Matching Items (9)
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- All Subjects: Finance
- All Subjects: endowed social status
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- Genre: Academic theses
- Creators: Bessembinder, Hendrik
- Creators: Lindsey, Laura
Description
This paper examines how equity analysts' roles as information intermediaries and monitors affect corporate liquidity policy and its associated value of cash, providing new evidence that analysts have a direct impact on corporate liquidity policy. Greater analyst coverage (1) reduces information asymmetry between a firm and outside shareholders and (2) enhances the monitoring process. Consistent with these arguments, analyst coverage increases the value of cash, thereby allowing firms to hold more cash. The cash-to-assets ratio increases by 5.2 percentage points when moving from the bottom analyst-coverage decile to the top decile. The marginal value of $1 of corporate cash holdings is $0.93 for the bottom analyst-coverage decile and $1.83 for the top decile. The positive effects remain robust after a battery of endogeneity checks. I also perform tests employing a unique dataset that consists of public and private firms, as well as a dataset that consists of public firms that have gone private. A public firm with analyst coverage can hold approximately 8% more cash than its private counterpart. These findings constitute new evidence on the real effect of analyst coverage.
ContributorsChang, Ching-Hung (Author) / Bates, Thomas (Thesis advisor) / Bharath, Sreedhar (Committee member) / Lindsey, Laura (Committee member) / Arizona State University (Publisher)
Created2012
Description
This paper investigates the role of top management and board interlocks between acquirers and targets. I hypothesize that an interlock may exacerbate agency problems due to conflicting interests and lead to value-decreasing acquisition. An interlock may also serve as a conduit of information and personal experience, and reduce the cost of information gathering for both firms. I find supporting evidence for these two non-mutually exclusive hypotheses. Consistent with the agency hypothesis, interlocked acquirers underperform non-interlocked acquirers by 2% during the announcement period. However, well-governed acquirers receive higher announcement returns and have better post-acquisition performance in interlocked deals. The proportional surplus accrued to an acquirer is positively correlated with the interlocking agent's ownership in the acquirer relative to her ownership in the target. Consistent with the information hypothesis, when the target's firm value is opaque, interlocks improve acquirer announcement returns and long-term performance. Interlocked acquirers are also more likely to use equity as payment, especially when the acquirer's stock value is opaque. Target announcement returns are not influenced by the existence of interlock. Finally, I find acquisitions are more likely to occur between two interlocked firms and such deals have a higher completion rate.
ContributorsWu, Qingqing (Author) / Bates, Thomas W. (Thesis advisor) / Hertzel, Michael (Committee member) / Lindsey, Laura (Committee member) / Arizona State University (Publisher)
Created2012
Description
By matching a CEO's place of residence in his or her formative years with U.S. Census survey data, I obtain an estimate of the CEO's family wealth and study the link between the CEO's endowed social status and firm performance. I find that, on average, CEOs born into poor families outperform those born into wealthy families, as measured by a variety of proxies for firm performance. There is no evidence of higher risk-taking by the CEOs from low social status backgrounds. Further, CEOs from less privileged families perform better in firms with high R&D spending but they underperform CEOs from wealthy families when firms operate in a more uncertain environment. Taken together, my results show that endowed family wealth of a CEO is useful in identifying his or her managerial ability.
ContributorsDu, Fangfang (Author) / Babenko, Ilona (Thesis advisor) / Bates, Thomas (Thesis advisor) / Tserlukevich, Yuri (Committee member) / Wang, Jessie (Committee member) / Arizona State University (Publisher)
Created2018
Description
Firms reduce investment when facing downward wage rigidity (DWR), the inability or unwillingness to adjust wages downward. I construct DWR measures and exploit staggered state-level changes in minimum wage laws as an exogenous variation in DWR to document this fact. Following a minimum wage increase, firms reduce their investment rate by 1.17 percentage points. Surprisingly, this labor market friction enhances firm value and production efficiency when firms are subject to other frictions causing overinvestment, consistent with the theory of second best. Finally, I identify increased operating leverage and aggravation of debt overhang as mechanisms by which DWR impedes investment.
ContributorsCho, DuckKi (Author) / Bharath, Sreedhar (Thesis advisor) / Hertzel, Michael (Thesis advisor) / Bessembinder, Hendrik (Committee member) / Wang, Jiaxu (Committee member) / Arizona State University (Publisher)
Created2017
Description
This dissertation consists of two essays. The first, titled “Sweep Order and the Cost of Market Fragmentation” takes a “revealed-preference” approach towards gauging the effects of market fragmentation by documenting the implicit costs borne by traders looking to avoid executing in a fragmented environment. I show that traders use Intermarket Sweep Orders (ISO) to trade “as-if” markets were single-venued and pay a premium to do so. Using a sample of over 2,600 securities over the period January 2019 to April 2021, this premium amounts to 1.3 bps on average (or 40%of the effective spread), amounting to a total of $3 billion over the sample period. I find a positive, robust, and significant relationship between the premium and different measures of market fragmentation, further supporting the interpretation of the premium as a cost of market fragmentation. The second essay, titled “The Profitability of Liquidity Provision” investigates the relationship between the profits realized from providing liquidity and the amount of time it takes liquidity providers to reverse their positions. By tracking the cumulative inventory position of all passive liquidity providers in the US equity market and matching each aggregate position with its offsetting trade, I construct a measure of profits to liquidity provision (realized profitability) and assess how profitability varies with the average time to offset. Using a sample of all common stocks from 2017 to 2020, I show that there is substantial variation in the horizon at which trades are turned around even for the same stock. As a mark-to-market profit, the conventional realized spread—measured with a prespecified horizon—can deviate significantly from the realized profits to liquidity provision both in the cross-section and in the time-series. I further show that, consistent with the risk-return tradeoff faced by liquidity providers as a whole, realized profitability is low for trades that are quickly turned around and high for trades that take longer to reverse.
ContributorsLohr, Ariel (Author) / Bessembinder, Hendrik (Thesis advisor) / Wahal, Sunil (Committee member) / Aragon, George (Committee member) / Arizona State University (Publisher)
Created2022
Description
Chief Executive Officers (CEOs) whose observed personal option-holding patterns are not consistent with theoretical predictions are variously described as overconfident or optimistic. Existing literature demonstrates that the investment and financing decisions of such CEOs differ from those of CEOs who do not exhibit such behavior and interprets the investment and financing decisions by overconfident or optimistic CEOs as inferior. This paper argues that it may be rational to exhibit behavior interpreted as optimistic and that the determinants of a CEO’s perceived optimism are important. Further, this paper shows that CEOs whose apparent optimism results from above average industry-adjusted CEO performance in prior years make investment and financing decisions which are actually similar, and sometimes superior to, those of unbiased CEOs.
ContributorsWalton, Richard (Author) / Bates, Thomas (Thesis advisor) / Lindsey, Laura (Committee member) / Babenko, Ilona (Committee member) / Arizona State University (Publisher)
Created2016
Description
This paper studies the relation between alignment in partisan affiliation between a firm's management team and the president and corporate investment. Survey evidence suggest that households have higher expectations of economic growth when their preferred party controls the presidency. I therefore investigate whether finance professionals, specifically corporate managers, are subject to the same partisan-based optimism and make investment decisions not based on fundamentals. Consistent with the behavior displayed by the general public, I find that managers invest more and become more optimistic about their companies' prospects when their preferred party is in power. Using insider trades, I am able to separate optimism from alternative explanations such as industry sorting of partisan managers, political connections, etc. This optimism-driven increase in investment is associated with lower profitability and stock returns. Overall, managers' partisan beliefs produce heterogeneous expectations about future cash flows and distort investment decisions.
ContributorsRice, Anthony Baird (Author) / Bates, Thomas (Thesis advisor) / Babenka, Ilona (Committee member) / Lindsey, Laura (Committee member) / Sosyura, Denis (Committee member) / Stein, Luke (Committee member) / Arizona State University (Publisher)
Created2021
Description
The dissertation consists of three essays in financial economics. In the first essay, using historical prices for futures contracts tied to U.S. election outcomes, I develop a measure of firm-level partisan exposure. This measure captures the sensitivity of a firm's stock return to the changes in the odds of winning by a Democratic presidential candidate. I find that political beta is significantly lower in regulated industries and that it takes more extreme values for smaller and more highly levered firms. Finally, I document that firms with high political beta earn 4.0% higher annual buy-and-hold abnormal returns under Republican presidencies than firms with low political beta. The second essay studies mean monthly returns and compound long-run returns to over 64,000 global common stocks during the January 1990 to June 2020 period. The important practical distinctions between arithmetic, geometric, and dollar-weighted monthly returns are highlighted. In addition, it is documented that the majority, 56.6% of U.S. stocks and 61.3% of non-U.S. stocks, underperform one-month U.S. Treasury bills in terms of compound returns over the full sample. Focusing on aggregate shareholder outcomes, the top-performing 1.5% of firms account for all of the $US 56.2 trillion in net global stock market wealth creation. Outside the US, less than one percent of firms account for the $US 20.1 trillion in net wealth creation. The third essay documents evidence of managerial influence on shareholder voting outcomes. There are significantly more proposals that narrowly pass than narrowly fail. This behavior is more pronounced for firms with low institutional ownership and for proposals receiving a negative ISS recommendation. Mechanisms by which managers influence the outcome, such as meeting adjournment and selective campaigning, are newly identified. Finally, the market reacts more positively to the narrow failure of management proposals than to their passage. Combined with a theoretical model, these results imply that managerial influence on the voting process is value-destroying.
ContributorsChoi, Goeun (Author) / Bessembinder, Hendrik (Thesis advisor) / Babenko, Ilona (Committee member) / Schiller, Christoph (Committee member) / Tserlukevich, Yuri (Committee member) / Arizona State University (Publisher)
Created2021
Description
This dissertation consists of three essays studying the relationship between corporate finance and monetary policy and macroeconomics. In the first essay, I provide novel estimations of the monetary policy’s working capital channel size by estimating a dynamic stochastic macro-finance model using firm-level data. In aggregate, I find a partial channel —about three-fourths of firms’ labor bill is borrowed. But the strength of this channel varies across industries, reaching as low as one-half for retail firms and as high as one for agriculture and construction. These results provide evidence that monetary policy could have varying effects across industries through the working capital channel. In the second essay, I study the effects of the Unconventional Monetary Policy (UMP) of purchasing corporate bonds on firms’ decisions in the COVID-19 crisis. Specifically, I develop a theoretical model which predicts that the firm’s default probability plays a crucial role in transmitting the effects of COVID-19 shock and the UMP. Using the model to evaluate two kinds of heterogeneities (size and initial credit risk), I show that large firms and high-risk firms are more affected by COVID-19 shock and are more responsive to the UMP. I then run cross-sectional regressions, whose results support the theoretical predictions suggesting that the firm’s characteristics, such as assets and operating income, are relevant to understanding the UMP effects. In the third essay, I document that capital utilization and short-term debt are procyclical. I show that a strong positive relationship exists at the aggregate and firm levels. It persists even when I control the regressions for firm size, profits, growth, and business cycle effects. In addition, the Dynamic Stochastic General Equilibrium (DSGE) model shows that in the presence of capital utilization, positive real and financial shocks cause the firm to change its financing of the equity payout policy from earnings to debt, increasing short-term debt.
ContributorsGalindo Gil, Hamilton (Author) / Pruitt, Seth (Thesis advisor) / Schreindorfer, David (Thesis advisor) / Bessembinder, Hendrik (Committee member) / Mehra, Rajnish (Committee member) / Arizona State University (Publisher)
Created2022