A Fast Literature Search Engine based on top-quality journals, by Dr. Mingze Gao.
- Topic classification is ongoing.
- Please kindly let me know [mingze.gao@mq.edu.au] in case of any errors.
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Results 88 resources
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We develop a theory of income and payout smoothing by firms when insiders know more about income than outside shareholders, but property rights ensure that outsiders can enforce a fair payout. Insiders set payout to meet outsiders' expectations and underproduce to manage future expectations downward. The observed income and payout process are smooth and adjust partially and over time in response to economic shocks. The smaller the inside ownership, the more severe underproduction is, resulting in an "outside equity Laffer curve."
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The media has an incentive to publish sensational news. We study how this incentive affects the accuracy of media coverage in the context of merger rumors. Using a novel dataset, we find that accuracy is predicted by a journalist's experience, specialized education, and industry expertise. Conversely, less accurate stories use ambiguous language and feature well-known firms with broad readership appeal. Investors do not fully account for the predictive power of these characteristics, leading to an initial target price overreaction and a subsequent reversal, consistent with limited attention. Overall, we provide novel evidence on the determinants of media accuracy and its effect on asset prices.
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This paper investigates the value of firm political connections using a regression discontinuity design in a sample of close, off-cycle U.S. congressional elections. I compare firms donating to winning candidates and firms donating to losing candidates and find that postelection abnormal equity returns are 3% higher for firms donating to winning candidates. Connections to politicians serving on powerful congressional committees, such as appropriations and taxation, are especially valuable and impact contributing firms sales. Firms' campaign contributions are correlated with other political activities such as lobbying and hiring former government employees, suggesting that firms take coordinated actions to build political networks.
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Some fundamental questions regarding equity-index return dynamics are difficult to address due to the latent character of spot volatility. We exploit tick-by-tick option quotes to compute a novel "Corridor Volatility" index which may serve as an observable proxy for short-term volatility. Exploiting this index, we find that equity-index volatility jumps are common, symmetrically distributed, and cojump with the underlying returns. Moreover, the return-volatility asymmetry is more pronounced than is generally recognized and is in force for both diffusive and jump innovations in volatility. Finally, the index performs admirably during turbulent market conditions, constituting a useful real-time gauge of market stress.
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We investigate, in a theoretical framework, the joint role played by investors' attention to news and learning uncertainty in determining asset prices. The model provides two main predictions. First, stock return variance and risk premia increase with both attention and uncertainty. Second, this increasing relationship is quadratic. We empirically test these two predictions, and we show that the data lend support to the increasing relationship. The evidence for a quadratic relationship is mixed. Overall, our study shows theoretically and empirically that both attention and uncertainty are key determinants of asset prices.
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We examine the effect of a permanent change to a country corporate income repatriation tax system on corporate financial policies. In 2009, Japan and the United Kingdom switched from a worldwide system to a territorial system for the taxation of repatriated foreign earnings, effectively reducing the tax liabilities of most multinational firms when repatriating earnings. We find that after the change firms accumulate less cash, pay out larger amounts through dividends and share repurchases, and invest less abroad. We do not find that the tax system change has significantly affected domestic investments even when controlling for capital constraints.
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We investigate whether short-termism distorts the investment decisions of stock market-listed firms. To do so, we compare the investment behavior of observably similar public and private firms, using a new data source on private U.S. firms and assuming for identification that closely held private firms are subject to fewer short-termist pressures. Our results show that compared with private firms, public firms invest substantially less and are less responsive to changes in investment opportunities, especially in industries in which stock prices are most sensitive to earnings news. These findings are consistent with the notion that short-termist pressures distort investment decisions.
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In a Kyle (1985) model, the sign of the correlation between a firm's debt and equity returns is the same as the sign of the cross-market Kyle's lambda. The sign is positive (negative) if private information concerns the mean (risk) of the firm's assets. We show empirically that information conveyed by order flows is primarily about asset means. The cross-market lambdas are quite large; consequently, the portions of bond and stock returns explained by order flows are highly correlated, even though the order flows themselves are virtually uncorrelated.
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Reduced-form models of default that attribute a large fraction of credit spreads to compensation for credit-event risk typically preclude the most plausible economic justification for such risk to be priced, namely, a contemporaneous drop in the market portfolio. When this "contagion" channel is introduced within a general equilibrium framework for an economy comprising a large number of firms, credit-event risk premia have an upper bound of a few basis points, and are dwarfed by the contagion premium. We provide empirical evidence that indicates credit-event risk premia are less than 1 bp, but contagion risk premia are significant.
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The literature posits that some CEO overconfidence benefits shareholders, though high levels may not. We argue that adequate controls and independent viewpoints provided by an independent board mitigates the costs of CEO overconfidence. We use the concurrent passage of the Sarbanes-Oxley Act and changes to the NYSE/NASDAQ listing rules (collectively, SOX) as natural experiments, to examine whether board independence improves decision making by overconfident CEOs. The results are strongly supportive: after SOX, overconfident CEOs reduce investment and risk exposure, increase dividends, improve postacquisition performance, and have better operating performance and market value. Importantly, these changes are absent for overconfident-CEO firms that were compliant prior to SOX.
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Journals
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- Bond (8)
- CEO (6)
- Director (6)
- Capital Structure (1)
Resource type
- Journal Article (88)