Brown Bag Seminar Archives
Date: Wednesday, March 6th
Location: CSOM L-118
Title: More Cash Flows, More Options? The Effect of Cash Windfalls on Small Firms
Authors: Jacelly Cespedes, Xing Huang and Carlos Parra
Abstract: This paper studies the effect of shocks to firms’ internal resources on business success. We use a new source of variation in cash flows by exploiting the bonus that retailers earn when selling jackpot winning lottery tickets. Increases in firms’ internal resources reduce the probability of survival. The evidence is not consistent with deteriorating credit behavior or owner retirement. Small business owners receiving large cash windfalls are more likely to start new businesses in non-retail industries. This effect becomes stronger when owners reside in low-income ZIP codes or own no real estate assets. Findings highlight importance of considering business owners’ outside options when studying small firms.
Date: Wednesday, March 27th
Location: CSOM L-118
Title: Gender Complimentary and the Market Value of the Firm
Authors: Alex Pecora
Title: Effects of banking crises on firms' real and financial quantities
Authors: Christos Kamara
Date: Wednesday, April 3rd
Location: CSOM L-118
Title: Capital misallocation and risk sharing" is with Hengjie Ai, Anmol Bhandari and Chao Ying
Authors: Yuchen Chen
Title: Estimating and Testing Investment-Based Asset Pricing Models, with Frederico Belo and Juliana Salomao
Authors: Yao Deng
Title: Information provision of the intermediary with reputation concern
Authors: Fangyuan Yu
Title: Financial Institution Misconduct and the Rise of FinTech
Authors: Keer Yang
Date: Wednesday, April 10th
Location: CSOM L-118
Title: Do Shocks to Intermediaries' Balance Sheet Impact Aggregate Risk Premium?
Author: Ramin Hassan
Title: Minsky Cycles
Author: Dan Su
Title: Public market's discipline and managers' incentives
Author: Colin Ward and Chao Ying
Abstract: We revisit Jensen’s (1986) manager-investor relationship fraught with conflicting interests over the use of firm resources in a dynamic optimal contracting environment with costly external finance. Managers’ private quest for resource control separates these interests and endogenously creates a role for public markets as a provider of discipline.
Location: CSOM 1-123
Title: "Why Risk Managers"
A CEO relies on risk managers to prevent their employees from taking excessive risk. Why can't the CEO directly incentivize his employees by offering him the right contract instead of relying on the risk manager? I show that having a separate risk manager is not only more profitable for banks but is also socially efficient. I build a model where a CEO incentivizes an employee to choose between two projects based on his private signal and then exert effort on the project chosen. When the CEO incentivizes both tasks, there is a trade-off between rent extracted by the employee and efficient project choice, and in equilibrium the CEO sacrifices some efficiency to reduce the rent extracted. But if the tasks are split between a trader who exerts effort and a risk manager who chooses the project, then efficient outcome can be achieved. I further examine some reasons for risk management failure where a CEO may ignore the risk manager when he suggests that safe project or where the risk managers may not be able to coordinate their action to convince the CEO to choose the safe project.
Location: CSOM 1-123
Title:"A Dynamic Agency Based Asset Pricing Model with Production"
We develop a dynamic-agency based production asset pricing model in General Equilibrium. The key agency friction is a lack of commitments problem: firm owners and workers cannot commit to any labor contract that provides continuation values below their outside options. We show that incomplete risk-sharing due to agency friction amplifies the conditional volatility of the pricing kernel. History-dependent wage contracts generate a form of labor-induced operating leverage, thus leading to heterogeneity in firms' risk exposures. The benefit of mitigating agency friction also creates additional incentives for firms’ investment. Quantitatively, we show that these implications of agency frictions allow us to jointly account for the high level and significant time-variation of the equity premium, a low and smooth risk-free interest rate, a sizable value premium and large cross-sectional standard deviation of firms’ investment. Empirical results based on a variance decomposition of firms' investment in the data confirm our model mechanism.
Location: CSOM 1-123
Title: Bank Liquidity Supply and Corporate Investment in the 2008-2009 Financial Crisis
I use matching, loan-level, and firm-level regressions to study whether bank liquidity shocks affect corporate investment in the 2008-2009 crisis. The matching method exploits the predetermined variation of whether firms have lines of credit maturing in crisis to investigate whether firms with lines of credit maturing in crisis are more adversely affected. I find that firms whose last pre-crisis lines of credit mature in crisis (treated firms) cut investment by more. This effect is stronger for financially constrained firms and firms whose pre-crisis banks are unhealthy or have large exposures to mortgage-backed securities. Treated firms with unhealthy banks are less likely to obtain lines of credit in crisis than those with healthy banks. Using loan-level regressions, I find that unhealthy banks reduce lines of credit by more than healthy banks to the same firm. Firm-level regressions show that firms whose pre-crisis banks are unhealthy decrease the credit lines and investment growth by more. This effect is restricted to only unrated firms. In addition, bank liquidity supply shocks affect the composition of lines of credit and cash. Overall, this paper highlights the lines of credit channel through which bank liquidity supply shocks are transmitted to firms.
Yuchen Chen, Christos Kamaras, Alexandre Pecora
Location: CSOM 1-123
Title: Haircut vs Bailout on Unsustainable Debt
Abstract: I explore conditions under which in equilibrium a creditor country bails out its debtor country's unsustainable debt, vs conditions under which there is no such bailout and the debtor country applies a direct haircut on the unsustainable part of the debt. In a two period model, a debt haircut results in a deposit haircut for the debtor country, which makes a bailout preferable. However, whether such bailout is on the creditor country's best interest depends on who can commit to an action first.
Title: "Financial Frictions, News Shocks and Business Fluctuations
Abstract: "This project applies news shocks to an overlapping generations economy with credit frictions. As is well known in the Real Business Cycles (RBC) literature, credit frictions have an amplifying effect in the economy response to productivity shocks. Our results show that implementing news about future productivity shock increase even more the response and persistence of output and investment. In particular, the investment impulse response is hump-shaped as in real US data."
Title: The age dynamics of misallocation
Abstract: Empirical evidence shows that young firms, which are more financially constrained, have higher and more volatile marginal product of capital (MPK) than the old firms, even after controlling for the size effect. I develop a model of firm entry and exit with collateral constraint in the incomplete market, which explains how the age dynamics is related to capital misallocation through financial friction. I also examine the effect of relaxation of collateral constraint on the distribution of MPK.
Keer Yang, Ramin Hassan
Location: CSOM 1-123
Title: Does Finance Flow to High Productivity Firms?
Abstract: This paper studies the impact of productivity on corporate use of debt and equity. Using machine learning methods (Lasso and Gradient Boosting) with the standard corporate accounts, we derive a new method of estimating firm productivity that is more empirically robust than the usual methods. In the model output is sales revenue after tax. We find that the inputs are cost of goods sold, selling general and administrative expenses and total assets. Using this model, high productivity firms are found to be smaller. Asset growth is U-shaped in productivity, with lower growth at the medium productivity firms. High productivity firms have higher book leverage but lower market leverage. They typically pay out more to the debt and equity markets than they take in from the financial markets. However, high productivity firms with a `financing constraint' issue more debt but repurchase equity. So finance does generally flow to high productivity firms that particularly need the money, but there is also equity market evidence that might reflect adverse selection or income tax effects
Title: "Why Does the Relation Between Investment and Asset Prices Vary Over Time?"
Abstract: Andrei, Mann, and Moyen recently showed that the predictive power of average q (book to market value) is weak before 1995 (8% R2), and very strong after (70% R2). There has been considerable debate in the literature on the failure of this relation that links asset prices to Investment decisions. Using bond prices to measure q, as in Philippon (2009), I show predictive power of bond market q is opposite that of stock market q over time. I point out to ratio of growth opportunities to assets in place as the potential reason behind this observation. Preliminary results indicate that in fact the performance of these two measures is related to PVGO/V ratio proxies throughout decades.
Location: CSOM 1-123
Title: Matthew Effect and the Lucas Puzzle
Abstract: This paper shows that the driving force of the Lucas paradox and global imbalance is continuing reallocation of physical capital due to technological specialization. Empirically I find that the marginal product of capital in capital-abundant countries is persistently higher than the marginal product of capital in capital-scarce countries. I rationalize this new fact with a neoclassical growth model including an endogenous direction of technological change. In equilibrium, capital's rate of return is determined by two opposite forces: a convergence effect from diminishing return and a divergence effect from directed technological change. Under some conditions, initially capital-rich countries will favor capital-biased technology, and continuously import capital from capital-poor countries that develop labor-biased technology. I name this pattern as the (international economics version of ) Matthew effect. In this perspective, the global imbalance is not an over-borrowing or over-lending problem. Instead, it is a global structural transformation phenomenon due to biased technical change.
Location: CSOM 1-123
Title: Secret Scouting
Abstract: Venture capitalists secretly hire individual "scouts'' that invest on behalf of them at early stage to keep competitors in the dark. This paper provides a theoretical analysis on this strategy and shows though pareto-dominated, it endogenously occurs out of increasingly right-skewed return structure. We characterize the framework in a preemption game with searching and asymmetric information on matching outcomes. The first-mover advantage in winner's payoff contributes to an arm-race of hunting, which simultaneously generates learning externality that leads players to be more pessimistic over time. Equilibrium action depends on the outside option for the runner-up. When it is high, there exists a two-threshold Markov equilibrium where 1) all VCs put maximum effort in searching with optimistic belief, 2) no effort once they become very pessimistic and 3) moderate effort as they are indifferent between preempting and free-riding at intermediate belief level. Players are worse off when this outside option is low. Fear of preemption dominates and the third action region is replaced by the second: greedy scouting is prolonged. Full transparency about outcomes eliminates information externality and improves the expected payoff of players. However disclosing information is not incentive compatible ex-ante as VCs want to eliminate competition by tricking opponents into gloomy belief, which explains the preference of "secrecy'' in searching.
Location: CSOM 1-123
Title: Leaks and Takeovers
Location: CSOM 1-123
Title: Heterogeneous Beliefs and the FOMC Announcements
Abstract: This paper studies the effect of the FOMC announcements on the dynamics of investor’s heterogeneous beliefs. The large trading volume of stocks and announcement premium upon the announcements provide asset-market-based evidence. Using options and futures data, I document the open interest decreases significantly after the FOMC announcements, which indicates the monetary policy released in the announcements reduces the investor’s disagreement. Therefore, instead of investing more aggressively, investors unwind their positions, which mainly accounts for the large trading volume upon announcements. To explain the price and trading volume dynamics jointly, I develop a general equilibrium model with heterogeneous beliefs under learning and announcements. The model implies that the stock holding is not only determined by the investor’s disagreements, uncertainty but also their relative wealth. When they update their beliefs after the announcements, investors disagree less and rebalance their portfolio, and therefore asset prices react to these announcements instantaneously. The reduction of disagreements upon announcements supports the monetary policy has a positive welfare implication in the long run.
Location: CSOM 2-215
Title: Disclosure and Equity Crowdfunding
Abstract: Equity crowdfunding involves the sequential interaction and observational learning among investors. I build on the classical rational herding model with multiple actions to discuss the interaction among investors and how does the issuer affect this interaction by disclosing different precision information. In the model, each investor arrives sequentially, observing private signals and decide whether to contribute to the project and how much to invest if they agree to contribute. The issuer chooses the precision of signals to disclose so as to maximize the probability of financing. Depending on the precision of the signal chosen by the issuer, there exist different herding patterns in the equilibrium. When the precision of signal is low, I find that there exist three herding regions, where when the public belief is very low, no investors are willing to invest, and when the public belief is in the middle, herding with minimum investment can occur; however, when the public belief is very high, there exists a maximum investment herding. The probability of successful financing is not monotone in transparency. When minimum investing is not enough to guarantee successful fundraising, the issuer prefers to high transparency to eliminate the minimum herding, which in return, improves the probability the successful financing. The regulation of transparency of crowdfunding is also discussed.
Location: CSOM 1-123
Title: Extrapolative Expectation, Financial Frictions, and Credit Cycles
March 7th, 2018
March 21st, 2018
PhD Students' Presentations
March 28, 2018
PhD Students' Presentations
April 4th, 2018
April 11th, 2018
April 18th, 2018
April 25th, 2018
May 2nd, 2018
September 6th, 2017
September 13th, 2017
September 20th, 2017
September 27th, 2017
Dan Su, Ramin Hassan
October 11th, 2017
October 18th, 2017
October 25th, 2017
November 1st, 2017
November 8th, 2017
November 15th, 2017
November 29th, 2017
December 6th, 2017
Title: Decomposing Firm Value
**Preliminary work with Vito Gala (Wharton), John Pokorny (U of M) and Juliana Salomao (U of M)
Title: Why can't CEOs foresee a financial crisis?
Abstract: This paper explains why CEOs are unable to curtail risky investments before a crisis. CEOs rely on the advice of their employees to understand the riskiness of their investments. Before a crisis, prots from an investment strategy is usually high, and so it is perceived to be good. If employees receive information that the strategy is bad and should be discontinued, they may not disclose their information to avoid being perceived as pessimistic and lose their job. Multiple employees can convince the CEO to discontinue if they disclose together but not if they disclose alone. This creates strategic complementarities in disclosure strategy and results in coordination problem where in the inefficient equilibrium no employee will disclose and the CEO remaining unaware of the risks goes ahead with bad investments. The paper thus provides an explanation for boom bust cycles and also for why CEO's beliefs were optimistic before the crisis.
Title: Capital Heterogeneity, Time-to-build, and Return Predictability
Abstract:This paper documents that U.S. equipment investment rate predicts stock market returns better than structures investment rate. This empirical finding is further borne out by industry-level and international data. A general equilibrium model with external habit preference and heterogeneous time-to-build for equipment and structures can explain the empirical findings while matching the salient features of business cycles and asset prices. Equipment investment requires less time to transform into productive capital. It reacts to productivity shocks more timely than structures investment and reflects more information contained in stock prices.
"Nominal frictions, leverage, and investment"
I find that nominal debt contracts and nominal price stickiness create a channel for inflation to affect real investment and leverage decisions. When debt in is nominal terms, Inflation lowers the real value of current debt, increases the marginal cost of issuing debt, and reduces the optimal amount of leverage. This reduces the degree of debt overhang, increasing investment. Firms with flexible prices invest more. I confirm these predictions empirically using a measure of price stickiness. Firms increase investment and reduce debt when inflation is high. Firms with sticky prices have lower investment and higher debt following inflation shocks.
|9/14/2016||Chao Ying/Fangyuan Yu||
Chao YingAuthors: Hengjie Ai, Anmol Bhandari, Jincheng Tong and Chao Ying
TITLE: "Aggregation in Economies with Homogeneous Decision Rules"
"Adverse selection and asset sales"
I consider a dynamic adverse selection problem in OTC markets. One seller with private information about asset quality searches buyers sequentially in the market. Two types of buyers exist in the market (informed and uninformed). Buyers make private offers to sellers if they meet, and sellers decide whether to accept the offer. I find that there exists a unique stationary market belief, and belief will converge to this stationary belief if trading hasn't occurred. When the market belief is unfavorable, the high type seller trades more slowly, and the average trading time for high type seller is longer than low type; when the market belief is favorable, high type seller trades more quickly, and the average trading time for high type seller is shorter than low type seller.
Title: "Skilled Labor Risk and Corporate Policies"
Location: CSOM 1-142
Title: Mobility of Skilled Labor and Capital Structure
Location: CSOM 1-142
Title: Dynamic-Agency Based Asset Pricing in a Production Economy
Author: Jincheng Tong & Chao Ying
|10/19/2016||Yao Deng||Location: CSOM 1-142
Title: Industry Competition, Profitability and Stock Returns
Location: CSOM L-114
Title: A Race of Unicorns
Location: CSOM L-114Title: The Market for Conflicted Advice
Author: Martin Szydlowski, Briana Chang
Presenter: Martin Szydlowski
We study decentralized markets in which advisers have conflicts of interest and compete for customers via information provision. We show that competition partially disciplines conflicted advisers. The equilibrium features information dispersion and sorting of heterogeneous customers and advisers: advisers with expertise in more information sensitive assets attract less informed customers, provide worse information, and earn higher profits. We further apply our framework to the market for financial advice and establish new insights: it is the underlying distribution of financial literacy that determines the consumers’ welfare. When advisers are scarce, the fee structure of advisers is irrelevant for the welfare of consumers.
Location: CSOM L-114
Title: The Effect of Taxation on Corporate Financing and Investment
|11/16/2016||Ding Luo||Title: "Capital Heterogeneity and Return Predictability"|
|11/30/2016||Wei Zhang||Title: Credit Supply and the Choice between Cash and Lines of Credit|
Title: The Effect of Cash Injections: Evidence from the 1980s Farm Debt Crisis
Authors: Nittai Bergman, Rajkamal Iyer, Richard Thakor
Abstract: What is the effect of cash injections during financial crises? Exploiting county-level variation arising from random weather shocks during the 1980s Farm Debt Crisis, we analyze and measure the effect of local cash flow shocks on the real and financial sector. We show that such cash flow shocks have significant impact on a host of economic outcomes, including land values, loan delinquency rates, and the probability of bank failure. Further, we measure how cash injections affect local labor markets, analyzing the impact on employment and wages both within and outside of the sector receiving a positive cash flow shock. Estimates of the effect of local cash flow shocks on county income levels during the financial crisis yield a multiplier of 1.63.
Title: Moral Hazard and Investment-cash-flow sensitivity, with Rui Li (University of Massachusetts) and Kai Li (HKUST)
Abstract: We present a dynamic model of investment with moral hazard. We show that the optimal contract with moral hazard gives rise to endogenous financing constraints and results in investment-to-cash flow sensitivity. In addition, the magnitude of invest-to-cash flow sensitivity does not increase with the tightness of financing constraints and therefore cannot be used as a quantitative measure of such. Our calibrated model replicates the failure of Q-theory, provides an explanation for the existence of investment-cash flow sensitivity, and accounts for the robust
positive relationship between investment-to-cash flow sensitivity and firm size and age in the data.
Abstract:This paper studies the strategic role of debt structure in improving the bargaining position of a firm's management relative to its non-financial stakeholders. Debt structure is essential for strategic bargaining since it affects the ease of debt contract renegotiation and thus the credibility of bankruptcy threat. We first document that the degree of wage concessions is indeed strongly related to a firm's debt structure ex post in the airline industry and the effect is reduced when bankruptcy threat is less credible for employees. Debt structure is further shown to be adjusted ex ante as a response to an increase in non-financial stakeholders' negotiation power. Utilizing NLRB labor union election as a laboratory setting and employing a regression discontinuity design, we find that passing a union election leads to an increase in the ratio of public debt to total asset and a decrease in the ratio of bank debt to total asset in the following three years after elections, while there is no significant change in the level of debt. Syndication size of newly issued bank loans increases while creditor ownership concentration decreases once vote share for unions passes the winning threshold. Various tests confirm that the debt structure adjustment after new unionization is more likely driven by strategic concerns of management rather than more constrained access to bank loans.
TITLE: Asset Pricing and Risk Sharing with Limited Enforcement and heterogeneous Preferences
Title: Why do banks ignore the warnings?
Abstract:Although the recent financial crisis came as a surprise to many, there were some employees who had warned against these risks. These warnings were ignored by the CEOs of the banks and the employees were fired. In my paper, I provide a theory of when will a CEO fire the employees and go ahead with risky strategies. Under the condition that one may get fired, the decision of the employees to disclose his concerns leads to a coordination problem among the employees. In a global games setting I show that, banks are more likely go ahead with the risky strategies when they seem to be more profitable.
Title: Uninsurable Tail Risks, Operating Leverage and the Value Premium
Can the usual tests of the Catering Theory of corporate investment distinguish between behavioral and rational perspectives? Using USA data from 1970 to 2015 we find test result which have been used in support of behavioral Catering Theory. We present a simple rational model of corporate investment and equity issuance. Data generated by the calibrated model produces the same patterns of coefficients as real data. According to behavioral, periods of high market sentiment and booms, are times of overvaluation. Using these periods we find that the patterns of coefficients are consistent with the rational model and not consistent with the behavioral predictions.
Brown Bags take place from 12:00 pm -1:00 pm in room 1-142 unless otherwise specified.
|Andy Winton||Cheating in China: Corporate Fraud and the Role of Financial Markets|
|9/16/15||Kaushalendra Kishore||Correlated Debt, Information Acquisition and Financial Crisis|
|9/23/15||Mark Egan||Recycling Bad Apples|
|9/30/15||Junyan Shen||Capital Misallocation and Financial Market Friction: Some Evidence by User Cost of Capital|
|10/7/15||John Pokorny||Nominal Frictions, Investment, and Leverage|
|10/14/15||Jincheng Tong||Government Investment and Asset Prices|
|10/21/15||Yue Qiu||Labor Adjustment Cost and Corporate Hedging|
|3/18/2015||Spring Break, No Brown Bag|
|2/26/14||Ashraf Al Zaman||
Cash holdings and technological development: Evidence from IT-mediated improvement in inventory management
Since 1980s US manufacturing firms are holding more cash relative to their assets. In this paper, we investigate whether improvements in information technology (IT) and its use have contributed to this increase. We establish that IT contributed to the improvement through inventory channel. IT has enabled firms redeploy their current assets: substituting cash for inventory, engendering an era of sustained higher level of cash holdings. In addition, we also establish that some observed heterogeneity in cash holdings can be explained by the industries firms operate in, the type of inventories they hold, and the financial constraints they face.
|3/5/14||Jianfeng Yu||Short- and Long-Run Business Conditions and Expected Returns
(joint with Qi Liu, Libin Tao, and Weixing Wu)Numerous studies argue that the market risk premium is associated with economic conditions and show that proxies for business conditions indeed predict aggregate market returns. By directly estimating short- and long-run expected economic growth, we show that short-run expected economic growth is negatively related to future returns, whereas long-run expected economic growth is positively related to aggregate market returns. At an annual horizon, short- and long-run expected growth can jointly predict aggregate excess returns with an R2 of 17-19%. Our findings indicate that the risk premium has both high- and low-frequency fluctuations and highlight the importance of distinguishing short- and long-run economic growth in macro asset pricing models.
|3/19/14||Spring Break||No seminar|
|4/9/14||Kee Seon Nam||TBD|
A Mechanism Design Model of Firm Dynamics: The Case of Limited CommitmentWe present a general equilibrium-mechanism design model with two-sided limited commitment that accounts for the observed heterogeneity in firms'; investment, payout and CEO-compensation policies. In the model, shareholders cannot commit to holding ;negative net present value projects, and managers cannot commit to ;compensation plans that yield life-time utility lower than their outside ;options. Firms operate identical constant return to scale technologies with i.i.d.\ productivity growth. Consistent with the data, the model endogenously generates a power law in firm size and a power law in CEO compensation. ;We also show that the model is able to quantitatively explain the observed negative;relationship between firms' investment rates and size, the positive relationship between firms' size and their dividend and CEO payout, as well as; variation of firms' investment and payout policies across both size and age.
Crash Risk in Currency Returns
We quantify crash risk in currency returns. To accomplish this task, we develop and estimate an empirical model of exchange rate dynamics using daily data for four currencies relative to the US dollar: the Australian dollar, the British pound, the Swiss franc, and the Japanese yen. The model includes (i) normal shocks with stochastic variance, (ii) jumps up and down in the exchange rate, and (iii) jumps in the variance. We identify these components using data on exchange rates and at-the-money implied variances. We find that crash risk is time-varying. The probability of an upward (downward) jump in the exchange rate, associated with depreciation (appreciation) of the US dollar, is increasing in the domestic (foreign) interest rate. The probability of jumps in variance is increasing in the variance but is not related to interest rates. Many of the jumps in exchange rates are associated with macroeconomic and political news, but jumps in variance are not. On average, jumps account for 25% (and can be as high as 40%) of total currency risk, as measured by the entropy of exchange rate changes, over horizons of one to three months. Preliminary analysis suggests that these properties of currency returns correspond to observed option smiles and that jump risk is priced.
CEO Investment Cycles
This paper documents the existence of a CEO Investment Cycle, in which firms disinvest early in a CEO's tenure and increase investment subsequently, leading to cyclical firm growth in assets as well as in employment over CEO tenure. The CEO investment cycle occurs for both firings and non-performance related CEO turnovers, and for CEOs with different relationships with the firm prior to becoming CEO. The magnitude of the CEO cycle is substantial: The estimated difference in investment rate between the first three years of a CEO's tenure and subsequent years is approximately 6 to 8 percentage points, which is of the same order of magnitude as the differences caused by other factors known to affect investment, such as business cycles or financial constraints. We present a variety of tests suggesting that this investment cycle is best explained by a combination of agency-based theories: Early in his tenure the CEO disinvests poorly performing assets that his predecessor established and was unwilling to give up on. Subsequently, the CEO overinvests when he gains more control over his board. There is no evidence that the investment cycles occur because of shifting CEO skill or productivity shocks. Overall, the results imply that public corporations' investments deviate substantially from the first-best, and that governance-related factors internal to the firm are as important as economy-wide factors in explaining firms' investments.
|9/25/13||John Pokorny||Commodity returns and carry portfolios|
|10/2/13||Amanda Heitz||Efficient Contracting, Information Sharing, and Corporate Finance: An International Perspective|
CEO Compensation and Maturity of Debt Issues: Evidence From IRC 162(M)
This essay shows that CEO incentives provided by option compensation have significant impacts on maturity of newly issued debt. To identity such impacts, we exploit IRC 162(M) as an exogenous shock to new option grant decisions. IRC 162(M), effective since January 1st, 1994, limits corporate tax deductibility of CEO compensation and also has impacts on new option grant decisions in US firms. Our main findings are: First, after introduction of IRC 162(M), number, volatility sensitivity and price sensitivity of newly granted options in affected firm increase more than those in unaffected firms. Second, maturity of newly issued debt decreases (increases) when volatility (price) sensitivity of new option compensation increases. Overall, results in this essay show that CEO option compensation has large impacts on maturity of newly issued debt.
Short Arbitrage and Abnormal Return Asymmetry
This paper studies how constraints on short arbitrage are associated with abnormal return asymmetry of a broad set of anomalies. Using institutional holdings as a proxy for ease of short selling and idiosyncratic volatility for arbitrage risk, We find that the return asymmetry is stronger when short arbitrage is more constrained (low institutional holdings and high idiosyncratic volatility).
|10/30/13||Sangiago Bazdresch||Out of Sample Prediction tests for a Structural Model of Investment and Financing|
Liabilities ceded by life insurers to shadow reinsurers (i.e., less regulated off-balance-sheet entities) grew from $11 billion in 2002 to $363 billion in 2012. Companies that are involved in shadow insurance, which capture 50 percent of the market share, ceded 28 cents of every dollar insured to shadow reinsurers in 2012, up from 2 cents in 2002. Our adjustment for shadow insurance reduces risk-based capital by 49 percentage points (or 3 rating notches) and raises expected loss by at least $15.7 billion for the industry. We develop a structural model to estimate the impact of shadow insurance on the equilibrium supply in the retail market. In the absence of shadow insurance, marginal cost would rise by 1.8 percent, and annual insurance underwritten would fall by $1.4 billion at unit demand elasticity.
|11/13/13||Kee Seon Nam||Uncertainty about Management and Information Asymmetry|
Equilibrium Corporate Capital Structure (work-in-progress with Hong Chen, SAIF)
The trade-off theory of corporate capital structure has been studied in partial equilibrium settings, and in dynamic models that require numerical solutions. Separately, as a result of the financial crisis of 2007-2009, there are studies of financial frictions at the bank. These models are used to study "unconventional Fed policy" along the lines of the policies actually adopted during the crisis. We bring a simple financing friction model closer to the trade-off theory, by permitting equity finance. Cases with and without corporate tax, and the financing friction (bank default) are compared. Results similar to Modigliani-Miller (1958 and 1963) emerge naturally as special cases. Allowing for an equity market tends to undermine the policy justifications of "unconventional Fed policy" because investment tends to avoid distorted markets when an undistorted alternative is available. In contrast to the usual trade-off theory models, the corporate tax rate may affect the volume of household savings and hence the scale of firm production, but not the equilibrium leverage ratio in some equilibria.
|12/2/13 - Monday||Junyan Shen||Capital Misallocation and Financial Intermediary|
|12/11/13||Hongda Zhong||Thoughts on Optimal Debt Maturity, Number of Creditors and Seniority Structure under Rollover Risk|
|4/10/13||Kai Li (UBC)
|9/5/12||Huijun Wang||The Role of Exploration and Exploitation in Diseconomies of Scale in the Mutual Fund Industry|
|9/19/12||John Pokorny||Do Agents Equate Marginal Utility Growth Over the Assets They Can Trade?|
|9/26/12||Tao Shen||Credit Spreads and Investment Opportunities|
|10/10/12||Hongda Zhong||Dynamic Trade with Asymmetric Information and Market Timing|
|10/17/12||Junyan Shen||Efficiency or Sentiment, discussion on the role of mutual fund flow|
|10/24/12||Hengjie Ai||Corporate Finance Frictions and Expected Return on Equity: An Irrelevance Result|
|10/31/12||Jianfeng Yu||Arbitrage Asymmetry and the Idiosyncratic Volatility Puzzle|
|11/7/12||Kee Seon Nam||National Culture and Innovation: A Cross-Country Empirical Investigation|
|11/14/12||Sergiy Dubynskiy||Technological Diversification and Asset Prices|
|11/28/12||Frederico Belo||Labor heterogeneity and asset prices: the importance of skilled labor|
|1/18/12||Philip Bond||The Effect of Government Guarantees without Risk-Shifting|
|1/25/12||Murray Frank||Investment and the Weighted Average Cost of Capital. How Good is the Standard Model?|
|2/1/12||Stephen Parente||Micro-Simulation of Early Health Savings Account Adoption and Policy Proposals|
|2/8/12||Raj Aggarwal||Internal Capital Markets and Unrelated Acquisitions|
|2/15/12||Tracy Wang||First Year in Office: How Do New CEOs Create Value?|
|2/22/12||Jianfeng Yu||Extrapolative Expectation and Asset Pricing Puzzles|
|2/29/12||Huijun Wang||Does Effort Matter? A Study on Persistence in Mutual Fund Performance|
|3/7/12||Amanda Heitz||Blockholder Preference on Governance: Insights from VC-Backed IPOs|
|3/21/12||Tao Shen||Credit Spreads and Investment: Aggregate and Firm-Level Evidence|
|3/28/12||Moto Yogo||Insurance Regulation and Policy Firesales|
|4/4/12||Sergiy Dubynskiy||Learning-by-Doing and Asset Prices|
|4/11/12||Raj Singh||Effect of Non-Tradability on Risk Aversion|
|4/25/12||Gordon Alexander||How Informed Are Predictive and Reactive Short Sellers around Earnings Announcements?|
|9/7/11||Bob Goldstein||Dividend Dynamics|
|9/14/11||Tao Shen||A Dynamic Learning Model of Takeovers|
|9/21/11||Andrew Winton||Lender Moral Hazard and Reputation in Originate-to-Distribute Markets|
|9/28/11||Amanda Heitz||The Social Costs and Benefits of Too-Big-To-Fail Banks: A Bounding Exercise|
|10/5/11||John Boyd||What Made US Banks Susceptible to a Systemic Crisis?|
|10/12/11||Daniil Osipov||Does solvency regulation always reduce product market competition? Evidence from the EU life insurance industry|
|10/19/11||Huijun Wang||Precautious Exploration of Mutual Fund Investment|
|10/26/11||Doriana Ruffino||Estimating Return Parameters with Short Historical Data: The Case of U.S. Treasury Inflation-Protected Securities|
|11/2/11||Jun Li||Investment-specific shocks and momentum profits|
|11/9/11||Santiago Bazdresch||Product Differentiations and Stock Returns: Theory and evidence on Differentiations-Return Dynamics|
|11/16/11||Sergey Dubynskiy||Investment and Stock Returns Correlation Puzzle|
|11/30/11||Hongda Zhong||Higher Incentives Lead to Lower Effort? OptimalÂ Contracting with Heterogeneous Altruistic Agents|
|12/7/11||Jeremy Graveline||Exchange Rate Dynamics and International Risk Sharing|
|12/14/11||Junyan Shen||Investor Sentiment and the Economic Forces|
|1/28/11||Motohiro Yogo, Federal Reserve Bank of Minneapolis||Health Data|
|3/25/11||Tao Shen and Huijun Wang|
|4/1/11||Jun Li and Sergiy Dubynskiy|
Estimating Bounds on the Present Discounted Value of Economics of Scale in Large Banks
Continuous Time Agency Problem
|5/11/11||Murray Frank||Bank Loan Search|
|8/4/10||Jianfeng Yu||Investor Sentiment and Anomalies|
|10/8/10||Philip Bond||Bankers and Regulators|
|10/13/10||Tao Shen Huijun Wang|
|10/22/10||Jeremy Graveline||The Cost of Short-Selling Liquid Securities|
|10/27/10||Sergiy Dubynskiy and Jun Li|
|11/10/10||Pedram Nezafat||Corporate Capital Structure Variation over Time: Capital Market Driven or Investment Driven?|
|11/17/10||Xiaoji Lin, London School of Economics||Micro Frictions, Asset Pricing and Aggregate Implications|
|12/15/10||Tracy Wang||Competition and Corporate Fraud Waves|
|3/2/10||Tao Shen and Huijun Wang||Literature Review|
|3/10/10||Murray Frank and Pedram Nezafat||Credit Market Timing|
|3/22/10||Doriana Ruffino||Robust Mean-Variance Portfolio Analysis|
|5/11/10||Xiaoyun Yu||Do Financial intermediaries During IPOs Affect Long-Term Firm Mortality Rates?|
|5/19/10||Pedram Nezafat||High-Frequency Capital Structure Decisions: Theory and Empirical Test|
|5/26/10||Fan Yang||A Production-Based Model on the Cross- Section Predictability of Commodity Futures Returns|
|6/4/10||Yihui Pan||The Determinants and Impact of Executive-Firm Matches|
|6/11/10||Daniil Osipov||Trade-off and Pecking Order Theories of Capital Structure: The Case of the UK Insurance Industry|
|6/19/10||Raj Aggarwal||An Empirical Investigation of Internal Governance|
Predictability of Excess Returns on Foreign Currency Portfolios and Foreign Equity Portfolios
Replication and Extension: Investment and Value, A Neoclassical Benchmark
|9/9/09||Yihui Pan||The Determinants and Impact of Executive-Firm Matches|
|9/16/09||Tracy Wang||Tolerance for Failure and Corporate Innovation|
|9/23/09||Xiaoyun Yu||Information From Relationship Lending: Evidence from Loan Defaults in China|
|9/30/09||Frederico Belo||A Labor-Augmented Investment-Based Asset Pricing Model|
|10/28/09||Jianfeng Yu||Psychological Anchors, Underreaction, Overreaction, and Asset Prices|
Investment-based Asset Pricing
Literature Review onPartiall Adjustment Toward Target Capital Structures
Literature Review of Commodity Pricing
Literature Review of Asset Prices and Business Cycles
|12/9/09||Frederico Belo||Is Investment in Public Capital Good News for the Stock Market?|
|12/16/09||Jianfeng Yu||A Sentiment-Based Explanation of Forward Premium Puzzle|