Journal of Financial Research

Publisher:
Wiley
Publication date:
2021-02-01
ISBN:
0270-2592

Latest documents

  • CEO EXTRAVERSION AND CAPITAL STRUCTURE DECISIONS: THE ROLE OF FIRM DYNAMICS, PRODUCT MARKET COMPETITION, AND FINANCIAL CRISIS

    Using panel data of U.S. firms, we focus on an important yet understudied facet of the chief executive officer's (CEO) personality—extraversion—and how it affects corporate capital structure decisions. We examine how this relation is moderated by financing (tax) benefits, financial crisis, firm size, growth opportunities, and collateralization. The results show that firms managed by extraverted CEOs use greater financial leverage, adjusting toward target leverage levels at a faster speed, with about half‐life within a year for book and market leverage. In addition, the positive extraversion–leverage relation is enhanced for firms that are large, have greater collateralizable assets, and are more vulnerable to external shocks (financial crisis). Last, although the positive extraversion–leverage relation holds particularly when product market competition is high, the effect is attenuated for high‐growth opportunity firms.

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  • THE COMOVEMENTS OF STOCK, BOND, AND CDS ILLIQUIDITY BEFORE, DURING, AND AFTER THE GLOBAL FINANCIAL CRISIS

    Using both marketwide and firm‐level illiquidity measures of the stock, bond, and credit default swap markets, we find that comovements of illiquidity across markets increase significantly during the recent global financial crisis. Moreover, the degree of comovement remains significantly higher in the postcrisis period and regulatory period than in the precrisis period. Specifically, the distribution of firm‐level comovements is notably different before and after the crisis (e.g., a much larger portion of firms with positive pairwise correlations between illiquidity measures in the postcrisis period than in the precrisis period). Our results provide suggestive evidence of the financial crisis effects and the subsequent postcrisis regulations on the comovements of illiquidity across markets.

  • DO WELL‐CONNECTED BOARDS INVEST OPTIMALLY IN R&D ACTIVITIES?

    Researchers have argued that the uncertainty surrounding innovative activities causes firms to either underinvest or overinvest in research and development (R&D). We examine whether the information gained by boards through directors’ connections helps mitigate such distortions. We find that an increase in directors’ connections has an asymmetric impact on under‐ and overinvesting firms. R&D expenditures are shown to increase with board connections. Such increases in R&D intensity exacerbate the extent of overinvestment, resulting in a loss in future market‐to‐book value. The increase in R&D intensity, however, reduces underinvestment only among firms with higher than average R&D productivity. We find that increased director busyness is one cause of overinvestment.

  • HOW DID THE FINANCIAL CRISIS AFFECT SMALL‐BUSINESS LENDING IN THE UNITED STATES?

    We analyze changes in lending by U.S. banks to businesses from 1994 to 2011. We find that lending to businesses, and in particular to small businesses, declined precipitously following onset of the financial crisis. We also examine the relative changes in business lending by banks that did, and did not, receive Troubled Asset Relief Program (TARP) funds from the U.S. Treasury, and find that banks receiving capital injections from the TARP failed to increase their small‐business lending. Finally, we find strong and significant positive relations of both bank capital adequacy and profitability with small‐business lending.

  • DO STOCK MARKET FLUCTUATIONS AFFECT SUICIDE RATES?

    In this study, we extend the standard economic model of suicide by considering a new influential factor driving the voluntary death rate. Using an international sample, we estimate the model and document a robust and significant inverse relation between stock market returns and the percentage increase in suicide rates. Trends in male and female suicide are affected by market fluctuations, both contemporaneously and at a lag. This predictive quality of stock returns offers the potential to implement pro‐active suicide prevention strategies for those who could be affected by the vagaries of the market and general economic downturns.

  • MANAGING FOR RATINGS: REAL EFFECTS OF A CORPORATE RATINGS CRITERIA CHANGE

    We exploit a criteria change by Standard & Poor's (S&P) to examine the real effects of a credit ratings change. Using a recalibration by S&P, unrelated to firms’ fundamentals, as a quasi‐natural experiment we analyze the impact of a ratings upgrade on the issuance activity, investment, cash holdings, and payout policy of companies. Our findings suggest upgraded firms subsequently issue more debt relative to equity, enjoy lower debt yields, and increase their investment rate and share repurchases. We find limited evidence that upgraded firms decrease their cash holdings. Our results support the view that credit ratings have a real effect on corporations.

  • DOES SPEED MATTER? THE ROLE OF HIGH‐FREQUENCY TRADING FOR ORDER BOOK RESILIENCY

    We analyze limit order book resiliency following liquidity shocks initiated by large market orders. Based on a unique data set, we investigate whether high‐frequency traders are involved in replenishing the order book. Therefore, we relate the net liquidity provision of high‐frequency traders, algorithmic traders, and human traders around these market impact events to order book resiliency. Although all groups of traders react, our results show that only high‐frequency traders reduce the spread within the first seconds after the market impact event. Order book depth replenishment, however, takes significantly longer and is mainly accomplished by human traders’ liquidity provision.

  • AUTHOR INDEX OF VOLUME XLIII, 2020
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