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- All Subjects: Finance
- Creators: Tserlukevich, Yuri
- Resource Type: Text
Description
I show that firms' ability to adjust variable capital in response to productivity shocks has important implications for the interpretation of the widely documented investment-cash flow sensitivities. The variable capital adjustment is sufficient for firms to capture small variations in profitability, but when the revision in profitability is relatively large, limited substitutability between the factors of production may call for fixed capital investment. Hence, firms with lower substitutability are more likely to invest in both factors together and have larger sensitivities of fixed capital investment to cash flow. By building a frictionless capital markets model that allows firms to optimize over fixed capital and inventories as substitutable factors, I establish the significance of the substitutability channel in explaining cross-sectional differences in cash flow sensitivities. Moreover, incorporating variable capital into firms' investment decisions helps explain the sharp decrease in cash flow sensitivities over the past decades. Empirical evidence confirms the model's predictions.
ContributorsKim, Kirak (Author) / Bates, Thomas (Thesis advisor) / Babenko, Ilona (Thesis advisor) / Hertzel, Michael (Committee member) / Tserlukevich, Yuri (Committee member) / Arizona State University (Publisher)
Created2013
Description
In the first chapter, I develop a representative agent model in which the purchase of consumption goods must be planned in advance. Volatility in the agent's portfolio increases the risk that a purchase cannot be implemented. This implementation risk causes the agent to make conservative consumption plans. In the model, this leads to persistent and negatively skewed consumption growth and a slow reaction of consumption to wealth shocks. The model proposes a novel explanation for the negative relation between volatility and expected utility. In equilibrium, prices of risky assets must compensate for the utility loss. Hence, the model suggests a new mechanism for generating the equity risk premium. Importantly, because implementation risk does not rely on the co-movement of asset prices with marginal utility, the resulting equity premium does not require concavity of the intratemporal utility function.
In the second chapter, I challenge the view that equity market timing always benefits
shareholders. By distinguishing the effect of a firm's equity decisions from the effect of mispricing itself, I show that market timing can decrease shareholder value. Additionally, the timing of equity sales has a more negative effect on existing shareholders than the timing of share repurchases. My theory can be used to infer firms' maximization objectives from their observed market timing strategies. I argue that the popularity of stock buybacks, the low frequency of seasoned equity offerings, and the observed post-event stock returns are consistent with managers maximizing current shareholder value.
In the second chapter, I challenge the view that equity market timing always benefits
shareholders. By distinguishing the effect of a firm's equity decisions from the effect of mispricing itself, I show that market timing can decrease shareholder value. Additionally, the timing of equity sales has a more negative effect on existing shareholders than the timing of share repurchases. My theory can be used to infer firms' maximization objectives from their observed market timing strategies. I argue that the popularity of stock buybacks, the low frequency of seasoned equity offerings, and the observed post-event stock returns are consistent with managers maximizing current shareholder value.
ContributorsWan, Pengcheng (Author) / Boguth, Oliver (Thesis advisor) / Tserlukevich, Yuri (Thesis advisor) / Babenka, Ilona (Committee member) / Arizona State University (Publisher)
Created2015
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
This thesis takes the form of a market research report with the goal of analyzing the implications of the United Kingdom (UK) leaving the European Union (EU) (known as “Brexit”) on London’s office commercial real estate market. The ultimate goal of this report is to make a prediction, firmly grounded in quantitative and qualitative research conducted over the past several months, as to the direction of London’s commercial real estate market going forward (post-Brexit). Within the commercial real estate sector, this paper narrows its focus to the office segment of the London market.
Understanding the political landscape is crucial to formulating a reasonable prediction as to the future of the London market. Aside from research reports and articles, our main insights into the political direction of Brexit come from our recordings from meetings in March of 2017 with two high-ranking members of Parliament and one member of the House of Lords—all of whom are members of the Tory Party (the meetings being held under the condition of anonymity). The below analysis will be followed by a discussion of the economics of Brexit, primarily focusing on the economic risks and uncertainties which have emerged after the vote, and which currently exist today. Such risks include the UK losing its financial passporting rights, weakening GDP and currency value, the potential for a reduction in foreign direct investment (FDI), and the potential loss of the service sector in the city of London due to not being able to access the European Single Market.
The report will shift focus to analyzing three competing viewpoints of the direction of the London market based on recordings from interviews of stakeholders in the London real estate market. One being an executive of one of the largest REITs in the UK, another being the Global Head of Real Estate at a top asset management firm, and another being a director at a large property consulting firm. The report includes these differing “sub-theses” in order to try to make sense of the vast market uncertainties post-Brexit as well as to contrast their viewpoints with where the market is currently and with the report’s investment recommendation.
The remainder of the report will consist of the methods used for analyzing market trends including how the data was modeled in order to make the investment recommendation. The report will analyze real estate and market metrics pre-Brexit, immediately after the vote, post-Brexit, and will conclude with future projections encapsulating the investment recommendation.
Understanding the political landscape is crucial to formulating a reasonable prediction as to the future of the London market. Aside from research reports and articles, our main insights into the political direction of Brexit come from our recordings from meetings in March of 2017 with two high-ranking members of Parliament and one member of the House of Lords—all of whom are members of the Tory Party (the meetings being held under the condition of anonymity). The below analysis will be followed by a discussion of the economics of Brexit, primarily focusing on the economic risks and uncertainties which have emerged after the vote, and which currently exist today. Such risks include the UK losing its financial passporting rights, weakening GDP and currency value, the potential for a reduction in foreign direct investment (FDI), and the potential loss of the service sector in the city of London due to not being able to access the European Single Market.
The report will shift focus to analyzing three competing viewpoints of the direction of the London market based on recordings from interviews of stakeholders in the London real estate market. One being an executive of one of the largest REITs in the UK, another being the Global Head of Real Estate at a top asset management firm, and another being a director at a large property consulting firm. The report includes these differing “sub-theses” in order to try to make sense of the vast market uncertainties post-Brexit as well as to contrast their viewpoints with where the market is currently and with the report’s investment recommendation.
The remainder of the report will consist of the methods used for analyzing market trends including how the data was modeled in order to make the investment recommendation. The report will analyze real estate and market metrics pre-Brexit, immediately after the vote, post-Brexit, and will conclude with future projections encapsulating the investment recommendation.
ContributorsHorn, Jonathan (Co-author) / Sidi, Adam (Co-author) / Bonadurer, Werner (Thesis director) / McDaniel, Cara (Committee member) / Department of Finance (Contributor) / School of Politics and Global Studies (Contributor) / Economics Program in CLAS (Contributor) / Barrett, The Honors College (Contributor)
Created2017-12
Description
In order to discover if Company X's current system of local trucking is the most efficient and cost-effective way to move freight between sites in the Western U.S., we will compare the current system to varying alternatives to see if there are potential avenues for Company X to create or implement an improved cost saving freight movement system.
ContributorsPicone, David (Co-author) / Krueger, Brandon (Co-author) / Harrison, Sarah (Co-author) / Way, Noah (Co-author) / Simonson, Mark (Thesis director) / Hertzel, Michael (Committee member) / Barrett, The Honors College (Contributor) / Department of Supply Chain Management (Contributor) / Department of Finance (Contributor) / Economics Program in CLAS (Contributor) / School of Accountancy (Contributor) / W. P. Carey School of Business (Contributor) / Sandra Day O'Connor College of Law (Contributor)
Created2015-05
Description
Catastrophe events occur rather infrequently, but upon their occurrence, can lead to colossal losses for insurance companies. Due to their size and volatility, catastrophe losses are often treated separately from other insurance losses. In fact, many property and casualty insurance companies feature a department or team which focuses solely on modeling catastrophes. Setting reserves for catastrophe losses is difficult due to their unpredictable and often long-tailed nature. Determining loss development factors (LDFs) to estimate the ultimate loss amounts for catastrophe events is one method for setting reserves. In an attempt to aid Company XYZ set more accurate reserves, the research conducted focuses on estimating LDFs for catastrophes which have already occurred and have been settled. Furthermore, the research describes the process used to build a linear model in R to estimate LDFs for Company XYZ's closed catastrophe claims from 2001 \u2014 2016. This linear model was used to predict a catastrophe's LDFs based on the age in weeks of the catastrophe during the first year. Back testing was also performed, as was the comparison between the estimated ultimate losses and actual losses. Future research consideration was proposed.
ContributorsSwoverland, Robert Bo (Author) / Milovanovic, Jelena (Thesis director) / Zicarelli, John (Committee member) / School of Mathematical and Statistical Sciences (Contributor) / Barrett, The Honors College (Contributor)
Created2018-05
Description
The purpose of this paper is to study the impact that poison pills have on the value of share prices after the cancellation of a transaction. While various studies have focused on the generic share price impact of poison pills, very few have focused on the impact of poison pills in cancelled transactions. Based on our research and analysis, in cancelled transactions, target firms that have poison pills prior to the transaction and target firms without poison pills generate returns above the announcement date premium and subsequent investment in the S&P 500 when held to the cancellation of the transaction and when held from cancellation to 6 months after the transaction. This analysis can contribute to the argument that holding shares of firms regardless of cancellation risk is preferable to taking profit at announcement date. Additionally, it can contribute to the study of undiscovered pricing impact of poison pills.
ContributorsChotalla, Gurkaran (Co-author) / Amjad, Hamza (Co-author) / Reddy, Samir (Co-author) / Stein, Luke (Thesis director) / Lindsey, Laura (Committee member) / School of Mathematical and Statistical Sciences (Contributor) / Department of Finance (Contributor) / Economics Program in CLAS (Contributor) / Barrett, The Honors College (Contributor)
Created2016-12
Description
Millennial involvement levels in the stock market are startlingly low. But what has caused this disconnect between America's younger generation and the financial sector? Stress from past financial crises, distrust of Wall Street, corporate greed, or a dislike of capitalism could surely all be viable culprits. Through our mutual experiences and research, however, we have found that most millennials aren't cynical anarchists avoiding the stock market in an attempt to fight against the system. Rather, they are individuals who have the desire to learn about investing but are clueless as to where/how to start. We both began investing in the stock market early in our college careers by opening online brokerage accounts and developing investment portfolios based on knowledge we learned within our Finance degrees and through independent research. Word of our involvement in the stock market began to spread in our social circles and people would consistently approach either of us and ask a variety of questions regarding investing. Questions such as: Can you sit down and help me open up an account and pick some stocks? What type of things do you invest in? How do I get started? How much money have you made? (always a favorite). Pre-med students, engineers, business, science, and technology majors alike all showed interest in the stock market. The more and more we talked to people, the more we realized that the problem was not a lack of desire or a lack of intellect. The problem was a lack of logically presented information, and barriers to entry that were far too high. We want to fix that. Investnet will be an online educational platform that will teach anyone the basics of investing, in plain, easy to understand terms. Whether the individual has absolutely zero knowledge of finances, or has some familiarity with investing, Investnet will provide them with the knowledge and confidence necessary to start investing in the stock market (or choose not to, but at least they'll know how).
ContributorsMcKenzie, Connor (Co-author) / Shatila, Jordan (Co-author) / Budolfson, Arthur (Thesis director) / Hoffman, David (Committee member) / School of Mathematical and Statistical Sciences (Contributor) / Department of Finance (Contributor) / W. P. Carey School of Business (Contributor) / Economics Program in CLAS (Contributor) / Barrett, The Honors College (Contributor)
Created2016-05
Description
This dissertation consists of two essays on corporate policy. The first chapter analyzes whether being labeled a “growth” firm or a “value” firm affects the firm’s dividend policy. I focus on the dividend policy because of its discretionary nature and the link to investor demand. To address endogeneity concerns, I use regression discontinuity design around the threshold to assign firms to each category. The results show that “value” firms have a significantly higher dividend payout - about four percentage points - than growth firms. This approach establishes a causal link between firm “growth/value” labels and dividend policy.
The second chapter develops investment policy model which associated with du- ration of cash flow. Firms are doing their business by operating a portfolio of projects that have various duration, and the duration of the project portfolio generates dif- ferent duration of cash flow stream. By assuming the duration of cash flow as a firm specific characteristic, this paper analyzes how the duration of cash flow affects firms’ investment decision. I develop a model of investment, external finance, and savings to characterize how firms’ decision is affected by the duration of cash flow. Firms maximize total value of cash flow, while they have to maintain their solvency by paying a fixed cost for the operation. I empirically confirm the positive correlation between duration of cash flow and investment with theoretical support. Financial constraint suffocates the firm when they face solvency issue, so that model with financial constraint shows that the correlation between duration of cash flow and investment is stronger than low financial constraint case.
The second chapter develops investment policy model which associated with du- ration of cash flow. Firms are doing their business by operating a portfolio of projects that have various duration, and the duration of the project portfolio generates dif- ferent duration of cash flow stream. By assuming the duration of cash flow as a firm specific characteristic, this paper analyzes how the duration of cash flow affects firms’ investment decision. I develop a model of investment, external finance, and savings to characterize how firms’ decision is affected by the duration of cash flow. Firms maximize total value of cash flow, while they have to maintain their solvency by paying a fixed cost for the operation. I empirically confirm the positive correlation between duration of cash flow and investment with theoretical support. Financial constraint suffocates the firm when they face solvency issue, so that model with financial constraint shows that the correlation between duration of cash flow and investment is stronger than low financial constraint case.
ContributorsLee, Tae Eui (Author) / Mehra, Rajnish (Thesis advisor) / Tserlukevich, Yuri (Thesis advisor) / Custodio, Claudia (Committee member) / Arizona State University (Publisher)
Created2015
Description
This paper examines the link between firm size and innovation. Given that innovation is highly reliant on human capital, the ability to attract, motivate, and retain high quality inventors is a key determinant of firm innovation. Firm size may affect these abilities, and small firms are known to account for a disproportionate share of aggregate innovation. I therefore investigate the role that sorting of inventors across firms plays in explaining this disparity. Talented inventors may find employment at a large firm less attractive due to the relative absence of growth options and a lower ability to link compensation to performance. Using inventor-level patent data, I construct employment histories for inventors at U.S. public firms. I find that the most productive inventors are disproportionately likely to move to small firms, while the least productive inventors disproportionately remain at large firms. These results cannot be explained fully by small firms' superior growth opportunities. In addition, productive innovators' turnover in small firms is sensitive to the level of option compensation. Taken together, this evidence is consistent with inventor sorting explaining part of the firm size innovation gap.
ContributorsChi, Yung-Ling (Author) / Lindsey, Laura A. (Thesis advisor) / Tserlukevich, Yuri (Committee member) / Stein, Luke C.D. (Committee member) / Arizona State University (Publisher)
Created2016