Finance and Financial Management Commons^™

Spactivism, Sharon Hannes, Adi Libson, Gideon Parchomovsky

All Faculty Scholarship

In this Essay, we propose a modified version of the SPAC designed to allow the public to participate in the world of corporate activism. Unlike existing SPACs, our version is designed for investments in public companies in order to change their course of action, not in private companies in order to make them go public, and overcomes many of the problems that pertain conventional SPACs. At present, direct investment in activism is reserved to affluent individuals and other professional investors of activist hedge funds. The public at large is barred from directly entering the activist arena. The current model comes …

Corporate Crime And Punishment: An Empirical Study, Dorothy S. Lund, Natasha Sarin

All Faculty Scholarship

For many years, law and economics scholars, as well as politicians and regulators, have debated whether corporate criminal enforcement overdeters beneficial corporate activity or in the alternative, lets corporate criminals off too easily. This debate has recently expanded in its polarization: On the one hand, academics, judges, and politicians have excoriated enforcement agencies for failing to send guilty bankers to jail in the wake of the 2008 financial crisis; on the other, the U.S. Department of Justice has since relaxed policies that encouraged individual prosecutions and reduced the size of fines and number of prosecutions. A crucial and yet understudied …

Socially Responsible Corporate Customers, Rui Dai, Hao Liang, Lilian Ng

Research Collection Lee Kong Chian School Of Business

Corporate customers are an important stakeholder in global supply chains. We employ several unique international databases to test whether socially responsible corporate customers can infuse similar socially responsible business behavior in suppliers. Our findings suggest a unilateral effect on corporate social responsibility (CSR) only from customers to suppliers, an evidence further supported by exogenous variation in customers’ close-call CSR proposals and by product scandals. Customers exert influence on suppliers’ CSR through positive assortative matching and their decision-making process. Enhanced collaborative CSR efforts help improve operational efficiency and firm valuation of both customers and suppliers but increase only the customers’ future …

Board Composition, Board Diversity And Stock Performance, Chiyachantana N. Chiraphol, Siripen Pattanawihok, Pattarawan Prrasarnphanich

Research Collection Lee Kong Chian School Of Business

The study investigates the relationship between six board compositions and stock returns. The results indicate a significant association between various board compositions and stock returns. Specifically, board size and executive directors have a negative impact, whereas independent directors enhance stock returns. Busy directors positively impact the abnormal stock returns for the companies in the non-financial industry, which implies that busy directors who serve on more boards tend to be well connected. More importantly, the results indicate a significant positive relationship between board tenure and stock returns. Board service time is perceived as the board quality of knowledge and experience from …

The Profitability Of Warrant Issuers: An Empirical Investigation Of Single Stock And Index Warrants, Ichaya Wongnapakarn, Arnat Leemakdej, Chiyachantana N. Chiraphol, Pattarawan Prasarnphanich, Eakapat Manitkajornkit

Research Collection Lee Kong Chian School Of Business

This study examines the derivative warrant's profit of issuers compensated with the risk from issuing call and put derivative warrants because they have commitments in risk management and managing risk by hedging the underlying exposure. The average profit of issuers is a cumulative profit from the first trading day until the last trading day. Consistent with the imperfect competition for issuing put derivative warrants on single stock from different securities borrowing and lending advantages, the profit margin of a put warrant is higher than the call warrant. However, the profit margin from a put warrant is not necessarily higher than …

2021 Private Capital Markets Report, Craig R. Everett

Pepperdine Private Capital Markets Report

The Pepperdine private cost of capital survey was originally launched in 2007 and is the first comprehensive and simultaneous investigation of the major private capital market segments. This year’s survey specifically examined the behavior of senior lenders, asset‐based lenders, mezzanine funds, private equity groups, venture capital firms, angel investors, privately‐held businesses, investment bankers, business brokers, limited partners, and business appraisers. The Pepperdine survey investigated, for each private capital market segment, the important benchmarks that must be met in order to qualify for capital, how much capital is typically accessible, what the required returns are for extending capital in today’s economic …

Inditex's Esg Performance In A Global Financial Market, Sara Habig

Honors Projects in Finance

Zara has become extremely popular as a global fashion enterprise and remains significantly profitable in the fashion industry. With a leading supply chain operation strategy, they have been a leading retailer for many decades. This empirical research study involves research and assessment of Inditex's ESG performance and evaluations based on ASSET4 data source's evaluations, using the Stata software. Results show that Inditex remains a strong competitor in the fast fashion industry when compared to its rivals within 4 different categorical markets: all sample firms in Spain, all global retailers, and all sample firms separated by continent. Inditex consistently outperformed their …

The Old Boys Club In New Zealand Listed Companies, Chen Chen, David K. Ding, William R. Wilson

Research Collection Lee Kong Chian School Of Business

The board of directors plays an important role in implementing corporate governance in the firm, as directors have a fiduciary duty to the firm’s shareholders. The effectiveness of directors is a key determinant of corporate value and they need to bring a range of skills and experience to the boardroom. This skill and experience cannot be developed solely within the firm, and most boards incorporate non-executive directors who are or have been directors of other firms. Current research on the benefits of interlocking directorships is mixed between the claim that they bring outside feedback to the table and open decision …

Speed Acquisition, Shiyang Huang, Bart Zhou Yueshen

Research Collection Lee Kong Chian School Of Business

Speed is a salient feature of modern financial markets. This paper studies investors' speed acquisition together with their information acquisition. Speed heterogeneity arises in equilibrium, fragmenting the information aggregation process with a nonmonotone impact on price informativeness. Various competition effects drive speed and information to be either substitutes or complements. The model cautions the possible dysfunction of price discovery: An improving information technology might complement speed acquisition, which shifts the concentration of price discovery over time, possibly hurting price informativeness. Novel predictions are discussed regarding investor composition and their investment performance.

Bitcoin As A Viable Alternative To Legacy Reserve Assets: Reasons, Risks, And Adoption, Jeffry Blake Dunson Ii

Senior Honors Theses

Reserve assets include commodities, currencies, or other capital held by institutions as a hedge against the fluctuations of external factors. While the United States’ rise to power helped establish the US dollar as the most predominant reserve asset of the past fifty years, current events & the fast pace of technological advancement has exposed some limitations in the system. Blockchain technology has allowed for assets with cryptographically verifiable integrity that fundamentally depart from the US dollar standard and has potential to overhaul reserve assets as we know it. The course of this research details the downsides of legacy reserve assets, …

Internal Capital Markets And Return Predictability In Complex Ownership Firms, Angelica Gonzalez, Sergei Sarkissian, Jun Tu, Ran Zhang

Research Collection Lee Kong Chian School Of Business

Using global cross-ownership data, we find return predictability for four possible cases in ownership-linked firms (OLFs): subsidiary−parent, parent−subsidiary, subsidiary−subsidiary, and parent−parent. A long/short portfolio strategy sorted by the lagged monthly returns of OLFs yields the monthly Fama-French six-factor alpha of 79−113 bps. These results, which are observed only after the establishment of ownership links, are not subsumed by industry or cross-country momentums or by alternative inter-firm relations, including customer−supplier links, strategic alliances, common boards, and shared analyst coverage. The OLF return predictability is best explained by active internal capital markets—a mechanism unique to firms with a complex ownership network.

Exploring An Alternative To Ipos: Special-Purpose Acquisition Companies (Spacs), Vaishali Kanamalla

Honors Scholar Theses

The purpose of this research paper is to provide an overview of Special Purpose Acquisition Companies (SPACs) which has gained popularity relatively recently. First, an introduction to SPACs will be provided including its historical roots, structure, and investment process. Thereafter, the paper will walk through the current landscape of SPACs, criticisms, and comparisons with traditional IPOs. The paper will conclude with discussions on the future outlook of the investment vehicle along with a study on SPAC returns vs. those of traditional IPOs.

Analyst Talent, Information, And Investment Strategies, Zhichuan Li, Stephen R. Foerster, Zhenyang Tang, Chongyu Dang

Business Publications

Analyst talent, rather than the number of analysts following a firm, matters most to investors. We find: 1) Analysts with greater “natural” forecasting talent—controlling for experience, brokerage affiliation, and task complexity—contribute relatively more firm-specific rather than industry or market information; 2) Earnings forecasts by low-talent analysts may lead to substantial mispricing; 3) When earnings surprises are large, post-earnings-announcement drift is more prominent among firms covered by low-talent analysts; 4) Firms with low-talent analysts have significantly more insider trading prior to positive earnings news; and 5) Investing following insider trading is more profitable in stocks followed by low-talent analysts.

Seasoned Equity Offerings And Corporate Financial Management, Michael J. Barclay, Fangjian Fu, Clifford W. Smith

Research Collection Lee Kong Chian School Of Business

We assume executives managing corporate financial policy consider the firm's current and target leverage, investment plans, anticipated cash flows, and consequences of alternative sequences of financing transactions, operating within efficient markets. Our analysis yields time-series and cross-sectional predictions for management of investment spending and leverage; use of maturity, priority, and convertibility covenants; and management of dividends, share repurchases, cash balances, and credit lines. Our evidence from 8608 SEOs covering 1970–2015 is consistent with implications of our theory, helps to resolve an array of issues in corporate finance, and offers a step toward a more unified analysis of rational corporate financial …

Cleaning Corporate Governance, Jens Frankenreiter, Cathy Hwang, Yaron Nili, Eric L. Talley

Faculty Scholarship

Although empirical scholarship dominates the field of law and finance, much of it shares a common vulnerability: an abiding faith in the accuracy and integrity of a small, specialized collection of corporate governance data. In this paper, we unveil a novel collection of three decades’ worth of corporate charters for thousands of public companies, which shows that this faith is misplaced.

We make three principal contributions to the literature. First, we label our corpus for a variety of firm- and state-level governance features. Doing so reveals significant infirmities within the most well-known corporate governance datasets, including an error rate exceeding …

A New Explanation For Samuelson’S Dictum And The Stock Market: Novel Events And Knightian Uncertainty, Nicholas Mangee

Department of Finance Faculty Publications

Samuelson’s Dictum argues that aggregate stock markets do not convincingly reflect information on fundamentals, such as dividends or earnings, and are, thus, inefficient in setting prices. By contrast, firm-level stock prices share a much closer connection with fundamentals and are, therefore, deemed relatively efficient. This paper presents an alternative explanation: Knightian uncertainty stemming from historically unique events produces differential impacts on investor forecasting bounds at the aggregate versus firm level. Several uncertainty proxies are employed from millions of unscheduled events identified in the universe of Dow Jones & Co. financial news reports over the last twenty years. Uncertainty based on …

Sentiment-Scaled Capm And Market Mispricing, John A. Doukas, Xiao Han

Finance Faculty Publications

This study explores the conditional version of the capital asset pricing model on sentiment to provide a behavioural intuition behind the value premium and market mispricing. We find betas (β) and the market risk premium to vary over time across different sentiment indices and portfolios. More importantly, the state β derived from this sentiment-scaled model provides a behavioural explanation of the value premium and a set of anomalies driven by mispricing. Different from the static β-return relation that gives a flat security market line, we document upward security market lines when plotting portfolio returns against their state βs and portfolios …

Capm-Based Company (Mis)Valuations, Olivier Dessaint, Jacques Olivier, Clemens A. Otto, David Thesmar

Research Collection Lee Kong Chian School Of Business

There is a discrepancy between CAPM-implied and realized returns. Using the CAPM in capital budgeting -- as recommended in textbooks -- should thus have real effects. For instance, low beta projects should be valued more by CAPM-users than by the market. We test this hypothesis using M&A data and show that bids for low-beta private targets entail lower bidder returns. We provide further support by testing several ancillary predictions. Our analyses suggest that using the CAPM when valuing targets leads to valuation errors (relative to the market's view) corresponding on average to 12% to 33% of the deal values.

Cleaning Corporate Governance, Jens Frankenreiter, Cathy Hwang, Yaron Nili, Eric L. Talley

Faculty Scholarship

Although empirical scholarship dominates the field of law and finance, much of it shares a common vulnerability: an abiding faith in the accuracy and integrity of a small, specialized collection of corporate governance data. In this paper, we unveil a novel collection of three decades’ worth of corporate charters for thousands of public companies, which shows that this faith is misplaced.

We make three principal contributions to the literature. First, we label our corpus for a variety of firm- and state-level governance features. Doing so reveals significant infirmities within the most well-known corporate governance datasets, including an error rate exceeding …

Executive Compensation And Firm Performance In New Zealand: The Role Of Employee Stock Option Plans, David K. Ding, Ya Eem Chea

Research Collection Lee Kong Chian School Of Business

We examine the role of employee stock option plans (ESOPs) in mitigating agency problems in New Zealand firms. We find that ESOPs have a significant and positive effect on firm performance relative to their non-ESOP counterparts. This relation appears within a year from the first ESOP announcement, and for two to four years after the announcement. Our results show that ESOPs improve corporate performance by 10 times the cost of the ESOPs’ adoption in the first year of issue. The improvement persists for four years after the first issuance. These findings confirm the effectiveness of employee stock option plans for …