Franklin Allen, Hans Gersbach, Jan-Pieter Krahnen, Anthony M. Santomero; Competition Among Banks: Introduction and Conference Overview, European Finance Re

This article systematically examines the importance of exchange rate movements and industry competition for stock returns. Common shocks to industries across countries are more important than competitive shocks due to changes in exchange rates. Weekly exchange rate shocks explain almost nothing of the relative performance of industries. Using returns measured over longer horizons, the importance of exchange rate shocks increases slightly and the importance of industry common shocks increases more substantially. Both industry and exchange rate shocks are more important for industries that produce internationally traded goods, but the importance of these shocks is economically small for these industries as well.

David M. Reeb, Sattar A. Mansi, John M. Allee, Firm Internationalization and the Cost of Debt Financing: Evidence from Non-Provisional Publicly Traded Debt, The Journal of Financial and Quantitative Analysis, Vol. 36, No. 3 (Sep., 2001), pp. 395-414

In this paper, we characterize foreign ownership using a dataset of ownership and attributes of Swedish firms. The analysis reveals that foreigners show a preference for large firms, firms paying low dividends, and firms with large cash positions on their balance sheets. When we further analyze the preference for large firms, we find that market liquidity and presence in international markets, measured through export sales or listings on other exchanges, seem to characterize foreign holdings better than firm size alone. Foreigners also tend to underweight firms with a dominant owner. Importantly, we demonstrate that most of the features associated with foreign ownership are driven by the fact that foreign investors typically are mutual funds or other institutional investors. Hence, we identify an institutional investor bias rather than a foreign investor bias. Finally, using ownership data on a country level, we conclude that the results are particularly strong among U.S. investors, who comprise the largest institutions among foreign investors.

We study the relation between market returns and aggregate flow into U.S. equity funds, using daily flow data. The concurrent daily relation is positive. Our tests show that this concurrent relation reflects flow and institutional trading affecting returns. This daily relation is similar in magnitude to the price impact reported for an individual institution's trades in a stock. Aggregate flow also follows market returns with a one-day lag. The lagged response of flow suggests either a common response of both returns and flow to new information, or positive feedback trading.

Comparing a sample of firms that reprice executive stock options in 1998 to a control sample of firms with out-of-the-money options in 1998 that do not reprice, we find that the likelihood of repricing increases for young, high technology firms and firms whose options are more out-of-the-money. Further, we find that firms reprice in response to poor firm-specific, not poor industry, performance. However, we find no evidence that repricing is related to agency problems. Our results are consistent with firms repricing options to restore incentive effects and to deter managers in competitive labor markets from going to work for other firms.

We test whether smooth industry-level investment dynamics result from explicit aggregation of asynchronous and possibly lumpy firm-level investment. We compare the deviations of optimal from actual firm behavior across industries categorized by their ratios of idiosyncratic uncertainty to the sum of idiosyncratic and aggregate uncertainty. The deviations are represented by the residuals of a cointegrating regression that is derived from the firm's first-order condition under no adjustment costs. In support of models with asynchronous firm decisions, we find a significant negative relationship across industries between idiosyncratic uncertainty and the persistence of these residuals.

Theoretical models predict that overconfident investors trade excessively. We test this prediction by partitioning investors on gender. Psychological research demonstrates that, in areas such as finance, men are more overconfident than women. Thus, theory predicts that men will trade more excessively than women. Using account data for over 35,000 households from a large discount brokerage, we analyze the common stock investments of men and women from February 1991 through January 1997. We document that men trade 45 percent more than women. Trading reduces men's net returns by 2.65 percentage points a year as opposed to 1.72 percentage points for women.

Recent models of procrastination due to self-control problems assume that a procrastinator considers just one option and is unaware of her self-control problems. We develop a model where a person chooses from a menu of options and is partially aware of her self-control problems. This menu model replicates earlier results and generates new ones. A person might forgo completing an attractive option because she plans to complete a more attractive but never-to-be-completed option. Hence, providing a nonprocrastinator additional options can induce procrastination, and a person may procrastinate worse pursuing important goals than unimportant ones.

Tax professionals are responsible for objectively evaluating tax authorities and evidence relevant to their application and for serving as client advocates. We predict that practice risk — that is, exposure to monetary and nonmonetary costs of making inappropriate recommendations — will affect tax professionals' ability to meet these responsibilities by influencing the manner in which they process information about a tax situation as well as their resulting recommendations for clients. We conduct an experiment in which we manipulate practice risk through client characteristics. We also manipulate provision and nature of outcome information. We find that tax professionals process information differently for clients of different risk levels. Specifically, tax professionals weight negative outcome information more heavily when forming likelihood assessments underlying recommendations for a high-risk client, relative to a low-risk client. Further, risk directly affects recommendations in that tax professionals more strongly recommend an aggressive position for a low-risk client. Differential processing of information for clients with identical transactions but different risk levels may protect the tax professional from the higher expected costs of making inappropriate recommendations to high-risk clients. However, it indicates that tax professionals do not evaluate evidence objectively for all types of clients.