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How does the JOBS act affect the rule 144A market? Journal of Financial Research (IF 2.811) Pub Date : 2024-03-04 Kelly Cai, Hui Zhu
In this article, we examine the effects of Title II of the Jumpstart Our Business Startups (JOBS) Act on the cost and issue size of Rule 144 debts for a sample from 2002 to 2019. We find that after the enactment of the JOBS Act, the average cost (issue size) of the Rule 144 A offers decreases (increases) significantly. The findings are robust after controlling for issue‐, issuer‐, and country‐specific
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Toeholds and information quality in common‐value takeover auctions Journal of Financial Research (IF 2.811) Pub Date : 2024-02-29 Anna Dodonova
In this article I analyze the effect of the sensitivity of firm value on the information available to potential acquirers in common‐value takeover auctions with toeholds. I show that the quality of information does not affect equilibrium when bidders have equal toeholds but has a significant effect when toeholds are different. My article demonstrates that increasing the relative information quality
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CEO compensation complexity: Optimal contracts or agency problems? Journal of Financial Research (IF 2.811) Pub Date : 2024-02-21 Othman Alolah
I construct a CEO pay complexity index based on grant‐level compensation data to test whether compensation complexity is consistent with optimal contracts or agency problems. Complexity may represent board efforts to contract optimally or a means by which the CEO camouflages agency issues and rent extraction. I find evidence supporting the agency view by showing how complexity is negatively related
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Threats to human capital: The effect of health risk on corporate financial policy Journal of Financial Research (IF 2.811) Pub Date : 2024-02-21 Özde Öztekin
I examine the relation between threats to human capital and corporate financial policy using morbidity and mortality data related to infectious diseases. I observe a strong association between deteriorating health and declines in leverage, which seems to be influenced by increasing human capital costs offsetting debt benefits. Firms consider reducing debt as a strategic response to perceived employee
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Impacts of firm life cycle on bond ratings and yields Journal of Financial Research (IF 2.811) Pub Date : 2024-02-19 Kelly Cai, Heiwai Lee, Hui Zhu
We examine how firm life cycle affects ratings and costs of debt for public offers. We find that ratings for issuers in the introduction and decline stages are lower than those for growth and mature issuers. A similar U‐shaped relation between life stage and yield spread, after controlling for credit rating, indicates that life stage affects cost of debt through multiple channels. Costs of debt are
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Climate risk and credit ratings Journal of Financial Research (IF 2.811) Pub Date : 2024-02-12 Nhu Tran, Cihan Uzmanoglu
We find weak evidence suggesting that cities’ credit ratings reflect their climate risk exposure. Using a large sample of US cities, we test whether cities with higher exposure to physical or transition risks of climate change have lower credit ratings. We also compare the ratings of coastal and similar noncoastal cities, and run difference-in-differences tests around events that raise climate change
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The role of Cross-Border alliances in corporate social responsibility: International evidence Journal of Financial Research (IF 2.811) Pub Date : 2024-02-08 Chenchen Huang, Zhe Li
We examine how forming cross-border alliances with US firms influences the corporate social responsibility (CSR) performance of their foreign partner firms. Analyzing a sample across 39 countries between 2002 and 2018, we find that these foreign firms experience higher future CSR performance, with a notable 6.46% increase compared with those without such alliances. Moreover, this effect is stronger
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Tax-loss selling and the January effect revisited: Evidence from municipal bond closed-end funds and exchange-traded funds Journal of Financial Research (IF 2.811) Pub Date : 2024-01-31 Allen Carrion, Jiang Zhang
We revisit the tax-loss selling hypothesis as an explanation for the January effect. We expand on prior empirical evidence from municipal bond closed-end funds (CEFs) by extending the sample period by 19 years and adding exchange-traded funds (ETFs). Our sample covers the introduction and rapid growth of municipal bond ETFs, significant changes to municipal bond market structure, and the modernization
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Community social capital, managerial opportunistic behavior, and information uncertainty in IPO firms Journal of Financial Research (IF 2.811) Pub Date : 2024-01-31 Shunyao Jin, Heiwai Lee
We examine whether and how community social capital influences the information uncertainty of a private firm's going-public process. We find that high social capital of the US counties in which IPO firms are headquartered significantly reduces underpricing and post-IPO stock volatility. This relation is stronger under lessened disclosure requirements and less reputable underwriting. Further findings
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Informed trading by hedge funds Journal of Financial Research (IF 2.811) Pub Date : 2024-01-31 Qiping Huang, Pankaj K. Jain
Using daily equity transactions, we create a hedge fund informed trading measure (ITM) that separates concentrated information-related trades from liquidity-driven basket trades. We find that stocks with higher ITM are associated with higher future stock performance. The long–short portfolio delivers 4% annual alpha after controlling for size, value, momentum, and illiquidity factors. We attribute
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Market structure and price clustering: Maker-taker versus taker-maker Journal of Financial Research (IF 2.811) Pub Date : 2024-01-22 Justin S. Cox, Todd G. Griffith, Robert A. Van Ness
We examine whether the different fee structures on equity exchanges, maker-taker or taker-maker, affects the frequency with which security prices cluster on round increments. We find higher price clustering on traditional maker-taker venues relative to inverted taker-maker venues. These results generally hold at the individual exchange level and across transaction- and quotation-level clustering measures
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Hostile activism: Hostile tactics or hostile hedge funds? Journal of Financial Research (IF 2.811) Pub Date : 2024-01-19 Hugo Benedetti, Ehsan Nikbakht, Andrew C. Spieler
In this article, we examine reputation building by activist hedge funds and provide two new findings regarding hostile activism. First, we find evidence of a permanent reputation effect to hostile activism. Activist hedge funds that have engaged in hostile tactics receive on average a 3% higher cumulative abnormal return (CAR) [−10, +10] on their subsequent nonhostile campaigns compared to hedge funds
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Excess cash and equity option liquidity Journal of Financial Research (IF 2.811) Pub Date : 2023-12-20 Min Deng, Minh Nguyen
We examine the relation between excess corporate cash holdings and equity option market liquidity from January 3, 2005 to December 31, 2019. We show that the level of cash reserve in excess of what can be captured by firm characteristics significantly explains stock option liquidity. Trading volume and option open interest increase in companies with a higher magnitude of excess cash, whereas the bid–ask
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Corporate cash holdings and industry risk Journal of Financial Research (IF 2.811) Pub Date : 2023-12-21 Jinsook Lee
I conjecture that a firm's sensitivity to industry shocks escalates its need to retain a cash buffer. Consistent with this conjecture, I find that a 1 SD increase in a firm's industry risk exposure increases cash holdings by 10%. In fact, industry risk has a greater effect on corporate cash holdings than does economywide and idiosyncratic risk in my sample. The effect of industry risk exposure on corporate
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The role of the dual holder in mitigating underinvestment Journal of Financial Research (IF 2.811) Pub Date : 2023-12-21 Roman Bohdan, Tarun Mukherjee
The literature on dual holding focuses exclusively on cases where the holder is primarily a creditor and buys the firm's stocks to reduce potential wealth transfer. However, wealth transfer is not a concern when the dual holder is a stockholder first and becomes a bondholder later. We hypothesize that the principal motive behind such dual holdings is to provide debt funding to an otherwise successful
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Tweets versus broadsheets: Sentiment impact on stock markets around the world Journal of Financial Research (IF 2.811) Pub Date : 2023-12-20 Baoqing Gan, Vitali Alexeev, Danny Yeung
We contrast sentiment derived from social and news media to investigate its impact across 14 international markets. We find that heightened media sentiment during nontrading periods significantly affects the next day's opening returns even after accounting for the previous-day activity. Markedly, only the US market exhibits strong reactions to social media, whereas other markets are more responsive
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Short sellers and capital structure dynamics Journal of Financial Research (IF 2.811) Pub Date : 2023-12-20 Suchismita Mishra, Özde Öztekin, Anisur Rahman
Managers tend to issue equity when a firm is overvalued. Short selling is more frequent among overvalued firms. By conditioning short selling on overvaluation, we show that short selling increases leverage, lenghtens debt maturity, and speeds up adjustment to target leverage. The leverage increase is more pronounced in firms with independent boards and an increased likelihood of misvaluation, is driven
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Predicting corporate restructuring and financial distress in banks: The case of the Swiss banking industry Journal of Financial Research (IF 2.811) Pub Date : 2023-12-20 Daniel Boos, Nikolaos Karampatsas, Wolfgang Garn, Lampros K. Stergioulas
The global financial crisis of 2007–2009 is widely regarded as the worst since the Great Depression and threatened the global financial system with a total collapse. This article distinguishes itself from the vast literature of bankruptcy, bank failure, and bank exit prediction models by introducing novel categorical parameters inspired by Switzerland's banking landscape. We evaluate data from 274
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Economic policy uncertainty and short-term reversals Journal of Financial Research (IF 2.811) Pub Date : 2023-12-12 Zhaobo Zhu, Licheng Sun
In this article, we provide new evidence on the impact of economic policy uncertainty (EPU) on asset pricing. Specifically, we find that short-term return reversals are stronger following high-EPU periods, likely due to an uncertainty-induced decrease in stock market liquidity. However, EPU does not appear to have a significant effect on accounting-based anomalies, possibly because these anomalies
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The role of media connections in seasoned equity offerings Journal of Financial Research (IF 2.811) Pub Date : 2023-12-12 Luis García-Feijóo, Daniel Gropper, Md Miran Hossain, David Javakhadze
We present evidence that corporate connections to the media are associated with a greater likelihood of a seasoned equity offering (SEO), more negative announcement returns, and poorer long-term performance. The effect of media connections on announcement returns is more pronounced for firms with higher information asymmetry, greater financial constraints, and lower advertising expenditures. Media
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Constraints on provisioning at public versus private community banks Journal of Financial Research (IF 2.811) Pub Date : 2023-12-12 Eliana Balla, Morgan J. Rose
We compare the responses of publicly held versus privately held community banks to the June 2016 issuance of the current expected credit loss (CECL) standard, which altered the way US banks provision for loan losses. We find that following issuance but before implementation, the relation between earnings and provisions strengthened among privately held banks but not among publicly held banks. This
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The alphabet and idiosyncratic volatility Journal of Financial Research (IF 2.811) Pub Date : 2023-12-11 Okke Bergers, Magnus Blomkvist
We find that stocks with names earlier in an alphabetic ordering exhibit greater idiosyncratic volatility. Stocks whose names are in the first 5% of an alphabetic ordering have 4.5% higher idiosyncratic volatility relative to other stocks. To address potential concerns about early-alphabet firms being different, we study name changes. Idiosyncratic volatility is 7% higher when a name change causes
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Active mutual funds and their passive ETF investments Journal of Financial Research (IF 2.811) Pub Date : 2023-12-08 Hsiu-Lang Chen
Investing in exchange-traded funds (ETFs) rather than investing directly in the underlying securities surely prompts questions for mutual funds. Why? Examination suggests the answer is to reduce overall portfolio volatility. Actively managed open-end equity funds (OEFs) that invest in ETFs tend to take short positions in securities and to short ETFs more than other securities. Investigation of the
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Institutional investors and mispricing of unionized firms Journal of Financial Research (IF 2.811) Pub Date : 2023-11-27 Viktoriya Lantushenko, Dalia Marciukaityte, Samuel H. Szewczyk
We examine investment by different types of institutional investors in firms with strong labor unions. We find that hedge funds own a lower percentage of shares in these firms than in other firms. In contrast, passive institutional investors and institutional investors as a group own a higher percentage. Our tests suggest that the relation between unionization and hedge fund ownership is causal: When
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CEO–board connections and the cost of equity capital: International evidence Journal of Financial Research (IF 2.811) Pub Date : 2023-11-07 Md Nazmul Hasan Bhuyan, David Javakhadze
In this article, we investigate the effect of chief executive officer (CEO)–board connections on the cost of equity capital in an international setting. We find that CEO–board connections have a significant negative effect on the cost of equity. Our results are robust to alternative variable measurements, model specifications, and potential endogeneity adjustments. Examining the channel, we show that
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Are stress-tested banks in the United States becoming similar? Evidence from convergence tests Journal of Financial Research (IF 2.811) Pub Date : 2023-11-02 Destan Kirimhan, Saban Nazlioglu, James E. Payne
US bank stress tests were introduced to improve the risk posture and management practices of large and complex banking institutions. We investigate whether stress-tested banks in the United States converge to each other in their levels and determinants of profitability, as well as their risk taking and systemic risk contributions. Our results are consistent with convergence in profitability, asset
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Lending and risk controls for BHCs after the Dodd–Frank act Journal of Financial Research (IF 2.811) Pub Date : 2023-11-02 Marta Degl'Innocenti, Si Zhou, Yue Zhou
We investigate the impact of the Dodd–Frank Act (DFA) on the credit risk behavior of complex bank holding companies (BHCs). Specifically, we assess the effectiveness of the DFA in reducing the credit riskiness of complex banks. Consistent with the moral hazard hypothesis, we find that complex BHCs affected by the DFA increase their credit risk. We argue that possible explanations are that BHCs decreased
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Interstate migration networks and stock return comovement Journal of Financial Research (IF 2.811) Pub Date : 2023-11-02 Suin Lee, Christos Pantzalis, Jung Chul Park
We document sizable and robust excess return comovement between migration-flow receiving and sending states at the state-portfolio level. Migration comovement is not fully explained by economic fundamentals and strengthens with the size of the migration network. Consistent with the view that it is partially driven by correlated trading of a common investor base within migration networks, migration
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New ESG rating drivers in the cross-section of European stock returns Journal of Financial Research (IF 2.811) Pub Date : 2023-10-27 Ian Berk, Massimo Guidolin, Monia Magnani
We assess the performance of two quantitative signals based on ESG scores across a large, multi-national cross-section of European stock returns. We test whether the cost of equity capital is more influenced by the upward momentum (measured over time) of the ESG scores of the firms issuing stocks or by their stability (identified as the volatility of the scores over time), measured around a changing
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Climate transition risk and bank lending Journal of Financial Research (IF 2.811) Pub Date : 2023-10-26 Brunella Bruno, Sara Lombini
We investigate whether and how banks in the global syndicated loan market adjusted the pricing and supply of credit to account for higher climate transition risk (CTR) in the years following the 2015 Paris Agreement. We measure CTR by considering the pollution levels of borrowers and the engagement of countries where borrowers are headquartered in addressing climate change issues. The evidence is mixed
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Can central banks be heard over the sound of gunfire? Journal of Financial Research (IF 2.811) Pub Date : 2023-10-26 Ge Gao, Alex Nikolsko-Rzhevskyy, Oleksandr Talavera
In this study, we examined the effectiveness of central bank communications during times of significant adverse shocks. Specifically, we examined how the National Bank of Ukraine (NBU) regulated foreign exchange (FX) markets during the Russo-Ukrainian War in 2022. Data collected from both the black and authorized FX markets suggested that the content of the NBU's announcements significantly impacted
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Firm reaction to geopolitical crises: Evidence from the Russia-Ukraine conflict Journal of Financial Research (IF 2.811) Pub Date : 2023-10-26 Md Asif Ul Alam, Erik Devos, Zifeng Feng
This paper investigates corporate announcements related to the Russia-Ukraine conflict of S&P 500 firms. We observe that firms withdrawing from Russia or suspending operations possess higher cash levels. Additionally, firms with more cash seem to announce withdrawals or suspensions more promptly. These findings suggest that cash levels are pivotal in how firms respond to geopolitical events. While
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Does environmental investment pay off?—portfolio analyses of the E in ESG during political conflicts and public health crises Journal of Financial Research (IF 2.811) Pub Date : 2023-10-25 Jiancheng Shen, Chen Chen, Zheng Liu
This paper examines the contribution of environmental investment on firm value during the Russia-Ukraine War and Global Public Health Crisis. Using media-based environmental scores, we investigate the performance of the emission-reduction-based and green-innovation-based portfolios. The results indicate that while engaging in environmental activities decreases firm value during the noncrisis time,
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Board structure and market performance: Does one solution fit all? Journal of Financial Research (IF 2.811) Pub Date : 2023-10-25 Milena Petrova
We investigate the relationship between internal corporate governance and market performance across multiple countries, utilizing a comprehensive data set comprising 77,440 firm observations from 15 European Union countries over the period 2002-2018. Specifically, we examine the impact of board characteristics, including size, independence, gender diversity, CEO duality, and classified boards, on market
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Market impacts of the 2020 short selling bans Journal of Financial Research (IF 2.811) Pub Date : 2023-10-24 Alessandro Spolaore, Caroline Le Moign
At the height of the COVID-19 related market stress in March 2020, six European countries implemented market-wide short selling bans. Based on a difference-in-difference approach using regulatory data, our estimation finds that the bans are associated with a deterioration in liquidity and trading volumes, and a decrease in volatility, without evidence of price impact. Remarkably, the negative impact
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European equity markets volatility spillover: Destabilizing energy risk is the new normal Journal of Financial Research (IF 2.811) Pub Date : 2023-10-24 Zsuzsa R. Huszár, Balázs B. Kotró, Ruth S. K. Tan
While energy risk is increasingly recognized as a systemic risk, there is limited comprehensive analysis of the risk propagation in regional contexts. In this study, we examine oil and natural gas price changes and shocks in relation to equity market returns and volatility for 24 European Economic Area (EEA) countries. In addition to traditional panel regressions, we also deploy the Diebold-Yilmaz
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The impact of labor on the performance of founder-family firms Journal of Financial Research (IF 2.811) Pub Date : 2023-09-27 Murali Jagannathan, Brett W. Myers, Xu Niu
Firms managed by the scions of founders continue to be prevalent in the United States despite the increase in shareholder activism over the last few decades, calling into question the argument that such organizational structures reduce firm value. Founder-family successions are rare in high-growth industries where the benefits of selecting from a larger pool of managers is significant. Rather, they
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Cyclicality of liquidity creation: Nonlinear evidence from US bank holding companies Journal of Financial Research (IF 2.811) Pub Date : 2023-09-06 Ghulame Rubbaniy, Ali Awais Khalid, Shoaib Ali, Efstathios Polyzos
Using a panel smooth transition regression framework on a new proxy of the business cycle (BC) index and quarterly data of US bank holding companies from 1993Q1 to 2020Q1, our results provide empirical support for the theory that the BC has a nonlinear effect on liquidity creation. We find a positive and highly significant nonlinear effect of the BC on liquidity creation, which not only supports the
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Different momentum effects across countries: An explanation based on investors' behavior Journal of Financial Research (IF 2.811) Pub Date : 2023-08-31 Guoxiao Xia, Changsheng Hu, Huosong Xia, Yangchun Chi
We establish a model in which speculators use feedback trading characteristics to infer the behavior of irrational investors and induce them to trade. We also discuss the stability and time series of asset prices. Our results show that: (1) speculators have speculation and arbitrage demands and make “noise” to induce irrational investors to trade, (2) the time series of asset prices show stable momentum
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The causal effect of corporate governance on employee satisfaction Journal of Financial Research (IF 2.811) Pub Date : 2023-07-18 Marco Menner, Frederic Menninger
We investigate the causal effect of increasing shareholder rights on employee satisfaction. To ensure causality, we use close shareholder votes on antitakeover provisions included in the Entrenchment Index (E-Index) as exogenous shocks to the corporate governance of a company. A 1-point increase in shareholder rights on the E-Index scale causes a 10% decrease in employee satisfaction. The channels
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Board gender diversity and acquisition choices Journal of Financial Research (IF 2.811) Pub Date : 2023-07-12 Abeyratna Gunasekarage, Mehdi Khedmati, Kristina Minnick, Syed Shams
We investigate the influence of gender diversity on the acquisition choices of bidding firms and find that firms with greater gender diversity are more likely to acquire nonlisted targets, use cash as the method of payment, and purchase firms in similar industries. Results show that these preferences are significantly influenced by female directors' financial expertise, target industry experience,
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Financial analysts' bundling across firms: Target prices and stock recommendations Journal of Financial Research (IF 2.811) Pub Date : 2023-07-12 Yu-An Chen, Dan Palmon
A rising trend is that analysts bundle earnings forecasts for multiple firms on the same day, and such forecast bundling is associated with low-quality forecasts. We explore target price bundling and recommendation bundling. Factors driving bundling revisions of an output for multiple firms vary across three outputs: forecasts, target prices, and recommendations. Target price (recommendation) revisions
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CEO prior uncertainty and pay–performance sensitivity Journal of Financial Research (IF 2.811) Pub Date : 2023-07-12 Jiyoon Lee
A CEO's pay–performance sensitivity (PPS) is higher in the first year of their tenure than in the following years. I explain this finding with reference to chief executive officer (CEO) prior uncertainty: Because of information asymmetry and/or uncertainty about the quality of the match between a CEO and a firm, first-year compensation is often arranged to depend largely on performance. Consistent
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Ambiguity and risk factors in bank stocks Journal of Financial Research (IF 2.811) Pub Date : 2023-07-12 Luis García-Feijóo, Ariel M. Viale
The determinants of banks' cost of equity are not well understood. We depart from prior work assuming rational expectations and instead explore the impact of Knightian uncertainty or ambiguity on bank stocks. We test a large set of asset pricing models and find that investors' lack of confidence in both the drift and correlation structure driving bank stock returns affects banks' cost of capital. We
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Managing other people's money: An agency theory in financial management industry Journal of Financial Research (IF 2.811) Pub Date : 2023-06-26 Dimitris Papadimitriou, Konstantinos Tokis, Georgios Vichos, Panos Mourdoukoutas
We build an active asset management model to study the interplay between the career concerns of a manager and prevailing market conditions. We show that fund managers overinvest in market-neutral strategies, as these have a reputational benefit. This benefit is smaller in bull markets, when investors expect more managers to use high-beta strategies, making their performance less informative about their
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Managerial characteristics and performance of eurozone mutual funds Journal of Financial Research (IF 2.811) Pub Date : 2023-06-24 Konstantinos Tolikas, Marc Callonnec
We investigate the relation between observable managerial characteristics (i.e., gender, age, tenure, professional qualifications, and advanced education) and performance in diversified equity mutual funds domiciled in the eurozone. We find that differences in the fund alphas are statistically significant only in groups based on age, tenure, and professional qualifications (i.e., chartered financial
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Treasury return predictability and investor sentiment Journal of Financial Research (IF 2.811) Pub Date : 2023-05-31 Chen Gu, Xu Guo, Ruwan Adikaram, Kam C. Chan, Jing Lu
We document that the Treasury market investor sentiment (TSENT) of institutional investors is a powerful predictor of bond risk premia. Specifically, TSENT positively predicts Treasury bond excess returns in and out of sample. The forecasting gains of TSENT are incremental to those in conventional bond return predictors: Fama–Bliss forward spreads, Cochrane–Piazzesi forward rate factor, and Ludvigson–Ng
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IRS Private Letter Rulings: Initial Evidence on Determinants and Consequences Journal of Financial Research (IF 2.811) Pub Date : 2023-05-25 Elizabeth Devos, Erik Devos, David B. Farber, He Li, Shofiqur Rahman
This study examines the determinants of firms' requests for Private Letter Rulings (PLRs) from the US Internal Revenue Service (IRS) and their impact on firms' cash holdings. Our results show that PLR requests tend to be made by firms with more active tax planning, more acquisitions, higher analyst following, higher leverage, and less in-house tax expertise. We also show that firms with IRS audit red
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Capital gain overhang and risk–return trade-off: An international study Journal of Financial Research (IF 2.811) Pub Date : 2023-05-23 Dazhi Zheng, Huimin Li, Fengyun Li
In this article, we examine the risk–return relation under the impact of investors' price reference points in international markets. We calculate capital gain overhang (CGO) to measure the psychological evaluation of past returns. Using a double-sorting methodology, we find that a negative risk–return trade-off generally exists in international markets when CGO is low; results using the Fama–MacBeth
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Cultural, trust, and transparency effects on the use of anchoring in mergers and acquisitions Journal of Financial Research (IF 2.811) Pub Date : 2023-05-22 Stephen P. Ferris, Narayanan Jayaraman, Min-Yu (Stella) Liao
Although price anchoring is a global phenomenon, we find that country cultures, trust levels, and information/legal transparency affect its use in determining target offer prices. Price anchoring is associated with cultures that deemphasize long-term orientation, uncertainty avoidance, and personal indulgence. Acquirers from countries with low levels of trust in people or the legal system are more
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Is idiosyncratic asymmetry priced in commodity futures? Journal of Financial Research (IF 2.811) Pub Date : 2023-05-22 Yufeng Han, Xuan Mo, Zhi Su, Yifeng Zhu
In this article, we use a recently introduced asymmetry measure, IE, to measure the idiosyncratic asymmetry of commodity futures returns and find that idiosyncratic asymmetry negatively and significantly predicts commodity futures returns cross sectionally. Furthermore, we find that a long–short trading strategy based on idiosyncratic asymmetry generates significant abnormal returns, which cannot be
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Decomposing industry leverage: The special cases of real estate investment trusts and technology & hardware companies Journal of Financial Research (IF 2.811) Pub Date : 2023-05-10 Wolfgang Breuer, Linh D. Nguyen, Bertram I. Steininger
Different industries exhibit significantly different leverage; companies in the real estate investment trust (REIT) and technology/hardware sectors are extreme examples. In the United States, the leverage ratio is twice as high for REITs (50%) as compared to non-real-estate firms (around 25%), and the technology/hardware sector has the lowest ratio (around 17%). We theoretically and empirically analyze
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Capacity overhang and corporate disinvestment decisions Journal of Financial Research (IF 2.811) Pub Date : 2023-05-03 Ilker Karaca, Travis R. A. Sapp
We use a stochastic frontier model to estimate a firm's capacity overhang. We find that excess capacity is positively related to a drop in new capital expenditures, an accumulation of depleted long-term assets, and outright sales of investment assets. However, the sale of long-term assets (property, plant, and equipment [PP&E]) peaks for intermediate levels of excess capacity and then declines. We
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Do bank managers signal through cash flow statements? Journal of Financial Research (IF 2.811) Pub Date : 2023-04-21 Yoshie Saito, Yukihiro Yasuda
We empirically examine the cash flow statements for Japanese banks and whether their managers engage in classification shifting to temper concerns about risk exposure. To create a buffer against liquidity shocks, they shift cash flows from investing and/or financing activities to operating activities. We also find robust evidence that classification shifting intensifies in higher risk situations. Although
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The determinants of stock–bond return correlations Journal of Financial Research (IF 2.811) Pub Date : 2023-04-17 Ghulam Sarwar
I study the options-implied market risks that affect US stock–bond correlations from 2007 to 2021. I discover that US stock and bond market uncertainty, stock market tail risk, and global credit-default risk are dominant contributors to changing stock–bond correlations during the global financial crisis (GFC) period. However, these market risks collectively contribute much less to time-varying correlations
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Market-implied ratings and their divergence from credit ratings Journal of Financial Research (IF 2.811) Pub Date : 2023-04-12 Iftekhar Hasan, Jianfu Shen, Gaiyan Zhang, Winnie P. H. Poon
In this article, we investigate the divergence between credit ratings (CRs) and Moody's market-implied ratings (MIRs). Our evidence shows that rating gaps provide incremental information to the market regarding issuers' default risk over CRs alone in the short horizon and outperform CRs over extended horizons. The predictive ability of rating gaps is greater for more opaque and volatile issuers. Such
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The effect of the Money Market Mutual Fund Liquidity Facility (MMLF) on corporate short-term borrowing costs Journal of Financial Research (IF 2.811) Pub Date : 2023-04-11 Karen Y. Jang
In this article, I study the effect of the Money Market Fund Liquidity Facility (MMLF) on corporate short-term borrowing costs. Although MMLF loans accept a broader range of collateral acquired from money market funds (MMFs) than Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF) loans, their higher loan rates could make the intervention less effective. I find the average
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Swap variance hedging and efficiency: The role of high moments Journal of Financial Research (IF 2.811) Pub Date : 2023-04-09 K. Victor Chow, Bingxin Li, Zhan Wang
In this article, we propose a new theoretical approach for developing hedging strategies based on swap variance (SwV). SwV is a generalized risk measure equivalent to a polynomial combination of all moments of a return distribution. Using the S&P 500 index and West Texas Intermediate (WTI) crude oil spot and futures price data, as well as simulations by varying the distribution of asset returns, we
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Dividends and share repurchases during the COVID-19 economic crisis Journal of Financial Research (IF 2.811) Pub Date : 2023-03-30 Mieszko Mazur, Man Dang, Thi Thuy Anh Vo
In this article, we examine dividends and share repurchases of S&P 1500 firms during the COVID-19 crisis characterized by the stock market crash and a relatively quick stock price recovery propelled by technology stocks. We find that the great majority of firms either maintain or increase the level of dividends during the crisis period. Yet, the relation between the dividend payout and reported earnings