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Articles 1 - 25 of 25
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Explaining The Nonlinear Response Of Stock Markets To Oil Price Shocks, Diego Escobari, Shahil Sharma
Explaining The Nonlinear Response Of Stock Markets To Oil Price Shocks, Diego Escobari, Shahil Sharma
Economics and Finance Faculty Publications and Presentations
This paper is set to reconcile the existent conflicting empirical evidence on the effect of oil prices on stock prices. We estimate various nonlinear models where the response changes according to a first-order Markov switching process. More importantly, we model the transition probabilities between the high- and low-response regimes to depend on state variables to allow us to explain the forces behind the asymmetry in the response. The results show statistically significant asymmetries that can be explained by economic recessions and to a lower extent depend on the magnitude of the oil price shift and on whether the shift is …
Environmental Regulation And The Cost Of Bank Loans: International Evidence, Amirhossein Fard, Siamak Javadi, Incheol Kim
Environmental Regulation And The Cost Of Bank Loans: International Evidence, Amirhossein Fard, Siamak Javadi, Incheol Kim
Economics and Finance Faculty Publications and Presentations
Using a sample of 27 countries between 1990 and 2014, we find that banks charge a higher interest rate on their loans when lending to firms that face more stringent environmental regulations. Further, we show that firms facing such regulations maintain lower financial leverage, incur more operating expenses, and have fewer banks participating in their loan syndicate. The results of the subsample analysis suggest that the increase in the cost of bank loans is more pronounced for financially constrained firms, firms in industries with high environmental litigation risk, and those located in bank-based economies. Overall, our results provide evidence that …
Political Corruption And Mergers And Acquisitions, Nam H. Nguyen, Hieu V. Phan, Thuy Simpson
Political Corruption And Mergers And Acquisitions, Nam H. Nguyen, Hieu V. Phan, Thuy Simpson
Economics and Finance Faculty Publications and Presentations
This research examines the relation between political corruption and mergers and acquisitions (M&As). We find that local corruption increases firm acquisitiveness but decreases firm targetiveness. The levels of corruption in acquirer areas relate positively to the bid premiums and negatively to the likelihood of deal completion. Corruption motivates acquiring firms to use excess cash for payment, which mitigates the negative effect of corruption on acquirer shareholder value. The evidence indicates that acquisitions help acquiring firms convert cash into hard-to-extract assets and relocate assets from the high to low corruption areas, thereby shielding their liquid assets from expropriation by local officials.
Islamic Labeled Firms: Revisiting Dow Jones Measure Of Compliance, Ahmed Elnahas, Ghada Ismail, Rwan El-Khatib, M. Kabir Hassan
Islamic Labeled Firms: Revisiting Dow Jones Measure Of Compliance, Ahmed Elnahas, Ghada Ismail, Rwan El-Khatib, M. Kabir Hassan
Economics and Finance Faculty Publications and Presentations
Billions of dollars, across 131 countries, are invested in Islamic law‐compliant funds that are often promoted as consistent with the spirit and overall objectives of Islam (Maqasid Al‐Sharia), thereby indicating they are more socially responsible, less risky, and less prone to failure. The empirical results of this study indicate that Shariah‐compliant firms identified by the Dow Jones do not have higher corporate social responsibility (CSR) scores, lower risk, or lower likelihood of failure than non‐compliant firms. We address endogeneity using the instrumental variable (IV) approach and selection bias using propensity score matching (PSM). Our results are similar when using the …
Greenhouse Gas Emission Efficiencies Of World Countries, Levent Kutlu
Greenhouse Gas Emission Efficiencies Of World Countries, Levent Kutlu
Economics and Finance Faculty Publications and Presentations
Greenhouse gas emissions have increased rapidly since the industrial revolution. This has led to an unnatural increase in the global surface temperature, and to other changes in our environment. Acknowledging this observation, the United Nations Framework Convention on Climate Change started an international environmental treaty. This treaty was extended by Kyoto protocol, which was adopted on 11 December 1997. Using the stochastic frontier analysis, we analyze the efficiencies of countries in terms of achieving the lowest greenhouse gas emission levels per GDP output in the years between 1990–2015. We find that the average greenhouse gas emission efficiencies of world countries …
Tournament-Based Incentives And Mergers And Acquisitions, Nam H. Nguyen, Hieu V. Phan, Hung V. Phan, Dung T. T. Tran, Hong Vo
Tournament-Based Incentives And Mergers And Acquisitions, Nam H. Nguyen, Hieu V. Phan, Hung V. Phan, Dung T. T. Tran, Hong Vo
Economics and Finance Faculty Publications and Presentations
This research examines the relation between tournament-based incentives, which are proxied by the difference between a firm’s CEO pay and the median pay of the senior managers, and mergers and acquisitions (M&As). We find that tournament-based incentives are positively related to firm acquisitiveness and acquiring firms’ stock and operating performance. Further analysis indicates that positive acquisition performance increases the likelihood of the CEO being promoted from inside the acquiring firm. Our evidence is consistent with the view that tournament-based incentives motivate acquiring firms’ managers to make greater efforts and take more risk that result in superior acquisition performance.
A Spatial Stochastic Frontier Model With Endogenous Frontier And Environmental Variables, Levent Kutlu, Kien C. Tran, Mike G. Tsionas
A Spatial Stochastic Frontier Model With Endogenous Frontier And Environmental Variables, Levent Kutlu, Kien C. Tran, Mike G. Tsionas
Economics and Finance Faculty Publications and Presentations
We propose a spatial autoregressive stochastic frontier model, which allows for the endogeneity in both the frontier and environmental variables (i.e., endogeneity due to correlation of inefficiency term and the two-sided error term). The model parameters are estimated using a single-stage control function approach. Monte Carlo simulations show that our proposed model and approach perform well in finite samples. We employed our methodology to the Chinese chemicals firm data and found evidence for both spatial effects and endogeneity.
India’S Calorie Consumption Puzzle: Insights From The Stochastic Cost Frontier Analysis Of Calorie Purchases, Gautam Hazarika, Sourabh Bikas Paul
India’S Calorie Consumption Puzzle: Insights From The Stochastic Cost Frontier Analysis Of Calorie Purchases, Gautam Hazarika, Sourabh Bikas Paul
Economics and Finance Faculty Publications and Presentations
Between the early 1970s and very nearly the present, Indians’ per capita calorie consumption declined. This decline, perplexing in the face of rising per capita income when malnutrition is rampant, has been termed India’s Calorie Consumption Puzzle. It has been partially attributed to a squeeze in the household food budget. This study employs Stochastic Cost Frontier Analysis to evaluate this explanation, upon the logic that such a squeeze shall likely result in the rising cost-efficiency of calorie purchases, that is, the more economical purchase of calories. Analysis of household expenditure data from India’s National Sample Survey reveals that Indian households’ …
The Racial/Ethnic Gap In Financial Literacy In The Population And By Income, Marco Angrisani, Sergio Barrera, Luisa R. Blanco, Salvador Contreras
The Racial/Ethnic Gap In Financial Literacy In The Population And By Income, Marco Angrisani, Sergio Barrera, Luisa R. Blanco, Salvador Contreras
Economics and Finance Faculty Publications and Presentations
We investigate the determinants of the racial/ethnic gap in financial literacy in the general population and within income classes, with a focus on childhood family circumstances and neighborhood socioeconomic characteristics. Our model explains 48% and 57% of the observed gap for Blacks and Hispanics, respectively. For both groups, differences in individual characteristics and neighborhood socioeconomic status contribute the most to the explained gap. The White–Minority gap narrows when moving from low- to high-income classes, but the ability of the model to explain it decreases monotonically. Identifying which additional barriers put minorities at a disadvantage is key to improve financial literacy.
Brand Equity, Earnings Management, And Financial Reporting Irregularities, Ghada M. Ismail, Fariz Huseynov, Pankaj K. Jain, Thomas H. Mcinish
Brand Equity, Earnings Management, And Financial Reporting Irregularities, Ghada M. Ismail, Fariz Huseynov, Pankaj K. Jain, Thomas H. Mcinish
Economics and Finance Faculty Publications and Presentations
Owning valuable brands enhances the financial well-being of firms not only through increased revenues and profitability but also by mitigating agency problems, earnings management, and financial reporting irregularities. Firms with high brand equity are less likely to have income-inflating discretionary accruals, announce earnings restatements, or experience SEC investigations. Brand equity reduces the likelihood of manipulation through incentive and opportunity channels, which we capture in CEO characteristics and compensation, and corporate governance measures. Brand equity reduces the likelihood of financial reporting irregularities more for durable goods firms and firms with shorter-tenured CEOs, as the latter are most vulnerable to performance pressures.
Information Processing Costs And Corporate Tax Aggressiveness: Evidence From The Sec’S Xbrl Mandate, Jeff Z. Chen, Hyun Hong, Jeong-Bon Kim, Ji Woo Ryou
Information Processing Costs And Corporate Tax Aggressiveness: Evidence From The Sec’S Xbrl Mandate, Jeff Z. Chen, Hyun Hong, Jeong-Bon Kim, Ji Woo Ryou
Economics and Finance Faculty Publications and Presentations
Managers, subject to agency conflicts, may deviate from the optimal level of tax aggressiveness that shareholders would prefer. We use the SEC’s XBRL mandate to draw causal inferences about the relation between investors’ information processing costs and shareholder monitoring of managers’ tax-aggressive behavior. We find that after XBRL reporting which reduces information processing costs to outside stakeholders, firms with low levels of tax avoidance in the pre-XBRL period become more tax-aggressive. In contrast, firms with high levels of tax avoidance are less tax-aggressive after XBRL reporting. These results suggest that reduced information processing costs and stronger shareholder monitoring in the …
Unknown Latent Structure And Inefficiency In Panel Stochastic Frontier Models, Levent Kutlu, Kien C. Tran, Mike G. Tsionas
Unknown Latent Structure And Inefficiency In Panel Stochastic Frontier Models, Levent Kutlu, Kien C. Tran, Mike G. Tsionas
Economics and Finance Faculty Publications and Presentations
This paper extends the fixed effect panel stochastic frontier models to allow group heterogeneity in the slope coefficients. We propose the first-difference penalized maximum likelihood (FDPML) and control function penalized maximum likelihood (CFPML) methods for classification and estimation of latent group structures in the frontier as well as inefficiency. Monte Carlo simulations show that the proposed approach performs well in finite samples. An empirical application is presented to show the advantages of data-determined identification of the heterogeneous group structures in practice.
Voting Over Redistribution In The Meltzer–Richard Model Under Interdependent Labor Inputs, Armando R. Lopez-Velasco
Voting Over Redistribution In The Meltzer–Richard Model Under Interdependent Labor Inputs, Armando R. Lopez-Velasco
Economics and Finance Faculty Publications and Presentations
This paper extends the median voter result of Meltzer and Richard (1981) to the case where a labor economy has any constant returns to scale production function under quasilinear preferences with constant wage elasticity. Average productivities of the different labor inputs depend on their relative abundance in the economy. Agents are heterogeneous due to their labor type and (given type) due to their relative efficiency. They vote over income tax rates which in turn dictate the level of redistribution. The paper shows that preferences over tax rates are single-peaked and hence the median voter theorem applies. This framework connects the …
The Impact Of Stronger Shareholder Control On Bondholders, Sadra Amiri-Moghadam, Siamak Javadi, Mahdi Rastad
The Impact Of Stronger Shareholder Control On Bondholders, Sadra Amiri-Moghadam, Siamak Javadi, Mahdi Rastad
Economics and Finance Faculty Publications and Presentations
We study the impact of stronger shareholder control on bondholders. We find that the passage of shareholder-sponsored governance proposals causes a decline in CDS spreads, indicating a net positive effect on bondholders. Evidence suggests that the direct benefit of stronger shareholder control, through “management disciplining” channel, is larger than the combined adverse effects of directly escalating shareholder-bondholder conflict and indirectly exacerbating exposure to shareholder opportunism. Results are stronger for firms with existing high levels of shareholder-bondholder conflict and for proposals that mitigate managerial entrenchment without exacerbating risk-shifting. Finally, stronger shareholder control improves credit ratings and operating performance in the long-term.
Shareholder Litigation Rights And Capital Structure Decisions, Nam H. Nguyen, Hieu V. Phan, Eunju Lee
Shareholder Litigation Rights And Capital Structure Decisions, Nam H. Nguyen, Hieu V. Phan, Eunju Lee
Economics and Finance Faculty Publications and Presentations
We exploit the staggered adoption of the universal demand (UD) laws across U.S. states, which impedes shareholder rights to initiate derivative lawsuits, as a quasi-natural experiment to examine the relation between shareholder litigation rights and firm capital structures. We find that weaker shareholder litigation rights due to the UD laws adoption lead to higher financial leverage, which enhances firm value. Furthermore, the positive relation between the UD laws adoption and financial leverage is more pronounced for firms exposed to higher shareholder litigation risk ex ante or financially constrained firms. Our evidence is consistent with lower shareholder litigation threats motivating firms …
Financing Patterns In Transition Economies: Privatized Former Soes Versus Ab Initio Private Firms, Yu Liu, Nilesh Sah, Barkat Ullah, Zuobao Wei
Financing Patterns In Transition Economies: Privatized Former Soes Versus Ab Initio Private Firms, Yu Liu, Nilesh Sah, Barkat Ullah, Zuobao Wei
Economics and Finance Faculty Publications and Presentations
We employ 19,521 unique firms in 30 transition economies to investigate the relation between the origins of private firms and their financing patterns. In our sample, the private firms are either privatized former state-owned enterprises (SOEs) or ab initio (from the beginning) private firms. Our results show that privatized former SOEs finance a higher proportion of their fixed assets from bank finance and supplier credit, while ab initio private firms rely more on informal finance. We argue that privatized former SOEs continue to benefit from the political and financial connections established during their SOE era. We further document that financial …
Shareholder Litigation Rights And Corporate Acquisitions, Chune Young Chung, Incheol Kim, Monika K. Rabarison, Thomas Y. To, Eliza Wu
Shareholder Litigation Rights And Corporate Acquisitions, Chune Young Chung, Incheol Kim, Monika K. Rabarison, Thomas Y. To, Eliza Wu
Economics and Finance Faculty Publications and Presentations
We examine the effect of shareholder litigation rights on managers’ acquisition decisions. Our experimental design exploits a U.S. Ninth Circuit Court of Appeals ruling on July 2, 1999 that resulted in a reduction in shareholder class actions. We find that, since the ruling, firms in Ninth Circuit states acquire larger targets. Furthermore, acquirers’ returns are lower in these states, especially for those with weaker corporate governance. Further analysis shows that value destruction is the result of managers’ freedom to conduct empire-building acquisitions using overvalued equity. Overall, our findings indicate the importance of shareholder litigation as an external governance mechanism.
Ceo Political Ideology And Management Earnings Forecast, Md Noman Hossain, Ahmed Elnahas, Lei Gao
Ceo Political Ideology And Management Earnings Forecast, Md Noman Hossain, Ahmed Elnahas, Lei Gao
Economics and Finance Faculty Publications and Presentations
Republican CEOs are more likely to issue earnings forecasts and to issue forecasts that are more accurate and timely. Republican CEOs favor range and less optimistic forecasts, convey more negative news, and have more positive earnings surprises. We address endogeneity using propensity score matching and difference-in-difference estimates. Our results are robust to controlling for CEO characteristics, incentives, overconfidence, and managerial ability, and are stronger for firms with a high level of institutional ownership and litigation risk. The preference for threat and ambiguity avoidance of conservative CEOs seem to outweigh the tendency to seize on information associated with their authoritarian personalities.
Total Factor Productivity And Idiosyncratic Volatility Trends, Hussein Abdoh, Yu Liu
Total Factor Productivity And Idiosyncratic Volatility Trends, Hussein Abdoh, Yu Liu
Economics and Finance Faculty Publications and Presentations
Firms’ idiosyncratic stock return volatility has become more volatile in the US since the 1960s. This paper investigates why individual stocks became more volatile over the 1964–2013 period using firm-level total factor productivity (TFP). On average, the volatility of idiosyncratic TFP growth rate has increased, being associated with higher idiosyncratic return volatility. The connection between TFP growth and economic profits provides an explanation for the increase in the idiosyncratic volatility of fundamental cash flows. The results are robust when using timeseries and panel regressions and controlling for cash flow and earnings variability, size, book-to-market, leverage, profitability, age, dividend yield, and …
Democracy In Emerging Markets: A New Perspective On The Natural Resources Curse, Andre V. Mollick, Andre Vianna, Gautam Hazarika
Democracy In Emerging Markets: A New Perspective On The Natural Resources Curse, Andre V. Mollick, Andre Vianna, Gautam Hazarika
Economics and Finance Faculty Publications and Presentations
Using annual data from 1980 to 2014, we reexamine the relationship between democracy and natural resources for a large sample of emerging market economies. Controlling for human capital (or real GDP per capita) and openness measures, dynamic panel methods address endogeneity from more democratic regimes demanding better control of rents. We find that democracy responds positively to natural resource rents in GDP (NAT) and negatively to terms of trade (TOT). The NAT positive effects mitigate the negative impact of TOT on democracy and holds well in different specifications. By building on a literature focusing on oil rents, increases in NAT …
Political Design Meets Policy Complexity, Roland Pongou, Jean-Baptiste Tondji
Political Design Meets Policy Complexity, Roland Pongou, Jean-Baptiste Tondji
Economics and Finance Faculty Publications and Presentations
The rules that are employed to pass policies in legislative bodies vary widely. It is generally argued that policies that differ in complexity or importance level should be decided under different kinds of voting rules. While this question has been examined for static legislative mechanisms, an analysis of the precise relationship between the level of policy complexity and the type of voting rule is still missing for dynamic mechanisms. We address this problem from the perspective of a preference-blind political designer. Given the level of complexity of the decision that is to be made, the political designer's goal is to …
Inflation Targeting And Exchange Rate Volatility In Emerging Markets, Rene Cabral, Francisco G. Carneiro, Andre V. Mollick
Inflation Targeting And Exchange Rate Volatility In Emerging Markets, Rene Cabral, Francisco G. Carneiro, Andre V. Mollick
Economics and Finance Faculty Publications and Presentations
The paper investigates the exchange rate on the reaction function of 24 emerging markets economies’ (EMEs) central banks from 2000Q1 to 2015Q2. This is done by first employing fixed-effects (FE) ordinary least squares and then system generalized methods of the moments techniques. Under FE, the exchange rate is important in the reaction function of EMEs. Allowing for the endogeneity of inflation, output gap, and the exchange rate, the exchange rate remains positive and statistically significant (but quantitatively less) across inflation targeting countries. When the sample is partitioned into targeting and non-targeting countries, the exchange rate remains relevant in the reaction …
Environmental Policy And Audit Pricing, Monika K. Rabarison, Ibrajim Siraj, Bin Wang
Environmental Policy And Audit Pricing, Monika K. Rabarison, Ibrajim Siraj, Bin Wang
Economics and Finance Faculty Publications and Presentations
This paper examines the effect of environmental policy stringency on audit pricing. Exploiting the exogenous variation in environmental policies across 26 countries, we find that firms in countries with more stringent environmental policies incur lower audit fees. The inverse association is more pronounced in common law countries, in countries with a higher level of public enforcement of regulations, and in countries with more protection of investors. The lower audit fees are also more prominent for firms followed by more analysts and firms with larger institutional ownership. Furthermore, we find that firms in countries with strong regulations are better and more …
Us Community Bank Profitability: A Crosssectional And Dynamic Panel Analysis Of Rural And Metropolitan Banks, Robert D. Morrison, Diego Escobari
Us Community Bank Profitability: A Crosssectional And Dynamic Panel Analysis Of Rural And Metropolitan Banks, Robert D. Morrison, Diego Escobari
Economics and Finance Faculty Publications and Presentations
This study compares 5,286 community banks operating in rural and metropolitan counties from 2000 through the end of 2013 on the variables contributing to bank profitability using pooled OLS, pooled time-series OLS, and dynamic panels methodologies. Following the SCP and competition-fragility literature, one would expect a difference in the variables contributing to profitability. The size of the coefficients indicates that the variables contributing to profitability differ in magnitude when comparing community banks in metropolitan counties to those in rural counties. Both the pooled and time-series OLS models indicate that bank size contributes to profitability more in metropolitan areas; however, on …
Midair Refueling For Sensation Seeking? Pilot Ceos And Corporate Debt Contracting, Steven Freund, Tunde Kovacs, Nam H. Nguyen, Hieu V. Phan
Midair Refueling For Sensation Seeking? Pilot Ceos And Corporate Debt Contracting, Steven Freund, Tunde Kovacs, Nam H. Nguyen, Hieu V. Phan
Economics and Finance Faculty Publications and Presentations
We examine the relation between chief executive officer (CEO) sensation seeking, which captures the desire for varied, novel, and complex personal sensations and experiences, and corporate debt contracting. Using pilot certificates as a proxy for the personality trait of sensation seeking, we find that firms with pilot CEOs use longer maturity debt financing even when long-term debt is more costly than short-term debt. Our findings are robust to controlling for the endogenous matching between firms and CEOs. Our evidence indicates that CEOs with sensation-seeking personality traits prefer long-term debt financing to avoid the liquidity risk associated with short-term debt financing …