regression discontinuity design to examine the effect of institutional ownership on tax avoidance. Positive shocks to institutional ownership around Russell index reconstitutions lead; on average; to significant decreases in effective tax rates (ETRs) and greater use of international tax planning using tax haven subsidiaries. These effects are smaller for firms with initially strong governance and high executive equity compensation; suggesting poor governance as an explanation for the undersheltering puzzle; and appear to come about as a result of improved managerial incentives and increased monitoring by institutional investors. Furthermore; we observe the largest decreases among high ETR firms; and increases for low ETR firms; consistent with institutional ownership pushing firms towards a common level of tax avoidance. | |
| 135 | http://ssrn.com/abstract=2475150 | 3412 | 2 | Passive Investors; Not Passive Owners | JFE | 2016 | 121 | 111-141 | Passive institutional investors are an increasingly important component of U.S. stock ownership. To examine whether and by which mechanisms passive investors influence firms’ governance; we exploit variation in ownership by passive mutual funds associated with stock assignments to the Russell 1000 and 2000 indexes. Our findings suggest that passive mutual funds influence firms’ governance choices; resulting in more independent directors; removal of takeover defenses; and more equal voting rights. Passive investors appear to exert influence through their large voting blocs; and consistent with the observed governance differences increasing firm value; passive ownership is associated with improvements in firms’ longer-term performance. |
| 136 | http://ssrn.com/abstract=2102822 | 1090 | 1 | The Effect of Institutional Ownership on Payout Policy: Evidence from Index Thresholds | RFS | 2016 | 29 | 1377–1408 | We show firms pay more dividends and repurchase more shares when they have higher levels of institutional ownership; even if the institutions are not activist investors. We also find evidence of an effect of institutional ownership on proxy voting; profitability; R&D; and CEO compensation. Our identification strategy relies on an instrument for ownership based on the annual composition of the Russell 1;000 and 2;000 indices. Overall; results support agency models where institutional owners lower the marginal cost of delegated monitoring. |
| 137 | http://ssrn.com/abstract=2591481 | 724 | Do Institutional Investors Demand Public Disclosure? | RFS | 2016 | 29 | 3245-3277 | We examine the effect of institutional ownership on corporate disclosure policy using a regression discontinuity design. Using novel data that encompasses every 8-K filing between 1996 and 2006; we find that positive shocks to institutional ownership around Russell index reconstitutions increase the quantity; form; and quality of disclosure. Compared to those at the bottom of the Russell 1000 index; firms at the top of the Russell 2000 index increase institutional ownership by 9.8%; and disclose 4.7% longer 8-K filings with 21.3% more embedded graphics. This incremental disclosure significantly increases the information content of 8-K filings for the market and for analysts. | |
| 138 | http://ssrn.com/abstract=3002895 | 40 | Tamed by Titans: Bank Competition and Corporate Risk-Taking | Working Paper | 2017 | We investigate the impact of bank competition on corporate risk-taking. Exploiting the staggered timing of the interstate bank branching deregulation; we show that in response to higher bank competition fi rms reduce risk-taking but increase investments. This reduction in risk-taking is driven by structural changes in the banking industry where banks prefer to establish short-term lending relationships; reduce interest rates; and improve screening technologies. Smaller; more opaque rms; those with high bank dependence; and those that receive cheaper loans exhibit a sharper reduction in risk-taking. Our study suggests that in response to higher bank competition; firms take more capital-intensive but conservative investments. | |||
| 139 | http://ssrn.com/abstract=2986582 | 244 | How Does Labor Mobility Affect Corporate Leverage and Investment? | Working Paper | 2018 | Using a new mobility measure instrumented by state-level shocks; I find that labor mobility negatively affects leverage and investment; but only in firms that rely on high-skill workers. I use a dynamic model that provides a novel mechanism to rationalize these findings and estimate it to quantify the importance of the effects on firms. In the model; firms make investment and financing decisions; hire labor with different levels of skill and mobility; and set wages through bargaining. Skilled workers with high mobility receive high-value outside job offers more frequently. Firms that rely on this type of labor operate with low leverage in anticipation of the outside offer shocks; in order to retain their workforce against the shocks. The differences in investment are generated both by the capital-labor complementarity and by the differences in financing policies; which affect the cost of capital. Counterfactual analyses imply that labor mobility has a sizable impact on the leverage; investment; hiring; and wages of high-skill firms; highlighting the importance of considering this channel in evaluating the impact of policies that change workers' mobility. | |||
| 140 | http://ssrn.com/abstract=3066442 | 91 | Incentives; Information Production; and Bias: Evidence from Analyst Text | Working Paper | 2018 | I study how analysts’ performance depends on their incentives using a regulatory shock and the textual content of analyst reports. My results focus on two aspects of performance; information production and bias. After incentives are reduced; analysts produce less information that is also less biased. My identification of analyst incentives uses the Global Research Settlement as a shock that affected analysts at investment banks; but not other analysts; in a difference-in-difference design. I find that analyst reports become more similar to one another after the shock; an indication of less information production. Additionally; I find that text exhibits lower overall sentiment; which is driven by an increase in negativity; and that reports contain fewer markers of bias (less weaseling). The results highlight a mechanism through which there is a trade-off between information production and bias. | |||
| 141 | http://ssrn.com/abstract=2344786 | 881 | The Economic Consequences of a 'Glass-Ceiling': Women on Corporate Boards and Firm Value | Working Paper | 2017 | We analyze capital market reactions to exogenous departures of female board members due to death and illness. Theoretically; the glass-ceiling effect implies that a more rigorous selection of female board members leads to superior qualifications of women on corporate boards. We find in short- and long-run event studies that the capital market responds more negatively to exogenous departures of women. This effect is more pronounced in countries where the selection of women is more stringent and fewer women serve on boards. Thus; the glass-ceiling effect leads to an over-performance of the (few) women who make it to the top. | |||
| 142 | Does Board Size Matter | Working Paper | 2018 | This paper uses minimum board size requirements in Germany to assess whether large boards reduce firm performance. Since 1976; the legally required minimum size of the supervisory board increases from 12 to 16 directors as German firms pass 10;000 domestic employees. There is a sharp increase in board size at this threshold; indicating that the mandate is binding for many firms. Using a regression discontinuity design around the threshold and a differencein-differences analysis around the law’s introduction; we find robust evidence that forcing firms to have large boards lowers performance and value. At the threshold; operating return on assets drops by 2-3 percentage points and Tobin’s Q by 0.20-0.25; with similar declines for treated firms after the law’s introduction. Consistent with the main result; we also observe that firms above the threshold are more likely to engage in value-destroying acquisitions. | |||||
| 143 | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2881408 | 341 | Can Shareholder Proposals Hurt Shareholders? Evidence from SEC No-Action Letter Decisions | Working Paper | 2018 | This paper studies the market reaction to SEC no-action letter decisions that determine whether a shareholder proposal can be excluded from the proxy statement. We find that over the period 2007-2016; the market reacted positively when the SEC permitted exclusion. Investors appear to have been most skeptical about proposals related to corporate governance and proposals at high-profit firms; suggesting that investors believe some proposals can hurt shareholders by disrupting companies that are already performing well. | |||
| 144 | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2862397 | 161 | Slashing Liquidity Through Asset Purchases: Evidence from Collective Bargaining | Working Paper | 2018 | Using a hand-matched data set on 27;284 union contracts; I provide novel evidence on the strategic use of corporate liquidity in contract negotiations with unions. I focus on the idea that firms have incentives to hold low levels of liquid assets during union negotiations; because high levels of liquidity can encourage unions to raise their wage demands. My main finding is that firms reduce liquidity before contract negotiations primarily through increased asset purchases. Specifically; firms increase asset purchases as a fraction of total assets by one-third before contract negotiations; and finance those purchases by a reduction in cash balances and an increase in leverage. In contrast; firms do not increase investments; R&D; dividends; or repurchases before contract negotiations. My identification strategy exploits the exogenous timing of union contract expirations; which shifts firms' net benefits from liquidity. The evidence indicates that firms reduce liquidity to gain strategic advantages in contract negotiations with unions in ways that simultaneously allow managers to maintain the level of resources under their control. | |||
| 145 | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2937497 | 69 | Can Relationship Banking Reduce Firms' IPO Underpricing? | Working Paper | 2018 | IPO underpricing harms pre-existing shareholders and reduces the capital firms can raise to fund their growth. This paper shows that relationship banking can reduce IPO underpricing by decreasing information uncertainty. I develop a theoretical model showing that good firms – those with a lower dispersion of market value – are harmed and bad firms benefit from IPO price uncertainty when there is no borrowing and; thus; no distinguishing information on firm quality. When investors receive signals about firm value only from publicly observable transaction lending; good firms benefit while bad firms suffer. However; when firms have access to loans through relationship banks and when such lending decisions are kept confidential; firms experience reduced IPO price uncertainty; which benefits both good and bad firms. I confirm this result empirically through difference-in-differences and reduced form instrumental variable regression designs. I use variation in the strength of the lending relationship between IPO firms and their underwriters generated by the repeal of the Glass-Steagall Act in 1999; which allowed commercial banks with close ties to their client firms to underwrite those firms’ equity issuances. | |||
| 146 | http://ssrn.com/abstract=2927722 | 68 | The JOBS Act and Post IPO Performance of EGC Firms | Working Paper | 2018 | This study examines whether the Jumpstart Our Business Startups Act (JOBS Act) makes it possible for lower quality firms to go public in terms of worse post IPO performances. The JOBS Act creates a new category of issuer; the Emerging Growth Company (EGC); and eases disclosure requirements for IPO firms with EGC status. Measuring firm’s post IPO performances using different profitability margin ratios and stock returns; I find that post IPO profitability within four years is significantly lower for IPO firms with EGC status after JOBS Act than IPO firms with EGC status before JOBS Act. Stock returns within four years post IPO are not significantly different. Taken together; the findings indicate that the JOBS Act’s eased disclosure requirements has made it possible for lower quality firms to go public and the market has not yet reacted negatively to lower quality firms going public. | |||
| 147 | http://ssrn.com/abstract=3043020 | 4 | Freedom of Choice in Pension Plans: Evidence from a Quasi-Natural Experiment | Working Paper | 2018 | Employee pension plans in most countries restrict participant choice to a pre-selected 'menu' of funds. How would funds react if participants are allowed to choose funds outside such a limited menu? This paper exploits a policy reform to study this counterfactual; using the launch of the Hong Kong Employee Choice Arrangement (ECA) in November 2012. I find that funds charge lower fees after the enforcement of ECA. Meantime; they adopt a less active investing strategy and gross return deteriorates. Consistent with funds' strategy to compete on price at the cost of quality; flow exhibits stronger sensitivity to fee than activeness. The findings show that freedom of choice affects investors' wealth indirectly through the endogenous response of funds; not directly through investors' capital allocation decisions. | |||
| 148 | http://ssrn.com/abstract=3083257 | 48 | Market Accessibility; Corporate Bond ETFs; and Liquidity | Working Paper | 2018 | I find that market accessibility ex ante plays an important role in how the underlying assets' liquidity changes when a basket security is introduced. First; using a multi-market version of the Kyle model; I show that the less (more) accessible the underlying market is; the more its liquidity improves (deteriorates) when basket trading becomes available. Second; I empirically test these predictions using corporate bonds before and after the introduction of ETFs. Consistent with the model; liquidity improvement is larger for highly arbitraged; low-volume; high-yield; and long-term bonds and for 144A bonds to which retail investor access is not permitted. | |||
| 149 | http://ssrn.com/abstract=1018719 | 424 | 18 | How Firms Respond to Being Rated | SMJ | 2010 | 31 | 1097-0266 | While many rating systems seek to help buyers overcome information asymmetries when making purchasing decisions; we investigate how these ratings also influence the companies being rated. We hypothesize that ratings are particularly likely to spur responses from firms that receive poor ratings; and especially those that face lower-cost opportunities to improve or that anticipate greater benefits from doing do. We test our hypotheses in the context of corporate environmental ratings that guide investors to select “socially responsible;” and avoid “socially irresponsible;” companies. We examine how several hundred firms respond to corporate environmental ratings issued by a prominent independent social rating agency; and take advantage of an exogenous shock that occurred when the agency expanded the scope of its ratings. Our study is among the first to theorize about the impact of ratings on subsequent performance; and we introduce important contingencies that influence firm response. These theoretical advances inform stakeholder theory; institutional theory; and economic theory. |
| 150 | http://ssrn.com/abstract=2718862 | 423 | The Small IPO and the Investing Preferences of Mutual Funds | JCF | 2017 | 47 | 151-173 | We examine how liquidity and return concerns at large mutual funds explain their diminished participation in small IPOs since the late 1990s. Using 5;825 IPOs and portfolio-level information for 37;052 funds; we exploit Russia’s 1998 debt default as an exogenous shock to funds’ liquidity concerns. After 1998; large funds invested in fewer small/illiquid IPOs and more large/liquid IPOs than smaller funds and received higher returns for small IPO investments. Given increased fund sizes since 1990; these results are consistent with fund’s liquidity concerns and their demand for greater compensation when investing in transactions representing a trivial fraction of fund assets. | |
| 151 | http://ssrn.com/abstract=2939012 | 289 | Inverted Fee Venues and Market Quality | Working Paper | 2018 | Stock exchanges compete for order flow through their fee models. A traditional model pays a rebate to the liquidity supplier; and an inverted model pays a rebate to liquidity demanders. We examine the impact of inverted fee models on market quality using an exogenous shock to inverted venue market share created by a regulatory intervention; the SEC Tick Size Pilot. We find that trading on inverted venues improves pricing efficiency and liquidity when the minimum tick size is binding. We show that by offering traders sub-tick price improvement; inverted fee venues enhance competition for liquidity provision and increase information impounded into prices through limit orders. | |||
| 152 | http://ssrn.com/abstract=2517867 | 43 | Do Demand Curves for Stocks Slope Down?: Evidence from a Regulation Induced Supply Shock | Working Paper | 2017 | The Securities and Exchange Board of India (SEBI); the Indian market regulator; stipulated on June 4; 2010 that all listed non-government companies in India must have a minimum non-promoter shareholding of 25 percent and government companies must have a minimum non-promoter shareholding of 10 percent. SEBI sought to improve market liquidity and help investors discover fair prices. 201 firms were affected by the regulation. Affected firms were given three years to comply. The companies complied on different dates over the three-year window. We treat the sale of shares by promoters in response to the regulation as an exogenous supply shock and test if the demand curves for stocks slope down. We find that shares of companies where promoters sold shares in response to the regulation experience a negative excess return of 5.43 percent during the issue week and a negative excess return of 2.42 percent on the issue date. We do not find any evidence of price reversal immediately after the event and hence rule out the price pressure hypothesis. We also do not find any negative abnormal price reaction either on the date of announcement of the regulation by SEBI or on the date of announcement of share sale by promoters. This rules out any information-related price effects. Our findings are consistent with a downward sloping demand curve for stocks. We also find a larger negative price reaction for government companies; which is consistent with highly regulated and constrained firms having a steeper demand curve. | |||
| 153 | http://ssrn.com/abstract=2789000 | 179 | Does Corporate Culture Affect Bank Risk-Taking? Evidence from Loan-Level Data | Working Paper | 2018 | Using comprehensive corporate and retail loan data; we show that the corporate culture of banks explains their risk-taking behaviour. Banks whose corporate culture leans towards aggressive competition are associated with riskier lending practices: higher approval rate; lower borrower quality; and fewer covenant requirements. Consequently; these banks incur larger loan losses and make greater contributions to systemic risk. The opposite behaviour is observed among banks whose culture emphasises control and safety. Our findings cannot be explained by heterogeneity in a bank’s business model; CEO compensation incentives; and CEO characteristics. We use an exogenous shock to the US banking system during the 1998 Russian default crisis to support a causal inference. | |||
| 154 | http://ssrn.com/abstract=2756172 | 62 | Do Co-Opted Directors Mitigate Managerial Myopia? Evidence from R&D Investments | Finance Research Letters | 2016 | 17 | 285-289 | We explore the effect of co-opted directors on R&D investments. Co-opted directors are those appointed after the incumbent CEO assumes office. Because a co-opted board represents a weakened governance mechanism that diminishes the probability of executive removal; managers are less likely to be removed and are more motivated to make long-term investments. Our evidence shows that board co-option leads to significantly higher R&D investments. To draw a causal inference; we execute a quasi-natural experiment using an exogenous regulatory shock from the Sarbanes-Oxley Act (SOX). Our results reveal that the effect of board co-option on R&D is more likely causal. | |
| 155 | http://ssrn.com/abstract=2591481 | 739 | Do Institutional Investors Demand Public Disclosure? | RFS | 2016 | 29 | 3245–3277 | We examine the effect of institutional ownership on corporate disclosure policy using a regression discontinuity design. Using novel data that encompasses every 8-K filing between 1996 and 2006; we find that positive shocks to institutional ownership around Russell index reconstitutions increase the quantity; form; and quality of disclosure. Compared to those at the bottom of the Russell 1000 index; firms at the top of the Russell 2000 index increase institutional ownership by 9.8%; and disclose 4.7% longer 8-K filings with 21.3% more embedded graphics. This incremental disclosure significantly increases the information content of 8-K filings for the market and for analysts. | |
| 156 | http://ssrn.com/abstract=2528891 | 1224 | 1 | The effect of institutional ownership on firm transparency and information production | JFE | 2015 | 117 | 508-533 | We examine the effects of institutional ownership on firms’ information and trading environments using the annual Russell 1000/2000 index reconstitution. Characteristics of firms near the index cutoffs are similar; except that firms in the top of the Russell 2000 have discontinuously higher proportional institutional ownership than firms in the bottom of the Russell 1000 primarily due to indexing and benchmarking strategies. We find that higher institutional ownership is associated with greater management disclosure; analyst following; and liquidity; resulting in lower information asymmetry. Overall; indexing institutions’ predilection for lower information asymmetries facilitates information production; which enhances monitoring and decreases trading costs. |
| 157 | http://ssrn.com/abstract=3049233 | 13 | Enforceability and the Effectiveness of Laws and Regulations | Working Paper | - | Tunneling by corporate insiders poses a threat to the Chinese stock market. Controlling shareholders can divert assets from listed firms or coerce firms to serve as guarantors on questionable loans. A new rule; enacted in 2005; prohibits asset diversion for 'non-operational' purposes; and firms complying with this rule experience a reduction in related party transactions; an increase in investment and dividends; and better performance. Another contemporary rule; aimed to standardize practice of firms providing loan guarantees; has very little impact on firms. We attribute the differences in the design; implementation and effectiveness of the rules to different enforcement cost of the two types of tunneling activities. Relative to loan guarantees; it is much easier for a third party to determine (ex ante) whether a particular form of diversion destroys firm value; and recognize and verify (ex post) the losses to the firm resulted from the diversion. Our results highlight the importance of enforceability: laws and regulations that can be enforced at lower costs are more likely to succeed; especially in countries with underdeveloped formal institutions. | |||
| 158 | How Does Competition Affect Bank Capital Structure? Evidence from a Natural Experiment | JF | 2010 | 65 | 1540-6261 | We exploit U.S. bank geographic deregulation over 1986-2014 using a dynamic partial adjustment methodology to test how changes in competition affect bank capital structure. We find that intensified competition induced by deregulation significantly increases bank target capital ratios and facilitates faster adjustment towards those targets. Investigation of the channels underlying the results suggests a very significant capital regime change associated with the Riegle-Neal Act; which first allowed interstate branching. Results are robust to alternative competition and capital measures; different specifications and subsamples; and falsification tests. Our findings imply previously undiscovered social benefits from deregulation in terms of improved financial stability. | |||
| 159 | http://ssrn.com/abstract=1364470 | 6755 | 16 | The Changing of the Boards: The Impact on Firm Valuation of Mandated Female Board Representation | QJE | 2012 | 127 | 137-197 | In 2003; a new law required that 40 percent of Norwegian firms’ directors be women – at the time only nine percent of directors were women. We use the pre-quota cross-sectional variation in female board representation to instrument for exogenous changes to corporate boards following the quota. We find that the constraint imposed by the quota caused a significant drop in the stock price at the announcement of the law and a large decline in Tobin’s Q over the following years; consistent with the idea that firms choose boards to maximize value. The quota led to younger and less experienced boards; increases in leverage and acquisitions; and deterioration in operating performance; consistent with less capable boards. |
| 160 | http://ssrn.com/abstract=2488955 | 440 | Breaking the Glass Ceiling? The Effect of Board Quotas on Female Labor Market Outcomes in Norway. | NBER Working Paper | 2014 | In late 2003; Norway passed a law mandating 40 percent representation of each gender on the board of publicly limited liability companies. The primary objective of this reform was to increase the representation of women in top positions in the corporate sector and decrease gender disparity in earnings within that sector. We document that the newly (post-reform) appointed female board members were observably more qualified than their female predecessors; and that the gender gap in earnings within boards fell substantially. While the reform may have improved the representation of female employees at the very top of the earnings distribution (top 5 highest earners) within firms that were mandated to increase female participation on their board; there is no evidence that these gains at the very top trickled-down. Moreover the reform had no obvious impact on highly qualified women whose qualifications mirror those of board members but who were not appointed to boards. We observe no statistically significant change in the gender wage gaps or in female representation in top positions; although standard errors are large enough that we cannot rule economically meaningful gains. Finally; there is little evidence that the reform affected the decisions of women more generally; it was not accompanied by any change in female enrollment in business education programs; or a convergence in earnings trajectories between recent male and female graduates of such programs. While young women preparing for a career in business report being aware of the reform and expect their earnings and promotion chances to benefit from it; the reform did not affect their fertility and marital plans. Overall; in the short run the reform had very little discernible impact on women in business beyond its direct effect on the newly appointed female board members. | |||
| 161 | http://ssrn.com/abstract=2257769 | 206 | Does Mandatory Gender Balance Work? Changing Organizational Form to Avoid Board Upheaval | JCF | 2014 | 28 | 152-168 | Norway is the first; and so far only; country to mandate a minimum fraction of female and male directors on corporate boards. We find that after a new gender balance law surprisingly stipulated that the firm must be liquidated unless at least 40% of its directors are of each gender; half the firms exit to an organizational form not exposed to the law. This response suggests that forced gender balance is costly. These costs are also firm-specific; because exit is more common when the firm is non-listed; successful; small; young; has powerful owners; no dominating family owner; and few female directors. These characteristics reflect high costs of involuntary board restructuring and low costs of abandoning the exposed organizational form. Correspondingly; certain unexposed firms hesitate to become exposed. Overall; we find that mandatory gender balance may produce firms with either inefficient organizational forms or inefficient boards. | |
| 162 | http://ssrn.com/abstract=2746786 | 1072 | How Costly Is Forced Gender-Balancing of Corporate Boards? | Working Paper | 2016 | In 2005; Norway became the first country to mandate gender-balanced corporate boards. We hypothesize that a gender quota reduces director CEO experience and increases board independence. Contrary to prior research; our robust performance estimates fail to reject an overall value-neutral effect of the quota; even for firms with all-male boards. We also show that; while boards lost some CEO experience; firms did not increase board size (to retain key male directors) or change legal form (to avoid the quota); and managed to maintain board network power. We conclude that investors and firms alike viewed the quota as a relatively low-cost constraint. | |||
| 163 | http://ssrn.com/abstract=1636047 | 3331 | 11 | A Female Style in Corporate Leadership? Evidence from Quotas | American Economic Journal: Applied Economics | 2013 | 5 | 136-169 | This paper studies the impact of gender quotas for corporate board seats on corporate decisions. We examine the introduction of Norway’s 2006 quota; comparing affected firms to other Nordic companies; public and private; that were unaffected by the rule. We find that affected firms undertook fewer workforce reductions than comparison firms; increasing relative labor costs and employment levels and reducing short-term profits. The effects are strongest among firms without female board members beforehand and are present even for boards with older and more experienced members afterward. The boards appear to be affecting corporate strategy in part by selecting likeminded executives. |
| 164 | http://ssrn.com/abstract=821804 | 1434 | 55 | The Effect of Banking Crisis on Bank-Dependent Borrowers | JFE | 2011 | 99 | 116-135 | We provide causal evidence that adverse capital shocks to banks affect their borrowers' performance negatively. We use an exogenous shock to the U.S. banking system during the Russian crisis of Fall 1998 to separate the effect of borrowers' demand of credit from the supply of credit by the banks. Firms that primarily relied on banks for capital suffered larger valuation losses during this period and subsequently experienced a higher decline in their capital expenditure and growth rates as compared to firms that had access to the public-debt market. Consistent with an adverse shock to the supply of credit; crisis-affected banks decreased the quantity of their lending and increased loan interest rates in the post-crisis period significantly more than the unaffected banks. Our results suggest that the global integration of financial sector can contribute to the propagation of financial shocks from one economy to another through the banking channel. |
| 165 | http://ssrn.com/abstract=2789168 | 103 | Bank Capital and Loan Monitoring | Working Paper | 2016 | This paper empirically examines whether bank capital improves or adversely affects banks’ monitoring incentives. We have two main results. First; using loan quality as an ex-post proxy for the outcome of monitoring effort; we show that bank capital is positively associated with loan quality over the period 1994-2014. Second; using monitoring related salary expense as an ex-ante proxy that captures quality and quantity of labor input into monitoring effort; we document the channel through which bank capital is positively associated with loan quality. Numerous additional tests and robustness checks including using fair values of loans; instrumental variable approach; natural experiments of the Russian Bond Crisis in 1998 and the Asian Financial Crisis in 1997 as exogenous shocks to bank capital; confirm our main findings. Overall; evidence is consistent with the prediction in Mehran and Thakor (2011) that bank capital strengthens bank’s monitoring incentives. | |||
| 166 | http://ssrn.com/abstract=3081125 | 159 | The Price Effects of Liquidity Shocks: A Study of SEC's Tick-Size Experiment | Working Paper | 2017 | This paper studies the SEC's pilot program that increased the tick size for approximately 1;200 randomly chosen stocks. We provide causal evidence of a negative impact of a larger tick size on stock prices equivalent to roughly $7 billion investor loss. We investigate direct and indirect effects of the tick size change on stock prices. We find that treated stocks experience a reduction in liquidity; but find no significant change in liquidity risk. Test stocks experience a decline in price efficiency consistent with an increase in information risk. The evidence suggests that trading frictions affect the cost of capital. | |||
| 167 | http://ssrn.com/abstract=1107562 | 527 | 30 | Does Credit Competition Affect Small-Firm Finance? | JF | 2010 | 65 | 795-1240 | States were granted authority to limit interstate branching following passage of Federal legislation in 1994 relaxing restrictions on geographical expansion by banks. We show that differences in state's branching restrictions affected credit supply. In states more open to branching; small firms borrow at interest rates 25 to 45 basis points lower than firms operating in less open states. Firms in open states also are more likely to borrow from banks. Despite this evidence that interstate branch openness expands credit supply; we find no effect of variation in state restrictions on branching on small-firm borrowing or other indicators of credit constraints. |
| 168 | Relationship Lending in Shadow Banking: Impacts of Financial Firms’ Cross-Holding Relation in Money Market Funds | Working Paper | 2017 | This paper explores the nature and impacts of shadow banks’ relationship lending by analyzing bilateral-connected financial firms who crossly hold each other’s debt through their own affiliated money market funds (MMFs). Using novel MMFs’ monthly holdings data. I show that in the context of 2011 Eurozone crisis nonEuropean financial firms surprisingly increased their MMFs’ stakes on bilateralconnected European financial firms while MMFs generally reduced their exposure to European issuers. I provide evidences that this bias represents reciprocity between thebilateral-connectedfinancialfirms. In return the European financial firms through their affiliated MMFs accepted more insecure debt than secure ones from their nonEuropean partners during the same period. Issuer- or fund-characteristics do not explaintheresults. Afurtherinvestigationshowsthatthecross-holdingrelationaffects also issuers unconnected with MMFs because they are unable to raise money from new funds in a short time after their old lenders cut off the financing. | |||||
| 169 | http://ssrn.com/abstract=2480511 | 336 | 2 | Personal Lending Relationships | JF | 2018 | 73 | May-49 | I identify the effects of personal relationships on loan contracting using executive deaths and retirements at other firms as a source of exogenous variation in executive turnover. After plausibly-exogenous turnover; borrowers choose lenders with which their new executive's have personal relationships 4.1 times as frequently; and loans from these lenders have 20 basis points lower spreads and 12.5% larger amounts. Personal relationships benefit firms across loan terms; especially during macroeconomic downturns. Increased financial flexibility from personal relationships insulated firms from financial shocks during the recent financial crisis: they exhibited less constrained investment and were less likely to layoff employees. |
| 170 | http://ssrn.com/abstract=3114265 | 44 | The Impact of Standard Setting on Individual Investors: Evidence From SFAS 109 | Working Paper | 2018 | This study uses data on the stock holdings of individual investors to examine how they respond to a change in accounting standards. We examine the response of individual investors to firms’ adoptions of FASB Standard 109 (Accounting for Income Taxes); which made significant modifications to the accounting for and reporting of income taxes. We evaluate the extent to which these modifications provided additional decision-useful information to individual investors; thereby lowering the information disadvantage of individual investors relative to more sophisticated investors. Using the staggered adoption of SFAS 109; we predict and find evidence that individual investors increase their holdings in firms more effected by the adoption of SFAS 109. We find that the increase in holdings is concentrated among less sophisticated individual investors. Additionally; we observe an increase in holdings of firms with an immaterial adjustment to retained earnings upon adoption; suggesting our results are a function of an increase in information provided to investors and not driven by heuristic trading strategies (i.e.; book-to-market ratio). Collectively; our results are consistent with SFAS 109 providing additional decision-useful information to individual investors; reducing their information disadvantage relative to other investors. Recently; there have been criticisms of the costs of FASB accounting standards relative to their benefits. We add to this debate by evaluating how one FASB standard affects the flow of information to individual investors. | |||
| 171 | http://ssrn.com/abstract=3010666 | 11 | Can Gender Quotas in Candidate Lists Empower Women? Evidence from a Regression Discontinuity Design | IZA Discussion Paper | 2017 | We provide a comprehensive analysis of the short- and medium-term effects of gender quotas in candidate lists using evidence from Spain; where quotas were introduced in 2007 in municipalities with more than 5;000 inhabitants; and were extended in 2011 to municipalities with more than 3;000 inhabitants. Using a Regression Discontinuity Design; we find that quotas raise the share of women among council members but they do not affect the quality of politicians; as measured by their education attainment and by the number of votes obtained. Moreover; within three rounds of elections; women fail to reach powerful positions such as party leader or mayor; and we do not observe any statistically or economically significant changes in the size and composition of public finances. | |||
| 172 | Gender Quotas and Female Leadership: A Review | World Development Report Background Papers | 2011 | Despite significant advances in education and political participation; women remain underrepresented in leadership positions in politics and business across the globe. In many countries; policy-makers have responded by introducing gender quotas in politics and increasingly; many have expressed an interest in requiring gender quotas for corporate boards. This paper reviews the evidence on the equity and efficiency impacts of gender quotas for political positions and corporate board membership. Adoption of quotas by countries is likely correlated with attitudes about women within a country. However; the randomized allocation of political quotas in India and the unanticipated introduction of board quotas in Norway have allowed researchers to provide causal analysis and this review focuses on evidence from these two settings. The Indian evidence demonstrates that quotas increase female leadership and influences policy outcomes. In addition; rather than create a backlash against women; quotas can reduce gender discrimination in the long-term. The board quota evidence is more mixed. While female entry on boards is correlated with changing management practices; this change appears to adversely influence short-run profits. Whether this is partly driven by negative perceptions of female management choices remains an open question. Returning to the broader cross-country context; we find evidence in many different settings that political and corporate entities often act strategically to circumvent the intended impact of quotas. Consistent with this; we report suggestive evidence that the design of the quota and selection systems matter for increasing female leadership. | |||||
| 173 | http://ssrn.com/abstract=2954965 | Gender Quotas in the Board Room and Firm Performance: Evidence from a Credible Threat in Sweden | Working Paper | 2017 | Board room quotas have recently received an increasing amount of attention. This paper provides novel evidence on firm performance from an exogenous change in female board participation in Sweden. We use the credible threat; aimed at listed firms; of a quota law enacted by the Swedish deputy prime minister as an exogenous variation. The threat caused a substantial and rapid increase in the share of female board members in firms listed on the Stockholm stock exchange. This increase was accompanied by an increase in different measures of firm performance in the same years; which were related to higher sales and lower labor costs. | ||||
| 174 | http://ssrn.com/abstract=2543871 | 136 | Mandatory Gender Balance and Board Independence | European Financial Management | 2016 | 22 | 43189 | We find that forcing radical gender balance on corporate boards is associated with increased board independence and reduced firm value. A mandatory 40-percent gender quota shifts the average fraction of independent directors from 46 to 67 percent because female directors are much more often independent directors than males are. This shock to board independence via gender quotas is strongest in small; young; profitable; non-listed firms with powerful stockholders and few female directors. Such firms also lose the most value; presumably because they need advice from dependent directors the most and monitoring by independent directors the least. | |
| 175 | http://ssrn.com/abstract=2846330 | 67 | Gender Quotas: Challenging the Boards; Performance and the Stock Market | IZA Discussion Paper | 2016 | - | - | In 2011; Italy introduced gender quotas for boards of directors of companies listed on its stock market. Comparing before and after the reform within firms; we find that quotas are associated with a higher share of female board directors; higher levels of education of board members; and a lower share of older members. We then use the reform period as an instrument for the share of female directors and find no significant impact on firms' performance. Interestingly; we find that the share of female directors is associated with a lower variability of stock market prices. We also run event studies on the stock price reaction to the introduction of gender quotas. A positive effect of the quota law on stock market returns emerges at the date of the board's election. Our results are consistent with gender quotas giving rise to a beneficial restructuring of the board; which is positively received by the market. | |
| 176 | https://ssrn.com/abstract=1324873 | 1715 | Testing asymmetric-information asset pricing models | RFS | 2012 | 25 | 1366-1413 | Modern asset pricing theory is based on the assumption that investors have heterogeneous information. We provide direct evidence of the importance of information asymmetry for asset prices and investor demands using three natural experiments that capture plausibly exogenous variation in information asymmetry on a stock-by-stock basis for a large set of U.S. companies. Consistent with predictions derived from an asymmetric-information rational expectations model with multiple assets and multiple signals; we find that prices and uninformed investors' demands fall as information asymmetry increases. In the cross-section; these falls are larger; the more investors are uninformed; the larger and more variable is stock turnover; the more uncertain is the asset's payoff; and the more precise is the lost signal. We show that at least part of the fall in prices is due to expected returns becoming more sensitive to liquidity risk. Our results confirm that information asymmetry has a substantial effect on asset prices and imply that a primary channel linking asymmetry to prices is liquidity. | |
| 177 | https://ssrn.com/abstract=2919926 | 430 | Busy Directors: Strategic Interaction and Monitoring Synergies | Working Paper | 2018 | We derive conditions for when having a busy director on the board is harmful to shareholders and when it is beneficial. Our model allows directors to condition their monitoring choices on their co-directors' choices and to experience positive or negative monitoring synergies across firms. Whether busyness benefits or harms shareholders depends on whether directors' effort choices are strategic substitutes or complements and on the sign of the cross-firm synergies. Our empirical analysis exploits plausibly exogenous shocks that make directors busier on one board and examines how this spills over to other boards. Our results suggest that monitoring efforts typically are strategic complements; except when a firm finds itself facing a crisis. Consistent with the model; we find that busy directors increase monitoring at spillover firms when synergies are positive (which we show increases expected firm value) and reduce monitoring at spillover firms when synergies are negative (which we show reduces expected firm value). | |||
| 178 | https://ssrn.com/abstract=3119426 | 123 | The Effect of Minority Veto Rights on Controller Tunneling | Working Paper | 2018 | A central challenge in the regulation of controlled firms is curbing controller tunneling. As independent directors and fiduciary duties are widely seen as not up to the task; a number of jurisdictions have given minority shareholders veto rights over these transactions. To assess these rights’ efficacy; we exploit a 2011 regulatory reform in Israel that gave the minority the ability to veto pay packages of controllers and their relatives (“controller executives”). We find that the reform curbed the pay of controller executives and led some controller executives to quit their jobs; or work for free; in circumstances suggesting their pay would not have received approval. These findings suggest that minority veto rights can help curb controller tunneling. | |||
| 179 | https://ssrn.com/abstract=3189273 | 88 | Friends at WSJ: Journalist Connections; News Tone; and Stock Returns | Working Paper | 2018 | This paper studies the effect of the firm–journalist network on news tone and stock returns. Using a unique dataset on the firm's and the CEO's connections to Wall Street Journal (WSJ) reporters; I find that such connections lead to markedly more favorable coverage of corporate M&A news and to better market reactions to the mergers. The effect on the financial market is larger for the deals featured on the front page of the WSJ. For identification; I instrument the connected coverage with the reporters' turnover and find similar results. Furthermore; using Rupert Murdoch's acquisition of the WSJ as an exogenous shock to journalistic independence; I show that firms previously connected to Mr. Murdoch receive better coverage and more positive stock returns after the ownership change. | |||
| 180 | ECB Policies Involving Government Bond Purchases: Impact and Channels | RF | 2018 | 1 | Jan-44 | We evaluate the effects of three European Central Bank (ECB) policies (the Securities Markets Programme (SMP); the Outright Monetary Transactions (OMT); and the Long-Term Refinancing Operations (LTROs)) on government bond yields. We use a novel Kalman-filter augmented event-study approach and yields on euro-denominated sovereign bonds; dollar-denominated sovereign bonds; corporate bonds; and corporate credit default swap (CDS) rates to understand the channels through which policies reduced sovereign bond yields. On average across Italy; Spain and Portugal; considering both the SMP and the OMT; yields fall considerably. Decomposing this fall; default risk accounts for 37% of the reduction in yields; reduced redenomination risk for 13%; and reduced market segmentation effects for 50%. Stock price increases in distressed and core countries suggest that these policies also had beneficial macro-spillovers. | |||
| 181 | https://ssrn.com/abstract=2949896 | 82 | The informational effects of tightening oil and gas disclosure rules | CAR | 2018 | We exploit two regulatory shocks to examine the informational effects of tightening pre-existing mandatory disclosure rules. Canadian National Instrument 51-101 in 2003 and the United States rule “Modernization of Oil and Gas Reporting” in 2009 introduced quasi-identical amendments which effectively tightened the rules governing oil and gas reserve disclosures in both countries. We document significant changes in firms’ reporting outcomes when the new regulations are introduced. We also find that the reserve disclosures filed under the new regulations are more closely associated with stock price changes and with decreases in bid-ask spreads. Our findings are robust to controlling for other confounding factors such as time trends; other information disclosed simultaneously; financial reporting incentives; mispricing and monitoring efforts. | |||
| 182 | https://ssrn.com/abstract=2630944 | 145 | Revisiting the Monitoring Role of Sovereign Wealth Funds - Evidence from a Quasi-Experimental Setting | Working Paper | 2018 | This paper examines the monitoring role of sovereign wealth funds (SWFs). SWFs are state-owned investment organizations and constitute a unique but heterogeneous class of institutional ownership. Using a shock in the U.S. investment strategy of the Norwegian Government Pension Fund Global (NGPF); we find that portfolio firms significantly improve in terms of firm performance over a four-year period following the inclusion to the NGPF investment portfolio. Cross-sectional tests further reveal two main insights: (1) Firm performance improves particularly for portfolio firms for which NGPF exhibits monitoring incentives (i.e.; related to investment risk and to firms’ governance and shareholder coordination deficiencies). (2) While direct monitoring activities (i.e.; voting dissent at shareholder meetings) yield no explanatory power; two indirect monitoring mechanisms; that is; the threat of public voting dissent and the threat of selling shares; significantly explain our documented improvements in firm performance. Our findings are generalizable to active and governance-sensitive SWFs and suggest that these investors create value for portfolio firms through two distinct channels: the threat of active engagement and the threat of exit. | |||
| 183 | https://ssrn.com/abstract=2630944 | 268 | Equity Short Sales and Options: Complements or Substitutes? | Working Paper | 2018 | This paper studies whether equity short sales and options are complements or substitutes and finds that they are substitutes when the underlying market faces short-selling constraints. This substitutability is associated with implications for stock price volatility and stock market liquidity: Stocks that are subject to short-sale restrictions and have exchange-traded options are more volatile and less liquid than both constrained stocks without options and unconstrained stocks. Traders predominantly use at-the-money options to substitute equity short sales. | |||
| 184 | The Costs of Political Connections | RF | 2018 | 22 | 849-876 | Using plant-level data from France; we document a potential cost of political connections for firms that is not offset by other benefits. Politically connected CEOs alter corporate employment decisions to help (regional) politicians in their re-election efforts by having higher job and plant creation rates; and lower rates of destruction in election years; especially in politically contested areas. There is little evidence that connected firms benefit from preferential access to government resources; such as subsidies or tax exemptions. Connected firms are less profitable in the cross-section and also experience a drop in profitability when a connected CEO comes to power. | |||
| 185 | https://ssrn.com/abstract=2012377 | Valuing Changes in Political Networks: Evidence from Campaign Contributions to Close Congressional Elections | RFS | 2015 | 28 | 3188–3223 | This paper investigates the value of firm political connections using a regression discontinuity design in a sample of close; off-cycle U.S. congressional elections. I compare firms donating to winning candidates and firms donating to losing candidates and find that postelection abnormal equity returns are 3% higher for firms donating to winning candidates. Connections to politicians serving on powerful congressional committees; such as appropriations and taxation; are especially valuable and impact contributing firms sales. Firms' campaign contributions are correlated with other political activities such as lobbying and hiring former government employees; suggesting that firms take coordinated actions to build political networks. | ||
| 186 | Learning to Take Risks? The Effect of Education on Risk-Taking in Financial Markets | RF | 2018 | 22 | 951-975 | We investigate whether acquiring more primary education has long-term effects on risk-taking behavior in financial markets. Using exogenous variation in education from a compulsory schooling change combined with wealth data for the Swedish population; we estimate the effect of education on stock market participation and on the share of financial wealth invested in stocks; conditional on participation. For men; an extra year of education increases market participation by two percentage points and the share of financial wealth allocated to stocks by 10%. We find suggestive evidence that greater financial wealth is a potential channel through which education increases participation; consistent with the existence of fixed costs. Lower risk aversion is a potential channel through which education increases the stock share. The reform has less effect on female schooling attainment and there is no evidence that this additional education affects women’s asset allocation. There is no evidence of spillovers to children. | |||
| 187 | https://ssrn.com/abstract=1455969 | 333 | Regulation NMS and market quality | FM | 2012 | 41 | 285-317 | We show that both the quoted and effective spreads increased; the quoted depth decreased; and the market quality index decreased after the implementation of Regulation NMS (Reg NMS). We also find an increase in the price impact of trades and the dispersion of the pricing error after Reg NMS. The order execution speed is slower; the order fill rate is lower; and the order cancellation rate is higher for most trades after Reg NMS. Hence; contrary to the SEC’s belief; Reg NMS has proven to be detrimental to most traders. NASDAQ provided faster and more reliable executions than the NYSE/AMEX; and NASDAQ gained market shares from the NYSE/AMEX and other trading venues after Reg NMS. | |
| 188 | https://ssrn.com/abstract=686324 | 887 | Transparency and Liquidity: A Controlled Experiment on Corporate Bonds | RFS | 2007 | 20 | 235-273 | This article reports the results of an experiment designed to assess the impact of last-sale trade reporting on the liquidity of BBB corporate bonds. Overall; adding transparency has either a neutral or a positive effect on liquidity. Increased transparency is not associated with greater trading volume. Except for very large trades; spreads on newly transparent bonds decline relative to bonds that experience no transparency change. However; we find no effect on spreads for very infrequently traded bonds. The observed decrease in transactions costs is consistent with investors' ability to negotiate better terms of trade once they have access to broader bond-pricing data. | |
| 189 | https://ssrn.com/abstract=2634080 | 61 | Who Wins When Exchanges Compete? Evidence from Competition after Euro Conversion | RF | 2018 | 22 | 2037-2071 | Using euro conversion as the trigger; we examine what drives volume and spread changes when stock exchanges compete. Results show average trading costs on European exchanges decrease almost 9%; and turnover increases over 30%. Trading costs decline or remain unchanged on all exchanges; but volume deteriorates in some markets and improves in others. Frankfurt; Paris; London; and Milan are winners; while Madrid and Brussels lose volume. We examine the role of the spread-volume relation; firm characteristics; exchange trading rules; and country-level factors in determining these outcomes. Results suggest that euro conversion prompted competition by increasing transparency in market prices. | |
| 190 | https://ssrn.com/abstract=2286818 | 1636 | Short Selling and Earnings Management: A Controlled Experiment | JF | 2016 | 71 | 1251-1293 | During 2005 to 2007; the SEC ordered a pilot program in which one-third of the Russell 3000 index were arbitrarily chosen as pilot stocks and exempted from shortsale price tests. Pilot firms’ discretionary accruals and likelihood of marginally beating earnings targets decrease during this period; and revert to pre-experiment levelswhen the program ends. After the program starts; pilot firms are more likely to be caught for fraud initiated before the program; and their stock returns better corporate earnings information. These results indicate that short selling; or its prospect; curbs earnings management; helps detect fraud; and improves price efficiency. | |
| 191 | https://ssrn.com/abstract=1959615 | 811 | The Real Effects of Short-Selling Constraints | RFS | 2015 | 28 | 1737-1767 | We use a regulatory experiment (Regulation SHO) that relaxes short-selling constraints on a random sample of U.S. stocks to test whether capital market frictions have an effect on stock prices and corporate decisions.We find that an increase in short-selling activity causes prices to fall; and that small firms react to these lower prices by reducing equity issues and investment. These results not only provide evidence that short-selling constraints affect asset prices; but also confirm that short-selling activity has a causal impact on financing and investment decisions. | |
| 192 | https://ssrn.com/abstract=1412844 | 2705 | Shackling Short Sellers: The 2008 Shorting Ban | RFS | 2013 | 26 | 1363–1400 | In September 2008; the U.S. Securities and Exchange Commission (SEC) temporarily banned most short sales in nearly 1;000 financial stocks. We examine the ban's effect on market quality; shorting activity; the aggressiveness of short sellers; and stock prices. The ban's effects are concentrated in larger stocks; there is little effect on firms in the lower half of the size distribution. Although shorting activity drops by about 77% in large-cap stocks; stock prices appear unaffected by the ban. All but the smallest quartile of firms subject to the ban suffer a severe degradation in market quality. | |
| 193 | https://ssrn.com/abstract=2621598 | 289 | Potential Pilot Problems: Treatment Spillovers in Financial Regulatory Experiments | JFE | 2019 | The total effect of a regulatory change consists of direct effects and indirect effects (spillovers); but the standard difference-in-difference approach measures only direct effects and ignores potential indirect effects. By examining the short-sale aggressiveness during the 2007 full repeal of the uptick rule by the SEC; we find that short sellers become much more aggressive across the board; even in control stocks where the uptick rule is already suspended; which is consistent with positive and significant indirect effects on control stocks. In contrast; for the 2005 partial uptick repeal; short sellers become more aggressive in treatment stocks without an uptick rule; and less aggressive in control stocks with an uptick rule in place; which is consistent with negative indirect effects. We provide supportive evidence that the positive indirect effects in 2007 might be driven by aggressive broad list-based shorting; which includes both control and treatment stocks; and the negative indirect effects in 2005 might result from substitutions between control and treatment stocks. We conclude that regulatory pilot designers should carefully consider potential spillovers. | |||
| 194 | https://ssrn.com/abstract=2235064 | 1000 | The Effect of the Say-on-Pay in the U.S. | MS | 2019 | The Dodd-Frank Act mandated advisory shareholder votes on executive compensation. To isolate the effect of holding a Say-on-Pay vote we use an exemption provided to a group of firms based on their public float. We find that the regulation increased the level of CEO pay and the fraction of performance-linked pay in the companies that had to comply with the new rule. This increase was larger for CEOs who had higher ownership and longer tenure. Moreover; the market reacted negatively to the exemption from the Say-on-Pay rule suggesting general support for holding the Say-on-Pay votes. These effects are not present in placebo specifications in previous years or in different groups. | |||
| 195 | https://ssrn.com/abstract=2923404 | 282 | External Governance and Internal Resource Allocation* | Working Paper | 2018 | Internal capital markets are important determinants of investment and economic growth in the modern economy. We exploit a regulatory experiment impacting external governance and microdata on multinationals’ foreign operations to test whether external governance disciplines internal resource allocation. Firms treated with stronger external governance shift 30% more capital toward foreign subsidiaries with strong recent performance. Subsidiaries that receive capital experience no subsequent decline in productivity; suggesting the reallocation is productive. Our results provide new evidence on the scope and potential benefits of external governance and demonstrate the importance of cross-border spillovers of capital markets regulation. | |||
| 196 | https://ssrn.com/abstract=3343797 | 48 | Are Short Selling Restrictions Effective? | Working Paper | 2019 | In 2010 the SEC enacted Rule 201 (the alternative uptick rule); which triggers a temporary short selling restriction once a stock's intraday return falls below -10\%. We exploit this threshold-based regulation using a regression discontinuity design to study impacts on prices and trading. We find that this short selling restriction reduces short-sale; seller-initiated; and on-exchange volume; and in contrast to prior work; that it increases daily returns by 31 bps; with stronger effects in down markets. Although these direct effects align with policymaker objectives; potentially justifying the policy's large compliance cost; we also find significant offsetting spillover effects on peer stocks; consistent with cross-stock substitution by short sellers. | |||
| 197 | The Effect of Price Tests on Trader Behavior and Market Quality: An Analysis of Regulation SHO | JFM | 2008 | 11 | 84-111 | Using data from Regulation SHO's pilot program; we examine how price tests affect trader behavior and market quality; which are areas of interest given by the US Securities and Exchange Commission in evaluating these tests. After comparing sampled matched pairs of pilot and control stocks; we find that the removal of price tests benefit traders by allowing them to trade more aggressively by placing orders that receive quicker execution. Furthermore; concerns about the suspension of price tests leading to a degradation of market quality are unfounded. The evidence therefore suggests unambiguously that such tests should be removed. | |||
| 198 | https://ssrn.com/abstract=956106 | 529 | The Uptick Rule of Short Sale Regulation — Can it Alleviate Downward Price Pressure from Negative Earnings Shocks? | Rutgers Business Law Journal | 2008 | 5 | Jan-64 | This paper examines the effect of the uptick rule (including the bid test applicable to NASDAQ stocks) of short sale regulations on stock prices and short selling activities immediately after negative earnings surprises that occurred during the period of May to November 2005. It compares price paths and short selling activities of stocks restricted by the uptick rule with stocks that were exempted from the rule as a result of the SEC's Pilot Program. The study has not found any evidence that prices of stocks subject to the rule declined at a slower speed than prices of exempted stocks at times of stress. The two groups of stocks had similar levels of short sale volumes despite the rule's prohibition on short selling at minus or zero-minus ticks. For NYSE and AMEX stocks; our study shows that market short orders whose immediate executions were barred by the uptick rule found execution opportunities against the upcoming buy orders within 15 minutes after their conversion into limit orders at the legally shortable price. For NASDAQ stocks; our study shows that up bids occurred with high frequency after negative earnings surprises and jointly with price improvements they offered generous execution opportunities to short sale orders. | |
| 199 | https://ssrn.com/abstract=3135483 | 155 | The Real Effects of Financial Markets: Do Short Sellers Cause CEOs to Be Fired? | Working Paper | 2018 | We study the short-selling effect on forced CEO turnover. Using difference-in-differences analyses based on the SEC Regulation SHO Pilot Program; we find short selling increases the likelihood of forced turnover. Theories suggest two potential mechanisms: informed short sellers reveal negative information (Revelation); while uninformed short sellers manipulate prices (Manipulation). Evidence shows these two mechanisms coexist. Consistent with Revelation; we find stronger effects when firms have more earnings management and less competitive product markets. Consistent with Manipulation; we find stronger effects when firms have more growth opportunities and fewer blockholders. Evidence on long-run stock performance suggests the Manipulation mechanism dominates. | |||
| 200 | https://ssrn.com/abstract=2732784 | 326 | Information Spillovers and Cross Monitoring between the Stock Market and Loan Market | Working Paper | 2018 | We explore information spillovers and cross monitoring between the stock and loan markets around Regulation SHO. Our setting directly affects information production and monitoring in the stock market but is exogenous to the loan market. We find that only those firms without bank monitors exhibit significant stock price declines upon the announcement of SHO. SHO-affected firms with a bank loan experience a 24 basis point reduction in loan spreads.Our evidence suggests bi-directional information spillovers and cross monitoring between these two markets; and they affect the loan markets through the reduction in information monopoly that banks possess over their borrowers. | |||
| 201 | Short Selling and Real Earnings Management | Working Paper | 2018 | We study the causal effects of short selling on real earnings management by exploiting the exogenous shock to the short selling costs caused by a quasi-natural experiment under Regulation SHO. We find the removal of the short selling constraints leads to a reduction of real earnings management in pilot firms relative to non-pilot firms during the pilot program. The effect is more pronounced in firms where managers are more entrenched and institutional ownership is lower. Furthermore; the effect is significantly stronger among firms with more analyst coverage. Combined with existing evidence on accrual manipulation; our paper completes the picture of how short selling affects earnings management and indicates that short selling is superior to several other governance mechanisms; such as securities analysts; in constraining earnings management in that it does not lead to a shift from accrual-based earnings management to real earnings management. | |||||
| 202 | https://ssrn.com/abstract=3002525 | 234 | Short-Termist CEO Compensation in Speculative Markets: A Controlled Experiment | Working Paper | 2018 | In Bolton; Scheinkman; and Xiong (2006); existing shareholders use compensation contracts to encourage short-termism when stock prices are speculative; due to investor disagreement and short-sale constraints. Supporting this view; we find an exogenous removal of short-sale constraints curbs short-termist incentives as measured by longer CEO compensation duration. This effect is concentrated among stocks with high market speculation; characterized by investor disagreement. We also find removing short-sale constraints leads to longer CEO investment horizons and fewer stock repurchases. Our results further point to the role of short-term-oriented institutional ownership in corporate short-termism. | |||
| 203 | Short‐selling constraints and corporate payout policy | Accounting and Finance | 2017 | Jan-33 | This study shows that managers adjust corporate payout policies to counteract intensified short‐selling pressures following the removal of a short‐selling constraint. We use a controlled experiment; the Regulation SHO pilot program; to find that changing the short‐selling rule brings small companies to increase cash dividends; but not to repurchase more shares. Because paying dividends is costly; it is acknowledged as a more reliable signal of stock undervaluation than share repurchase. While our evidence suggests that companies select this payout strategy to deter predatory short sellers; it also shows that a short‐selling activity has a causal effect on corporate payout decisions. | ||||
| 204 | https://ssrn.com/abstract=3187686 | 106 | Capital Market Frictions and Human Capital Investment: Evidence from Workplace Safety around Regulation SHO | Working Paper | 2018 | Using Regulation SHO as natural experiment; we find that work-related injury and illness rates increase significantly at treated firms relative to the control group. The effect is more pronounced for firms in more competitive industries; firms in which labor has low negotiating power with management; and those that are more financially constrained or with poor corporate governance. Further; this effect is not explained by salient firm performance characteristics and is stronger for firms whose stock returns are less sensitive to injury rates. Overall; the results shed light on how capital market frictions impact firms’ investment in workplace safety. | |||
| 205 | Short sellers and corporate disclosures | Working Paper | 2014 | We examine how short sellers affect corporate disclosures using a natural experiment. From May 2005 to July 2007; the SEC implemented a pilot program by randomly selecting one third of Russell 3000 stocks and removing the short sale price tests for these stocks (referred to as pilot firms); leading to lower short-selling constraint; without changing the requirement for other firms (referred to as control firms). We compare the change in corporate disclosures between the pilot firms and the control firms during this period. We find that compared to the control firms; the pilot firms are more likely to issue good news management forecasts without changing the issuance of bad news forecasts. We also find that the decrease in short-selling constraint for the pilot firms (1) leads to an increased likelihood of bundling bad news forecasts with good news earnings announcements; and (2) does not lead to an increase in the optimistic bias in management forecasts. Overall; our evidence suggests that the reduction in short-selling constraint motivates managers to disclose good news in a more timely fashion. | |||||
| 206 | Short selling and the rounding of analysts’ forecasts | Finance Research Letters | 2018 | 25 | 47-54 | This paper examines the causal effect of short selling on analyst forecast precision by exploiting a regulatory change in short-sale constraints (Regulation SHO) as a natural experiment. I find that short selling increases analysts’ rounding of forecasts; which indicates that analysts allocate less effort to gathering precise information on firms with downward price pressure. In the cross-section; the effect of short selling on analyst forecast precision is stronger for firms with more firm-specific information and firms with low levels of institutional holdings. | |||
| 207 | http://ssrn.com/abstract=3092992 | 12 | The Causal Effect of Limits to Arbitrage on Asset Pricing Anomalies | Working Paper | 2017 | We examine the causal effect of limits to arbitrage on 11 well-known asset pricing anomalies using the pilot program of Regulation SHO; which relaxed short-sale constraints for a quasi-random set of pilot stocks; as a natural experiment. We find that the anomalies became weaker on portfolios constructed with pilot stocks during the pilot period. The pilot program reduced the combined anomaly long-short portfolio returns by 72 basis points per month; a difference that survives risk adjustment with standard factor models. The effect comes only from the short legs of the anomaly portfolios. | |||
| 208 | http://ssrn.com/abstract=2594717 | 360 | Short Selling and Firms’ Disclosure of Bad News: Evidence from Regulation SHO | Journal of Financial Reporting | 2019 | This study provides evidence that short selling influences the disclosure of bad news by firms. Managers have incentives to withhold or delay the release of bad news. As informed traders; short sellers enhance the informativeness of stock prices; especially related to bad news; potentially reducing the benefits and increasing the litigation and reputational costs of withholding bad news. We exploit a quasi-natural experimental setting provided by the introduction of SEC regulation SHO (Reg-SHO); which significantly reduced the constraints faced by short sellers for an effectively randomly selected subsample of U.S. firms (pilot firms). Relative to control firms; we find a significant increase in the likelihood of voluntary bad news management forecasts by the pilot firms; and firms provide these forecasts in a more timely manner. We also find that firms accelerate the release of quarterly bad earnings news. Each of these effects is stronger for subsamples of moderate (compared with extreme) bad news; firms facing high (compared with low) litigation risks; and firms that had a high likelihood of forecasting in the pre-Regulation SHO period. Similar effects are not observed for voluntary good news management earnings forecasts. A range of robustness tests reinforce our results. | |||
| 209 | http://ssrn.com/abstract=2546373 | 89 | Short-Sale Restrictions and Price Clustering: Evidence from SEC Rule 201 | Journal of Financial Services Research | 2018 | 54 | 345-367 | We provide a novel test of information-based theories of price clustering by examining trade; order; and inside quote price clustering during periods when information is removed from the market. We use a natural experiment of short-sale restrictions resulting from Securities and Exchange Commission (SEC) Rule 201 to more effectively determine the impact of information on price clustering; and in turn; more appropriately test the negotiation hypothesis. We find evidence of increased price clustering for trades; orders; and inside quotes during short-sale restrictions. Additionally; we document a dramatic increase in price clustering immediately before a Rule 201 trigger that is reduced once the restriction is triggered suggesting that the restriction may have a stabilizing effect. | |
| 210 | http://ssrn.com/abstract=2238236 | 897 | The Effects of Short-Selling Threats on Incentive Contracts: Evidence from an Experiment | RFS | 2017 | 30 | 1627-1659 | This paper examines the effects of a shock to the stock-price formation process on the design of executive incentive contracts. We find that an exogenous removal of short-selling constraints causes firms to convexify compensation payoffs by granting relatively more stock options to their managers. We also find that treated firms adopt new antitakeover provisions. These results suggest that when firms face the threat of bear raids; they incentivize managers to take actions that mitigate the adverse effects of unrestrained short selling. Overall; this paper provides causal evidence that financial markets affect incentive contract design. | |
| 211 | http://ssrn.com/abstract=2782559 | 374 | Short Selling and Stock Price Crash Risk: Causal Evidence from a Natural Experiment | Working Paper | 2017 | We examine the relation between short selling and stock price crash risk. To establish causality; we take advantage of a regulatory change from the Securities and Exchange Commission (SEC)’s Regulation SHO pilot program; which temporarily lifted short selling constraints for randomly designated stocks. Using Regulation SHO as a natural experiment setting in which to apply a difference-in-differences research design; we find that the lifting of short-sale constraints leads to a significant decrease in stock price crash risk. We further investigate the underlying channels through which short selling affects crash risk. We provide evidence suggesting that short selling reduces crash risk by constraining managerial bad news hoarding and improving corporate investment efficiency. The results of our study sheds light on the monitoring role of short selling and financial markets’ feedback effects on corporate financial reporting and corporate decision making. | |||
| 212 | http://ssrn.com/abstract=910614 | 728 | It's SHO Time! Short‐Sale Price Tests and Market Quality | JF | 2009 | 64 | 37-73 | We examine the effects of the Securities and Exchange Commission (SEC)‐mandated temporary suspension of short‐sale price tests for a set of Pilot securities. While short‐selling activity increases both for NYSE‐ and Nasdaq‐listed Pilot stocks; returns and volatility at the daily level are unaffected. NYSE‐listed Pilot stocks experience more symmetric trading patterns and a slight increase in spreads and intraday volatility after the suspension while there is a smaller effect on market quality for Nasdaq‐listed Pilot stocks. The results suggest that the effect of the price tests on market quality can largely be attributed to distortions in order flow created by the price tests themselves. | |
| 213 | http://ssrn.com/abstract=3038300 | 91 | The Impact of Financial Markets on Payout Policy: Evidence from Short Selling | Working Paper | 2017 | We investigate the impact of the stock-price formation process on payout policy using the Regulation SHO pilot program which removed short selling constraints and increased the prospect of short selling for a random sample of pilot firms. We find that pilot firms are more likely to increase dividends during this program. Subsequent to the ending of the program; these firms are less likely to increase dividends but continue to pay dividends and the propensity to repurchase shares increases too. Consistent with signaling and agency-based models; our results are more pronounced for firms with higher information asymmetry and weaker governance. We also provide evidence of a substitution effect between dividend increases and repurchases. Importantly we find that pilot firms are less likely to smooth dividends and that dividends are more likely to be financed through debt when the prospect of short selling increases. Overall; this study shows that stock price dynamics within the secondary financial market have a significant and long-lasting impact on firms’ payout policy. | |||
| 214 | http://ssrn.com/abstract=2380352 | 1434 | Do Short Sellers Exacerbate or Mitigate Managerial Myopia? Evidence from Patenting Activities | Working Paper | 2016 | We examine whether short sellers exacerbate or mitigate managerial myopia by using a firm’s patenting activities to capture managers’ myopic behavior. To establish causality; we use exogenous variation in short-selling costs generated by a quasi-natural experiment; Regulation SHO; which removes the tick restriction on a randomly-chosen subsample of Russell 3000 firms. We find that the quality; value; and originality of patents generated by treatment firms improve significantly more than control firms surrounding Regulation SHO; suggesting that short sellers are able to mitigate managerial myopia in investment decisions. The exposure to patenting-related litigation initiated by short sellers is a plausible mechanism through which short sellers curb myopic behavior; and managers of more opaque firms voluntarily disclose more information about their innovation activities in response to such litigation risk. Our paper provides new insights into a surprising and unintended real effect of short sellers – their mitigation of managerial myopia. | |||
| 215 | http://ssrn.com/abstract=2714402 | 512 | Third-Party Consequences of Short-Selling Threats: The Case of Auditor Behavior | JAE | 2016 | 63 | 479-498 | This study examines how short-selling threats affect auditors. During 2005-2007; the SEC ordered a pilot program in which one-third of the Russell 3000 index firms were arbitrarily chosen to be exempted from short-sale price tests. As a result; these stocks faced significantly higher short-selling threats. We implement a difference-in-differences test with firm fixed effects to show that auditors react to the increased threats and charge higher audit fees to the pilot firms. Further; we find that the impact only exists when auditors are concerned with the bankruptcy risk or when managers are less likely disciplined by short sellers. | |
| 216 | http://ssrn.com/abstract=2819296 | 142 | Does High Stock Return Synchronicity Indicate High or Low Price Informativeness? Evidence from A Regulatory Experiment | International Review of Finance | 2018 | 18 | 523-546 | We investigate the link between stock return synchronicity and price informativeness by exploiting the Regulation SHO pilot program; which removed short-selling price tests for randomly-selected stocks (“pilot stocks”) in May 2005; before removing such tests for all stocks in July 2007. A difference-in-differences analysis shows that relative to non-pilot stocks; pilot stocks saw a significantly larger increase in return synchronicity when the pilot program started; but such difference disappeared when Regulation SHO removed short-selling price tests for all stocks. The results suggest that high return synchronicity reflects high; rather than low; price informativeness. | |
| 217 | http://ssrn.com/abstract=2537553 | 548 | Does Short Selling Improve Analyst Forecast Quality? | Working Paper | 2018 | We examine the impact of short selling pressure on analyst forecast quality using the removal of the tick test from Regulation SHO. We find that increased ease of short selling improves analyst earnings forecast quality. Examining underlying mechanisms for the improvement; the evidence is consistent with increased incentive for analysts to uncover bad news; and reductions in information asymmetry. In addition; the remaining members of the Russell 3000 also experienced an increase in forecast quality upon the permanent removal of the tick test for all firms. Our paper provides new evidence on the effect of short sellers on analyst behavior. | |||
| 218 | http://ssrn.com/abstract=2980450 | 49 | A Real Threat? Short Selling and CEO Turnover | Working Paper | 2018 | We examine the role of short sellers in forced turnovers. Controlling for various stock return measures; short interest predicts forced turnovers and is higher before turnovers that reveal more private information. Using Regulation SHO as a natural experiment; we show that unrestricted short selling increases the probability of forced turnovers for large firms. The effect is \emph{not} driven by a higher informativeness of stock prices. The relationship between short interest and forced turnovers is stronger in the presence of shareholder activism; while it does not vary with different board characteristics; suggesting activist shareholders are one channel for the effect. | |||
| 219 | http://ssrn.com/abstract=2519137 | 616 | Short Selling Pressure; Stock Price Behavior; and Management Forecast Precision: Evidence from a Natural Experiment | JAR | 2015 | 53 | 79-117 | Using a natural experiment (Regulation SHO); we show that short selling pressure and consequent stock price behavior have a causal effect on managers’ voluntary disclosure choices. Specifically; we find that managers respond to a positive exogenous shock to short selling pressure and price sensitivity to bad news by reducing the precision of bad news forecasts. This finding on management forecasts appears to be generalizable to other corporate disclosures. In particular; we find that; in response to increased short selling pressure; managers also reduce the readability (or increase the fuzziness) of bad news annual reports. Overall; our results suggest that maintaining the current level of stock prices is an important consideration in managers’ strategic disclosure decisions. | |
| 220 | http://ssrn.com/abstract=3142912 | 30 | Short-selling and firm performance on Corporate Social Responsibility: Evidence from a natural experiment | Working Paper | 2018 | In this paper; we test for a causal relationship between short-selling and firms’ performance on Corporate Social Responsibility (CSR). To establish causality; we use the exogenous variation in short-selling restrictions induced by the Pilot Program under Regulation SHO of 2004. The Pilot program decreased the costs of short-selling for randomly selected subset of firms which resulted in an increase in the threat of short-selling for these firms. Results from a sample of U.S. firms for the years 2002 - 2006 suggest that an increase in the likelihood of being subject to short-selling increases firm performance on CSR. We further test how the temporal orientation of firms’ institutional owners and different level of firms’ financing constraints moderate the relationship between short-selling and firm performance on CSR. | |||
| 221 | Monitoring from Capital Market and Corporate Tax Avoidance: Evidence from Short Selling Pilot Program | Working Paper | 2018 | Capital market provides monitoring and disciplines firms; but how it impacts firms’ corporate tax avoidance is controversial. In this paper; we investigate how monitoring from capital market affects tax avoidance level using the Rule 202T pilot program of Regulation SHO as a natural experiment. We examine the impacts of short sale constraints removal on tax avoidance by difference-in-differences regressions. We find that firms reduce tax avoidance behaviors after the removal of short sale constraints; because short sellers monitor firm and increase the probability of tax avoidance being caught. This effect is more pronounced in firms more dependent on equity financing. These findings suggest that monitoring stemming from capital market makes firms “steal” less from the government. | |||||
| 222 | http://ssrn.com/abstract=3015101 | 105 | Short Selling and Readability in Financial Disclosures: A Controlled Experiment | Working Paper | 2018 | We examine the causal effect of short-selling on a firm’s annual report readability using Regulation SHO; which relaxes short-sale constraints for a random sample of pilot stocks. Pilot firms’ annual report readability decreases during the experiment period. This short-selling effect on 10-K readability is more pronounced for firms that receive less investor attention and for firms with worse news. Pilot firms also increase the use of uncertainty words in 10-Ks during the experiment period. Our results suggest that firms produce less transparent 10-Ks that are more costly for investors to comprehend when short-sale constraints are less rigorous. | |||
| 223 | http://ssrn.com/abstract=844744 | 2641 | 37 | Why Does Corporate Governance Affect Firm Value: Evidence on a Self-Dealing Channel from a Natural Experiment in Korea | JBF | 2015 | 51 | 131-150 | Prior work in emerging markets provides evidence that better corporate governance predicts higher market value; but very little on the specific channels through which governance increases value. We provide evidence; from a natural experiment in Korea; that reduced tunneling can be an important channel. Korean legal reform in 1999 improved board independence of “large” firms (assets > 2 trillion won) relative to smaller firms. This shock to governance allows us to assess the effects of reform using a regression discontinuity design. In event studies of the reform events; we show that large firms whose controllers have incentive to tunnel (positive Expropriation Risk Index firms) earn strong positive returns; relative to other large firms. In panel regressions over 1998-2004; we also show that better governance (higher Korea Corporate Governance Index) moderates the negative effect of related-party transactions on value and increases the sensitivity of firm profitability to industry profitability (consistent with less tunneling). |
| 224 | http://ssrn.com/abstract=2820031 | 73 | The SEC's Busted Randomized Experiment: What Can and Cannot Be Learned | Working Paper | 2019 | During 2005-2007; the US Securities and Exchange Commission ran a randomized experiment; in which it removed short sale restrictions for some “treated” firms; ostensibly chosen at random; and left them in place for others. The SEC experiment has since been exploited by many accounting and finance scholars to study how short sale restrictions; and firms’ response to these restrictions; affect a wide range of financial outcomes. We show that (1) the SEC busted its own randomization experiment; in a way which undermines the conclusions from most prior studies; and (2) independent of the problems with the SEC’s randomization process; prior papers studying second- and higher-order effects of the randomized SEC trial failed to account for nonrandom choices by short sellers as to which firms to “target”; and nonrandom choices by other firm managers and other market participants on how to respond to removal of short sale restrictions. We discuss what one can and (mostly) cannot still learn from this experiment; given the way in which it was busted; as well as the limits on what one could learn if the experiment had been properly conducted. We also discuss the broader issue of how one can study randomized experiments with non-random compliance; and show how the use of techniques for handling noncompliance affects empirical results. Our broader goal is to highlight the fact that one cannot easily use a randomized trial designed for one purpose (here; to study whether removal of short-sale restrictions impacts the behavior of traders) to answer a multitude of other questions (including the impact of short-sale restrictions on market prices; firm investment strategy; accruals; auditor behavior; innovation; and much more). | |||
| 225 | http://ssrn.com/abstract=2171006 | 350 | 1 | Do Institutional Investors Value the Rule 10b-5 Private Right of Action? Evidence from Investors’ Trading Behavior following Morrison v. National Australia Bank Ltd | Journal of Legal Studies | 2015 | 44 | 183-227 | In Morrison v. National Australia Bank Ltd.; the US Supreme Court limited investors’ ability to bring private Rule 10b-5 securities fraud actions to cases involving securities purchased on a US stock exchange or otherwise purchased in the United States. because many foreign firms’ securities trade simultaneously on non-US venues and on US exchanges; institutional investors claimed after Morrison that they would look to such firms’ US-traded securities to preserve their rights under Rule 10b-5. This paper tests this prediction using proprietary trading data from 378 institutional investors. The analysis reveals no evidence that investors reallocated trades in cross-listed issuers to the United States; nor did they reallocate foreign trading to crosslisted issuers that are now clearly subject to 10b-5 securities suits. This persistence in trading appears across both money managers and pension plan sponsors; notwithstanding sponsors’ more vocal criticism of Morrison and their prominence in 10b-5 litigation. |
| 226 | http://ssrn.com/abstract=2163864 | 823 | 13 | Securities Litigation Risk for Foreign Companies Listed in the U.S. | Working Paper | 2016 | We study securities litigation risk faced by foreign firms listed on U.S. exchanges. We find that U.S. listed foreign companies experience securities class action lawsuits at about half the rate as do U.S. firms with similar levels of ex ante litigation risk. The lower rate appears to be driven partly by higher transaction costs in uncovering and pursuing litigation against foreign firms. However; once a lawsuit triggering event like an accounting restatement; missing management guidance; or a sharp stock price decline occurs; there is no difference in the litigation rates between a foreign and comparable U.S. firm. This suggests that effective enforcement of securities laws is constrained by transaction costs; and the availability of high quality information that reveals potential misconduct is an important determinant of a well-functioning litigation market for foreign firms listed in the U.S. | ||
| 227 | http://ssrn.com/abstract=1961178 | 345 | 6 | An Unexpected Test of the Bonding Hypothesis | RCFS | 2018 | 7 | 101-156 | In its June 2010 Morrison v. National Australia Bank ruling; the U.S. Supreme Court unexpectedly decided that key fraud-related provisions of U.S. securities laws would only apply to transactions in foreign securities that take place on U.S. exchanges. We document a statistically significant and economically large increase in the price of U.S. cross-listed foreign stocks relative to their currency-adjusted equivalent home-market shares around the decision; which we associate with the newly differentiated legal status accorded U.S. cross-listed shares by Morrison. We interpret the market’s reaction to the decision as affirming that investors; both foreign and domestic; value how U.S. securities laws apply; an important element of the “bonding” hypothesis as a motive for international cross-listings. |
| 228 | http://ssrn.com/abstract=1744905 | 560 | 13 | What Makes the Bonding Stick? A Natural Experiment Testing the Legal Bonding Hypothesis | JFE | 2018 | 129 | 329-356 | We use a US Supreme Court case; Morrison v. National Australia Bank (2010); as a natural experiment to test the legal bonding hypothesis. By decreasing the potential liability of US-listed foreign firms; particularly due to class action lawsuits; Morrison arguably eroded their legal bonding to compliance with disclosure duties. Nevertheless; we find evidence of an increase or insignificant change in share values. Tests of longer-run effects of the legal event indicate that foreign firms’ disclosure quality and likelihood of facing enforcement actions remained stable; as did investors’ revealed preferences for trading on US markets. These results go against the legal bonding hypothesis but are consistent with reputational bonding and with market-based accounts of US cross-listing. Our results may contribute to ongoing debate about civil enforcement of securities laws through class actions. |
| 229 | http://ssrn.com/abstract=2432371 | 561 | 3 | Private Litigation Costs and Voluntary Disclosure: Evidence from the Morrison Ruling | TAR | 2019 | 94 | 303-327 | We examine the causal effect of expected private litigation costs on voluntary disclosure using a natural experiment; the Supreme Court ruling in Morrison v. National Australia Bank. This ruling reduced expected private litigation costs for foreign cross-listed firms by eliminating the right of shareholders who purchased shares on non-US exchanges to seek compensation in US courts. We find consistent evidence that higher expected private litigation costs lead to greater voluntary disclosure using analyses that exploit the varying impact of Morrison based on both firm- and country-level attributes. Unlike a number of prior studies; we find that this positive relation does not depend on the direction of the news. |
| 230 | http://ssrn.com/abstract=2542800 | 52 | 2 | Reforming Private Securities Litigation in China: The Stock Market Has Already Cast its Vote | International Review of Law and Economics | 2016 | 45 | 23-32 | This paper employs a natural experiment research design to analyze the differences in the effects of the 2002 notice concerning private securities litigation issued by the Supreme People's Court on stock price performance in A/B-share markets. Using a sample of 162 twin A/B-shares issued by 81 listed firms; we find that the portfolio of B-shares; which are treated and held in large volumes; obtains a significant positive treatment effect of 2.08% relative to that of A-shares over a 3-day event window. The treatment effect indicates that the collective action problem undermines the compensatory function of the private enforcement system; which is the primary goal it was designed to achieve. In addition; we look into the determinants of the abnormal return between A/B-shares issued by the same firm and find that the efficiency of the regional court system is positively correlated with the magnitude of the abnormal return. Rational investors expect that the compensation from private litigation is determined by the costs of using the judiciary system. |
| 231 | http://ssrn.com/abstract=2400635 | 54 | 2 | Corporate Liquidity and the Contingent Nature of Bank Credit Lines: Evidence on the Costs and Consequences of Bank Default | JCF | 2014 | 29 | 410-429 | I study the impact of Lehman Brothers’ bankruptcy and resultant inability to honor its obligations as a lender under committed credit lines. Firms that lost access to a credit line committed by Lehman Brothers experienced abnormal stock returns of -3%; on average; on the day of and day after Lehman’s bankruptcy filing; amounting to roughly $5.7 billion in aggregate; risk-adjusted losses. These losses were significantly larger for firms that were more financially constrained; firms with less cash; firms for whom Lehman was a lead-bank; and firms that lost access to larger amounts of committed credit. During the four quarters immediately following Lehman’s collapse; firms that lost access to a credit line cut their investment spending significantly while simultaneously hoarding more cash than comparable firms. Overall; these findings indicate that firms that lost access to a credit line incurred economically significant costs and real-side consequences as a result of Lehman’s default on its loan commitments. |
| 232 | http://ssrn.com/abstract=971255 | 114 | 14 | The Sarbanes-Oxley Act and Cross-Listed Foreign Private Issuers | JAE | 2014 | 58 | 21-40 | I examine the short- and long-term impact of the 2002 Sarbanes-Oxley Act (SOX) on cross-listed foreign private issuers. Both short- and long-term test results suggest that the costs of SOX compliance significantly exceed its benefits and reduce the net benefits of cross-listings. |
| 233 | http://ssrn.com/abstract=678282 | 640 | 16 | Can a Stock Exchange Improve Corporate Behavior? Evidence from Firms' Migration to Premium Listings in Brazil | JCF | 2012 | 18 | 883-903 | Because Brazil's legal system lacked protection for minority shareholders and trading of Brazilian shares flowed to U.S. exchanges; in 2001 the São Paulo Stock Exchange; Bovespa; created three premium exchange listings that require more stringent shareholder protections. This paper examines the effects of a commitment to improved corporate disclosure and governance by firms' voluntary migration to these premium listings. Our analysis finds that a firm's migration brings positive abnormal returns to its shareholders; particularly when its shares did not have a prior cross-listing on a U.S. exchange and also when the firm chooses a premium listing with the highest standards. Migration to a premium listing also leads to a significant increase in the trading volume of non-voting shares. Firms that choose a premium listing tend to have growth opportunities that they finance with subsequent seasoned equity offerings. These results suggest that a premium listing is a mechanism for bonding to improved corporate behavior that can be less costly than cross-listing on a U.S. exchange. |
| 234 | http://ssrn.com/abstract=1030925 | 2243 | 70 | Shareholders' Say on Pay: Does it Create Value? | JFQA | 2011 | 46 | 299-339 | Congress and activists recently proposed giving shareholders a say (vote) on executive pay. We find that when the House passed the Say-on-Pay Bill; the market reaction was significantly positive for firms with high abnormal CEO compensation; with low pay-for-performance sensitivity; and responsive to shareholder pressure. However; activist sponsored say-on-pay proposals target large firms; not those with excessive CEO pay; poor governance; or poor performance. The market reacts negatively to labor sponsored proposal announcements and positively when these proposals are defeated. Our findings suggest that say-on-pay creates value for companies with inefficient compensation; but can destroy value for others. |
| 235 | http://ssrn.com/abstract=1550599 | 155 | 5 | Securitization without risk transfer | JFE | 2013 | 107 | 515-536 | We analyze asset-backed commercial paper conduits which played a central role in the early phase of the financial crisis of 2007-09. We document that commercial banks set up conduits to securitize assets while insuring the newly securitized assets using credit guarantees. The credit guarantees were structured to reduce bank capital requirements; while providing recourse to bank balance sheets for outside investors. Consistent with such recourse; we find that banks with more exposure to conduits had lower stock returns at the start of the financial crisis; that during the first year of the crisis; asset-backed commercial paper spreads increased and issuance fell; especially for conduits with weaker credit guarantees and riskier banks; and that losses from conduits mostly remained with banks rather than outside investors. These results suggest that banks used this form of securitization to concentrate; rather than disperse; financial risks in the banking sector while reducing their capital requirements. |
| 236 | http://ssrn.com/abstract=1104743 | 251 | 1 | Who benefited from the disclosure mandates of the 1964 Securities Acts Amendments? | JCF | 2011 | 17 | 1047-1063 | The 1964 Securities Acts Amendments extended disclosures mandated of NYSE firms to most firms trading in the Over-the-Counter (OTC) market. Although some prior evidence suggests substantial value increases for OTC firms due to the “value enhancing” mandated disclosures; we find no statistical difference in announcement returns for OTC firms moving to the NYSE before and after the legislation. One purported advantage to investors from the 1964 legislation was increased financial reporting. Yet; we document that the bulk of OTC firms analyzed in prior studies was already providing investors financial information before the legislation. Apparently; investors did not value the mandated disclosures. We do find evidence that the NYSE benefited from the legislation by increasing the number of OTC firms switching to their exchange around its passage. |
| 237 | http://ssrn.com/abstract=1699012 | 350 | 11 | Sources of gains in corporate mergers: refined tests from a neglected industry | JFQA | 2012 | 47 | 57-89 | Our work provides refined tests of the source of merger gains in a neglected industry: utilities. Utilities offer fertile ground for analysis of traditional theories: synergy; collusion; hubris; and anticipation. Utility mergers create wealth for the combined firm; consistent with both the synergy and collusion hypotheses. To distinguish between these hypotheses; we study rival stock returns across dimensions related to collusion: deregulation; geography; and horizontal and withdrawn deals. We also find that the impact of mergers on consumer prices is consistent with synergy rather than collusion. Analysis of industry rivals that become targets also rejects collusion and is consistent with anticipation. |
| 238 | http://ssrn.com/abstract=1856727 | 220 | 34 | Panacea; Pandora’s box;or placebo :Feedback in bank mortgage-backed security holdings and fair valuea ccounting | JAE | 2011 | 52 | 153-173 | We examine the relation between bank holdings of mortgage-backed securities (MBS) and MBS prices. Theory suggests feedback between MBS holdings and underlying asset markets can be aggravated by mark-to-market accounting. We measure feedback by the relation between asset returns and the changes in bank MBS holdings. Consistent with the existence of feedback effects related to mark-to-market; we find that for banks with high MBS; more nonperforming loans; and lower total capital ratio; changes in bank MBS positions are positively associated with changes in MBS prices and that this relation is reduced after the April 2009 mark-to-market rule clarification. To assess the effect of feedback on shareholder value; we test whether the stock-price response of banks to the announcement of the mark-to-market accounting rule clarification is associated with the intensity of feedback behavior. We find that the stock market reaction to the rule change is more positive for banks with more MBS; higher nonperforming loans and higher pre-rule-change feedback. We also find positive bond-price reactions to the rule change. Overall; our results suggest feedback related to mark-to-market accounting had a measurable effect on shareholder value. |
| 239 | http://ssrn.com/abstract=968287. | 1608 | The effect of board structure on firm value: A multiple identification strategies approach using Korean data | JFE | 2012 | 104 | 203-226 | Outside directors and audit committees are widely considered to be central elements of good corporate governance. We use a 1999 Korean law as an exogenous shock to assess whether and how board structure affects firm market value. The law mandates 50% outside directors and an audit committee for large public firms; but not smaller firms. We study this shock using event study; difference-in-differences; and instrumental variable methods; within an overall regression discontinuity approach. The legal shock produces economically large share price increases for large firms; relative to mid-sized firms; their share prices jump in 1999 when the reforms are announced. | |
| 240 | http://ssrn.com/abstract=2410372 | 339 | 13 | Mobile Communication and Local Information Flow: Evidence from Distracted Driving Laws | JAR | 2015 | 53 | 275-329 | We examine the influence of mobile communication on local information flow and local investor activity using the enforcement of statewide distracted driving restrictions; which are exogenous events that constrain mobile communication while driving. By restricting mobile communication across a potentially sizable set of local individuals; these restrictions could inhibit local information flow and; in turn; the market activity of stocks headquartered in enforcement states. We first document a decline in Google search activity for local stocks when restrictions take effect; suggesting that constraints on mobile communication significantly affect individuals’ information search activity. We further find significant declines in local trading volume when restrictions are enforced. This drop in liquidity is (1) attenuated when laws provide substitutive means of mobile communication and (2) magnified when locals have long car commutes and when their daily commutes overlap with regular exchange hours. Moreover; trading volume suffers the most for local stocks with lower institutional ownership; less analyst coverage; and more intangible information. Additional analyses show lower intraday volume during local commute times when mobile connectivity is constrained. Together; our results suggest that local information and local investors matter in stock markets and that mobile communication is an important mechanism through which these elements operate to affect liquidity and price discovery. |
| 241 | http://ssrn.com/abstract=2450639 | The Impact of Eliminating the Form 20-F Reconciliation on Shareholder Wealth: Evidence from U.S. Cross-Listed Firms | TAR | 2015 | 90 | 199-228 | This paper examines shareholder wealth effects in U.S. and home-country markets relating to the Securities and Exchange Commission's (SEC) decision to eliminate the Form 20-F reconciliation. During the period of examined events; we find positive cumulative abnormal returns for the treatment sample of U.S. cross-listed firms that prepare financial statements under International Financial Reporting Standards (IFRS); but no such effects for our control sample comprising cross-listed non-IFRS; U.S. domestic; or home-country firms. We find the stock market impact for our treatment sample to be positively related to our proxy for cost savings and negatively related to the pre-adoption reconciliation magnitude from IFRS to U.S. GAAP. This suggests shareholders place some value on reconciliation information; but the costs of preparing and auditing reconciliations generally outweigh concern about information loss. Moreover; we find that information loss is less pronounced for firms having used IFRS for a longer period; suggesting the learning effect mitigates information loss. | ||
| 242 | http://ssrn.com/abstract=2141410 | 925 | 28 | How do staggered boards affect shareholder value? Evidence from a natural experiment | JFE | 2013 | 110 | 627-647 | The well-established negative correlation between staggered boards (SBs) and firm value could be due to SBs leading to lower value or a reflection of low-value firms' greater propensity to maintain SBs. We analyze the causal question using a natural experiment involving two Delaware court rulings—separated by several weeks and going in opposite directions—that affected the antitakeover force of SBs. We contribute to the long-standing debate on staggered boards by presenting empirical evidence consistent with the market viewing SBs as leading to lower firm value for the affected firms. |
| 243 | http://ssrn.com/abstract=2985152 | 228 | 1 | Reexamining Staggered Boards and Shareholder Value | JFE | 2017 | 127 | 637-647 | Cohen and Wang (2013) (CW2013) provide evidence consistent with market participants perceiving staggered boards to be value reducing. Amihud and Stoyanov (2016) (AS2016) contests these findings; reporting some specifications under which the results are not statistically significant. We show that the results retain their significance under a wide array of robustness tests that address the concerns expressed by AS2016. Our empirical findings reinforce the conclusions of CW2013. |
| 244 | http://ssrn.com/abstract=2686902 | 523 | 11 | Do Staggered Boards Harm Shareholders? | JFE | 2017 | 123 | 432-439 | We examine the Cohen and Wang (2013) conclusion that a staggered board lowers firm value based on the stock price reaction to two 2010 Delaware court rulings in the Airgas; Inc. case. The first ruling weakened the potency of a staggered board and the second restored it. We find that the Cohen and Wang results; for their sample; become insignificant after excluding a few penny stocks; stocks with value below $10 million; or over-the-counter (non-exchange) stocks. The effects of the rulings are also insignificant for an alternative sample. |
| 245 | http://ssrn.com/abstract=1486525 | 585 | 12 | Bank valuation and accounting discretion during a financial crisis | JFE | 2012 | 106 | 614-634 | This paper shows that banks overstate the value of distressed assets and their regulatory capital during the US mortgage crisis. Real estate-related assets are overvalued in banks' balance sheets; especially those of bigger banks; compared to the market value of these assets. Banks with large exposure to mortgage-backed securities also provision less for bad loans. Furthermore; distressed banks use discretion over the classification of mortgage-backed securities to inflate their books. Our results indicate that banks' balance sheets offer a distorted view of the financial health of the banks and provide suggestive evidence of regulatory forbearance and noncompliance with accounting rules. |
| 246 | http://ssrn.com/abstract=2083818 | 210 | Taxes and Corporate Policies: Evidence From a Quasi Natural Experiment | JF | 2015 | 70 | 45-89 | We document important interactions between tax incentives and corporate policies using a “quasi natural experiment” provided by a surprise announcement that imposed corporate taxes on a group of Canadian publicly traded firms. The announcement caused a dramatic decrease in value. Prospective tax shields partially offset the losses; adding 4.6% to firm value on average; and vary with the tax status of the marginal investor. Further; firms adjust leverage; payout; cash holdings; and investment in response to changing tax incentives. Overall; the event study and time series evidence supports the view that taxes are important for corporate decision making. | |
| 247 | The value of a flow-through entity in an integrated corporate tax system | JFE | 2011 | 101 | 473-491 | In an integrated corporate tax system; resident shareholders receive a tax credit for corporate tax paid that can be used to offset personal tax on dividend income. Nonresident and tax-exempt (pension plan) investors cannot use the tax credit on corporate dividends and thus prefer to invest in flow-through entities. We estimate the value of the flow-through entity to nonresident and pension plan investors by examining the price change around the date of an unexpected announcement of a change in tax law related to Canadian publicly traded income trusts units creating an entity-level tax that makes them no longer tax-favored to these investors. | |||
| 248 | http://ssrn.com/abstract=1397685 | 9511 | 12 | Corporate Governance in the 2007-2008 Financial Crisis: Evidence from Financial Institutions Worldwide | JCF | 2012 | 18 | 389-411 | This paper investigates the influence of corporate governance on financial firms' performance during the 2007–2008 financial crisis. Using a unique dataset of 296 financial firms from 30 countries that were at the center of the crisis; we find that firms with more independent boards and higher institutional ownership experienced worse stock returns during the crisis period. Further exploration suggests that this is because (1) firms with higher institutional ownership took more risk prior to the crisis; which resulted in larger shareholder losses during the crisis period; and (2) firms with more independent boards raised more equity capital during the crisis; which led to a wealth transfer from existing shareholders to debtholders. Overall; our findings add to the literature by examining the corporate governance determinants of financial firms' performance during the 2007–2008 crisis. |
| 249 | http://ssrn.com/abstract=2272478 | 786 | 16 | Distracted directors: Does board busyness hurt shareholder value? | JFE | 2014 | 113 | 404-426 | We use the deaths of directors and chief executive officers as a natural experiment to generate exogenous variation in the time and resources available to independent directors at interlocked firms. The loss of such key co-employees is an attention shock because it increases the board committee workload only for some interlocked directors—the ‘treatment group’. There is a negative stock market reaction to attention shocks only for treated director-interlocked firms. Interlocking directors׳ busyness; the importance of their board roles; and their degree of independence magnify the treatment effect. Overall; directors׳ busyness is detrimental to board monitoring quality and shareholder value. |
| 250 | http://ssrn.com/abstract=1787627 | 571 | 1 | Financial Distress; Stock Returns; and the 1978 Bankruptcy Reform Act | RFS | 2015 | 28 | 1810-1847 | We study distress risk premia around a bankruptcy reform that shifts bargaining power in financial distress from debtholders to shareholders. We find that the reform reduces risk factor loadings and returns of distressed stocks. The reform effect is stronger for firms with lower firm-level shareholder bargaining power. An increase in credit spreads of riskier relative to safer firms; in particular for firms with lower firm-level shareholder bargaining power; confirms a shift in bargaining power from bondholders to shareholders. Out-of-sample tests reveal that a reversal of the reform's effect leads to a reversal of factor loadings and returns. |
| 251 | http://ssrn.com/abstract=1376267 | 110 | 2 | Financial Strength and Product Market Competition: Evidence from Asbestos Litigation | JFQA | 2012 | 47 | 179-211 | We study the role of financial strength on product market competition by examining exogenous shocks to a firm’s liability structure arising from asbestos litigation. We find that exogenous increases (decreases) in asbestos liabilities are interpreted by the market as negative (positive) news for a firm’s close competitors. These reactions are magnified in events in which one asbestos-tainted firm goes bankrupt and other asbestos-tainted stocks fall on the news of the bankruptcy. For smaller competitors; market reactions are more pronounced in more concentrated industries. Our findings support the general hypothesis that increases in fixed liabilities lead to more aggressive product market interactions. |
| 252 | http://ssrn.com/abstract=1665048 | 79 | 11 | Global versus local asset pricing: A new test of market integration | RFS | 2011 | 24 | 3891-3940 | Should capital cost calculations be based on a global or local market benchmark? The December 2000 redefinition of the Morgan Stanley Capital International (MSCI) global equity index was a natural experiment addressing this question. It is argued that this event triggered a portfolio shift (by index funds) large enough to affect the residual asset supplies constituting the global and local market benchmarks of all actively managed capital. Changes in the market benchmarks imply distinct and predictable changes to global and local stock betas. Exploring whether global or local beta changes best explain the cross-section of event returns reveals that stocks in developed markets are priced globally and not locally. |
| 253 | http://ssrn.com/abstract=1527579 | 472 | 0 | The Trading Volume Impact of Local Bias: Evidence from a Natural Experiment | RF | 2011 | 16 | 867-901 | Exploiting regional holidays in Germany as a source of exogenous cross-sectional variation in investor attention; we provide evidence that the well-known local bias at the individual level materially affects stock turnover at the firm level. Stocks of firms located in holiday regions are temporarily strikingly less traded than otherwise very similar stocks in non-holiday regions. This negative turnover shock survives comprehensive tests for differences in information release. It appears particularly pronounced in stocks less visible to nonlocal investors and for smaller stocks disproportionately driven by retail investors. Our findings contribute to research on local bias; trading activity; and investor distraction. |
| 254 | http://ssrn.com/abstract=2081181 | 26 | 0 | The Value of Firms’ Voluntary Commitment to Improve Transparency: The Case of Special Segments on Euronext | JCF | 2014 | 25 | 342-359 | This paper examines whether firms’ commitment to increase transparency affects liquidity by studying firms’ voluntary decision to be listed in “special segments” created by Euronext. My results show that transparency affects firm’s stock market liquidity; strengthening their positive relationships consistent with the existing literature. In contrast; when similar market regulation is imposed on all listed firms I find negative effects on liquidity for all firms listed on the exchange. A market-wide requirement to increase transparency has effects that differ from those of voluntary commitments to similarly increase transparency. |
| 255 | http://ssrn.com/abstract=1492278 | 810 | 1 | The Effects of Stock Lending on Security Prices: An Experiment | JF | 2013 | 68 | 1891-1936 | We examine the impact of short selling by conducting a randomized stock lending experiment. Working with a large; anonymous money manager; we create an exogenous and sizeable shock to the supply of lendable shares by taking high loan fee stocks in the manager's portfolio and randomly making available and withholding stocks from the lending market. The experiment ran in two independent phases: the first; from September 5 to 18; 2008; with over $580 million of securities lent; and the second; from June 5 to September 30; 2009; with over $250 million of securities lent. While the supply shocks significantly reduce market lending fees and raise quantities; we find no evidence that returns; volatility; skewness; or bid–ask spreads are affected. The results provide novel evidence on the impact of shorting supply and do not indicate any adverse effects on stock prices from securities lending. |
| 256 | http://ssrn.com/abstract=1783612 | 62 | 1 | The Effect of Tougher Enforcement on Foreign Firms: Evidence from the Adelphia Perp Walk | JCF | 2013 | 23 | 382-394 | The public arrest of Adelphia executives on July 24; 2002 signaled tougher enforcement of laws against corporate crime. On that day and the two following days; foreign firms experienced a cumulative 1.7% decline in value. Relative to domestic firms; the loss was a much larger 4.5%. The expected cost to firms from tougher enforcement suggests three possible reasons. Foreign firms may be targeted more heavily; may face greater penalties; or may find it more costly to react to (deflect) enforcement. We find evidence consistent with foreign firms facing higher costs from tougher enforcement for each of these reasons. |
| 257 | http://ssrn.com/abstract=1787661 | 200 | 8 | Depositors' Perception of 'Too-Big-To-Fail' | RF | 2015 | 19 | 191-227 | We exploit the exogenous shock to the Brazilian banking system caused by the international turmoil of 2008 and find evidence that the run to systemically important banks is better explained by the perception of a too-big-to-fail policy than by bank fundamentals. We infer that the extra inflow of deposits received by systemically important banks during crises gives them an important competitive advantage. Our analysis also indicates that a bank’s share of funding from institutional investors affects the nonfinancial firms’ and institutional investors’ decision to run. |
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