Financial Review

Publisher:
Wiley
Publication date:
2021-02-01
ISBN:
0732-8516

Latest documents

  • Board cultural diversity and firm performance under competitive pressures

    We examine the impact of board cultural diversity, based on directors' ancestry, on firm performance conditional on product market competition. We argue that culturally diverse boards foster critical thinking and offer creative solutions that help firms thrive in competitive environments. We document that culturally diverse boards are associated with superior performance for firms operating in highly competitive industries. To address potential endogeneity issues, we use a quasi‐natural experiment of the U.S. import tariff cuts. The positive impact of board cultural diversity on firm performance in competitive markets manifests itself in firms that innovate more, require creative inputs, and face heightened predation risk due to their high interdependence with industry rivals, in line with culturally diverse boards effectively performing their advisory role. Lastly, we find no evidence that board cultural diversity is associated with enhanced monitoring as its benefits fade in the presence of powerful CEOs.

  • Share repurchases and managerial reference points

    This study examines the relationship between managerial reference points and corporate payout policy. We find that share repurchase activity increases as a firm's current stock price declines in relation to the price at which it previously repurchased shares. To facilitate a behavioral interpretation of this relation, we show that it weakens around stock splits, is asymmetric over gains and losses, and strengthens when prior repurchase prices are more salient. Further, the relation is not explained by traditional repurchase motives. The results suggest a behavioral pattern in which managers use prior repurchase prices as reference points for current repurchases.

  • The papers I can't write

    In this future directions in finance article, I discuss several topics that I believe are promising areas for research. The topics fall into three areas: the microstructure of fixed income markets, equity market microstructure, and short selling. Both theoretical and empirical work is needed in these areas.

  • Bank competition and the design of syndicated loans

    We study the effect of bank competition on the design of syndicate loans. We find that competition in the lead lender's market plays a significant role in determining the terms of the syndicate loans. Specifically, higher concentration leads to higher yield spreads, larger issues, shorter maturities, greater contract intensity, and more collateral requirements, but with a greater likelihood of performance pricing. We also find the prior banking relationships, anti‐takeover provisions and whether the lead bank is a national, regional, or state bank influence the designs of these loans.

  • Interstate migration‐based social networks and M&A decisions

    Acquisition decisions and outcomes are found to be associated with the availability of interstate migration‐based social networks. The likelihood of bidders pursuing targets headquartered in migration sending states increases with these social networks’ size, in particular when (a) targets are in the same industry, (b) migration networks span distant states, and (c) targets are small. We also find smaller takeover premia and higher acquirer announcement returns in interstate transactions involving large migration networks. Our collective evidence is consistent with the notion that both enhanced expected synergies and information advantages may drive acquirers’ propensity to choose targets from migration sending states.

  • Determinants of commodity market liquidity

    Using positions data for 18 commodity futures during 2001–2020, we examine systematic and idiosyncratic determinants of Amihud price impact and microstructure noise proxying for permanent and transitory components of commodity futures liquidity. Idiosyncratic factors have the largest economic impact: while excess hedging demand increases PI and noise, active position‐taking (by market‐makers) in excess of the hedging demand reduces noise. Systematic factors, including the lack of competition among liquidity providers, adversely impact liquidity, but this effect is mitigated if liquidity providers are well‐capitalized. Supplementary leverage ratio (SLR) makes holding inventory costlier and is associated with lower liquidity.

  • Repeated innovations and excessive spin‐offs

    Firms can voluntarily create independent firms to implement their technologically distant innovations and capture their value through capital markets. We argue that when firms repeatedly compete to make innovations, there is inefficient external implementation of innovations and “excessive” creation of such firms. This inefficiency is most exacerbated in the early stages of an industry, when the number of firms is still limited.

  • Issue Information
  • The determinants of limit order cancellations

    Almost all limit orders are canceled. We examine two economic channels that can motivate cancellations: reductions in the expected profit at execution, and reductions in the probability of execution. An order‐level analysis shows that changes in depth at the best bid and offer prices, as well as changes in the order queue position, influence cancellation in a way consistent with the former channel, that market makers monitor the expected profit at execution of each limit order. Although buy‐side investors use passive orders extensively, our findings indicate that limit order cancellations on aggregate are best understood through models of liquidity provision.

  • Where does ex‐dividend trading occur: An examination of trading venues around dividends

    We examine the fragmentation of trading around the ex‐dividend date. We argue that the taker‐maker and dark trading venues provide potential dividend capture traders a more favorable platform than the maker‐taker venue(s) given the price improvement, lower queues, and lower net transaction costs. Our evidence indicates that taker‐maker (dark) venue market share decreases (increases) on cum‐dividend days but reverts to normal levels on the ex‐dividend day. Additionally, we find fragmented trading impacts the ex‐dividend price change and improves price efficiency. Finally, we find evidence that retail trades are associated with potential dividend‐capture trading.

Featured documents

  • Board cultural diversity and firm performance under competitive pressures

    We examine the impact of board cultural diversity, based on directors' ancestry, on firm performance conditional on product market competition. We argue that culturally diverse boards foster critical thinking and offer creative solutions that help firms thrive in competitive environments. We...

  • Portfolios of actively managed mutual funds

    Investors should focus on the performance of portfolios of active funds, not on the performance of individual active funds. Taking this portfolio approach with respect to active U.S. equity mutual funds, I build an optimized portfolio of funds that subsequently has low idiosyncratic volatility and...

  • Do changes in MD&A section tone predict investment behavior?

    We find that changes in managerial tone predict firm corporate investment activities. Tone changes within the Management Discussion and Analysis section of the 10‐K are positively related to subsequent capital investments and M&A activity. We find the predictive content of tone changes to be...

  • Effect of high‐frequency trading on mutual fund performance

    We find that high‐frequency trading (HFT) in stocks held by mutual funds negatively affects fund performance: when sorted by HFT intensity of holdings, funds in the top quintile underperform funds in the bottom quintile by 2.64% per year. The negative relation can be at least partially explained by ...

  • Share repurchases and managerial reference points

    This study examines the relationship between managerial reference points and corporate payout policy. We find that share repurchase activity increases as a firm's current stock price declines in relation to the price at which it previously repurchased shares. To facilitate a behavioral...

  • Expectations and financial markets: Lessons from Brexit

    We use the setting of Brexit to investigate how financial markets react to news about political events. We provide robust evidence that political risk is priced by equity markets globally. Furthermore, commodity, government bonds, and currency markets are also affected by political uncertainty....

  • The more we know, the less we agree: A test of the trading horizon heterogeneity theory

    We examine the Kondor theoretical explanation of an enduring puzzle: trading volumes and stock return volatility peak after the release of public information. Using a comprehensive data set of institutional holdings and earnings announcements, we find supporting evidence that the proportion of...

  • International evidence on the association of leverage with stock returns and the value premium

    We use an international sample to test theories predicting an association between operating and financial leverage with stock returns and the value premium. We find evidence that operating and financial leverage are related to stock returns and the value premium across the sampled countries....

  • Can hedge funds benefit from corporate social responsibility investment?

    We explore the extent to which hedge funds incorporate corporate social responsibility (CSR) considerations in the development of their investment strategies. Using an asset‐weighted composite measure of CSR by fund, we examine the difference in financial performance between hedge funds with high...

  • Corporate social responsibility and shareholder wealth: New insights from information spillovers

    Utilizing comprehensive business news data, we examine the link between corporate social responsibility (CSR) and shareholder wealth through the information spillovers of news announcements. Specifically, we leverage competitor's news as an exogenous shock to peer firms' stock returns and explore...

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