Finance and Financial Management Commons^™

Corporate Social Responsibility And Corporate Financial Performance: An Examination Into Fortune 500 And Djsi Firms Within Consumer-Facing Industries, Samantha Lee

CMC Senior Theses

This paper examines the relationship between a firm’s Corporate Social Responsibility (CSR) and its Corporate Financial Performance (CFP) in nine consumer-facing industries classified by the Fortune 500. Unlike prior research on the matter, the firms investigated in this study consist only of firms on both the Fortune 500 for the year 2018 and the Dow Jones Sustainability Index (DJSI) between the years 2005-2018 in order to define a clear measurement of CSR. In order to gauge investor and market sentiment, CFP is measured primarily by the firm’s stock performance in comparison to the S&P 500 as a basis. The results …

A Choice Model For Correspondent Banking Relationships, Tanisha Sheth

CMC Senior Theses

Employing a granular hand-collected dataset, this paper studies the formation of local financial networks as a consequence of one of the largest bank failures during the Great Depression. The collapse of the National Bank of Kentucky caused ripples throughout the interbank network as 233 banks were faced with the decision to form new connections to reallocate reserves. Tracing over 1600 institutional linkages between 1929 and 1934, I evaluate the decision-making process of commercial banks under a nested logit framework. I find that peer effects and other regional metrics, contrary to national connectivity measures, act as principal determinants in network formation. …

Early Termination Of Small Loans In The Multifamily Mortgage Market, Anthony Pennington-Cross, Brent C. Smith

Finance Faculty Research and Publications

This article uses micro‐level data on small (as defined by Fannie Mae) multifamily loans in the Fannie Mae loan portfolio to examine prepayment and default performance. The results document the importance of equity, as measured by the loan‐to‐value ratio, and contemporaneous property operating income relative to debt service obligations, as measured by the debt‐to‐income ratio. Our results indicate that the expiration of prepayment penalties and yield maintenance provisions lead to large spikes in prepayment and default. The results also illustrate that multifamily loans, as they are not fully amortized, also have a substantial risk of both extension and default at …

How To Develop Successful And Ethical Investment Analysts: Marquette University's Applied Investment Management Program, Matteo P. Arena, David K. Krause

Finance Faculty Research and Publications

Purpose

The purpose of this paper is to suggest best practices for managing a successful student-managed investment program (SMIP) based on the experience of Marquette University's Applied Investment Management (AIM) program.

Design/methodology/approach

The authors provide a detailed description of the program curriculum, instructional design, fund structure, program history, fund performance and student outcomes.

Findings

Through its experiential learning innovations, focus on ethics and close relationships with a dedicated alumni group, the AIM program prepares students for a successful career in investment analysis. Students who graduate from the AIM program experience a significantly higher successful placement rate and higher compensation at …

A Pedagogical Model For Teaching Data Analytics In An Introductory Information Systems Python Course, Heber C. Brau, James C. Brau, Mark Keith

Faculty Publications

In this paper we answer the call of Sheppard (2012) and Brunner & Kim (2016) and present a model for teaching data analytics in an introductory information systems class using the Python programming language. The pedagogy follows an active-learning strategy in which students are assumed to have no statistical or Python programming training prior to class. The learning outcomes include: 1) Data: write code to import and manipulate data; 2) Visualization: write code to generate useful and theoretically sound data visualizations; 3) Feature Engineering: write code to generate, condense, or recombine variables (i.e., "features") of any type (numeric, categorical, ordinal, …

Budget Habits Of College Students: An Empirical Analysis Of Expectations And Realizations, James C. Brau, Marshall Ringwood, Jessica West

Faculty Publications

Using a sample of more than 500 college students from a large, private university, this study seeks to analyze spending expectations of students, their realized habits, and the dispersion between the two. We first ask the students to project what they think their monthly budget will be throughout the semester. We then ask them to track their expenses for three months. The students do the same for income they receive. The students then report their actual spending habits and answer various questions related to their demography, family, and life experience. We use simple univariate correlation methods to explain factors that …

The Narrowness Of Shorting Profitability, Karl B. Diether

Faculty Publications

I examine the persistence in stock level short-selling profitability by using contract level shorting data. I do find that short-sellers are profitable on average using an approach that takes into account the exact timing of the opening and closing of short positions. But I also find that this profitability is driven by the set of stocks for which short-sellers previously had strongly profitable outcomes. I find that if short-selling contracts for a given stock are profitable in the last six months that on average short sellers continue to make profitable trades in that stock in the future. For stocks with …

Sale-Leaseback Transactions: Price Premiums And Market Efficiency, C. F. Sirmans, Barrett A. Slade

Faculty Publications

Sale-leaseback transactions are ubiquitous in real estate markets in the United States with annual volume estimated to be greater than $7 billion. However, there is no evidence concerning the price impact of such transactional arrangements. Using a data set of sale-leaseback transactions, this study examines the price impact on commercial property transactions across seven markets. The findings reveal that transactions structured as saleleasebacks occur at significantly higher prices than market transactions. In addition, after accounting for income differentials, buyers and sellers are appropriately pricing the transactions resulting in no undue advantage to either party, that is, the expected price premium …

Which Early Withdrawal Penalty Attracts The Most Deposits To A Commitment Savings Account?, John Beshears, James J. Choi, Christopher Harris, David Laibson, Brigitte C. Madrian, Jung Sakong

Faculty Publications

Previous research has shown that some people voluntarily use commitment contracts that restrict their own choice sets. We study how people divide money between two accounts: a liquid account that permits unrestricted withdrawals and a commitment account that is randomly assigned in a between-subject design to have either a 10% earlywithdrawal penalty, or a 20% early withdrawal penalty, or not to allowearlywithdrawals at all (i.e., an infinite penalty).When the liquid account and the commitment account pay the same interest rate, higher early-withdrawal penalties attract more commitment account deposits. This pattern is predicted by the hypothesis that some participants are partially- …

Building Emergency Savings Through Employer-Sponsored Rainy-Day Savings Accounts, John Beshears, James J. Choi, Mark Iwry, David John, David Laibson, Brigitte C. Madrian

Faculty Publications

Many Americans live paycheck to paycheck, carry revolving credit balances, and have little liquidity to absorb financial shocks. One consequence of this financial vulnerability is that many individuals use a portion of their retirement savings during their working years. For every $1 that flows into 401(k)s and similar accounts, between 30¢ and 40¢ leaks out before retirement (Argento, Bryant, and Sabelhaus 2015). We explore the practical considerations and challenges associated with helping households accumulate liquid savings that can be deployed when urgent pre-retirement needs arise. Automatically enrolling workers into an employer-sponsored “rainy- day” or “emergency” savings account—terms that we use …

Financial Costs Of Judicial Inexperience: Evidence From Corporate Bankruptcies, Benjamin Iverson, Joshua Madsen, Wei Wang, Qiping Xu

Faculty Publications

Exploiting the random assignment of judges to corporate bankruptcy filings, we estimate financial costs of judicial inexperience. Despite new judges’ prior legal experience, formal education, and rigorous hiring process, their public Chapter 11 cases spend 19% more time in bankruptcy, realize 31% higher legal and professional fees, and 21% lower creditor recovery rates. Examining possible mechanisms, we find that new judges take longer to rule on motions and cases assigned to these judges file more plans of reorganization. Conservative estimates suggest that minor policy adjustments could increase creditor recoveries by approximately $16.8 billion for the public firms in our sample.

Accruals And Volatility In A Real Options-Based Investment Approach: Evidence From Thai Market, Chayaporn Chuenurajit

Chulalongkorn University Theses and Dissertations (Chula ETD)

This study investigates the relationship between year-ahead net working capital accruals as a proxy of investment behavior and expected volatility during the period of 2009 to 2018 of listed non-financial firms in Thailand. I apply a real options-based investment framework to view accruals as a result of investment decision and investigate the impact of firm’s expected volatility. The results show that firms with higher expected volatility have lower level of year-ahead accruals which is consistent with Grenadier and Malenko (2010). Moreover, this study also indicates that high expected volatility period induces distressed firms to invest because they have opportunity to …

Does The Increase In Liquidity Attenuate Returns Anomalies In The Thai Stock Markets?, Supapat Sangkavadana

Chulalongkorn University Theses and Dissertations (Chula ETD)

From Chordia et al. (2014), in the recent period of increased liquidity, the majority of US stock market returns anomalies have attenuated. However, as Thailand is a retail-based stock market, the stock market returns anomalies might not attenuate in the period of increased liquidity. In this paper, I use data from SET and mai markets from 2005 to 2019 to conduct time series regression to test the hypothesis. My finding is, first, apart from momentum returns anomalies in the mai market, the size, value, and momentum returns anomalies still exist in Thai stock markets. Second, most of the returns anomaly …

Financial Constraints, Corporate Governanceand Corporate Cash Holdings: Evidence From Thai Market, Pantawat Tangchitpianvit

Chulalongkorn University Theses and Dissertations (Chula ETD)

The objectives of this paper are to examine the relationship between corporate governance and financial constraints which play a substitution role in mitigating agency conflicts associated to corporate cash holdings of Thai listed company covering the period from 2008 to 2019. I use five firm specific characteristics of financial constraints i.e. annual payout ratio, firm size, leverage ratio, lifecycle ratio as well as collateral asset ratio and corporate governance score as proxies to determine the level of cash holdings. The result provides that financial constrained-firms hold larger amount of cash than financial less constrained-firms in order to have adequate financial …

Impact Of Monetary Policy On Firm’S Risk-Taking Position And Investment Decision, Sakolwat Seneekosol

Chulalongkorn University Theses and Dissertations (Chula ETD)

The recent economic crisis drives monetary policy to boost the economic situation. However, the side effect of monetary policy also dilutes firms' behavior in both risk-taking and investment decisions. This research investigates the effect of monetary policy from the international and local level using firms in 5 Southeast Asia stock markets. The risk and investment decision measurement technique in this paper using Expected Default Frequency and the investment dummy variables. The risk-taking model is based on panel fixed effect regression and the investment decision model is using a fixed-effect logistic model. This paper also extends the analysis to cover the …

Mutual Fund Recommendations On Fund Flows And Returns, Rachapoom Karnasoot

Chulalongkorn University Theses and Dissertations (Chula ETD)

Using Thailand open-end mutual fund samples from 2017 to 2019, this study examines the impact of analysts’ recommendations on mutual fund flow and return. We decide to use the analysts’ recommendation from two big management companies in Thailand who publicly released their analysts’ recommendation in weekly periods, SCBAM and KAsset. We hypothesize and find the recommendations have a significantly positive impact on mutual fund flows and found no significant impact on return. Our study further examines the risk-adjusted return and observe no significant excess return is generated from recommended mutual funds.

Option Returns Around Earning Announcement In London, Thanawat Thangchadakorn

Chulalongkorn University Theses and Dissertations (Chula ETD)

While prior studies find that returns on straddles constructing before earning announcements are positive in U.S. equity option market, we further investigate and find that returns on straddle constructing before earning announcement are positive in London Stock Exchange either. The logic behind this positive return while return on straddles are generally negative is option traders underestimate volatility of upcoming earning announcement period due to recency bias.

The Market And Specific Sector Stock Prices Reaction Around Corporate Bond’S Credit Rating And Outlook Changes – Evidence In Thailand, Kittika Sansanavanee

Chulalongkorn University Theses and Dissertations (Chula ETD)

This study examines stock price reaction around credit rating and outlook changes in Thailand. We collect data from stocks listed in SET (The Stock Exchange of Thailand) which issued corporate bonds. These bonds must be listed in TBMA (The Thai Bond Market Association) and were rated by either Tris or Fitch rating Thailand between 2002-2020 (corporate bond credit rating and outlook change). We also study further about the effect of these credit rating events in 3 sectors of stock - Banking, Finance and Property Development. The empirical result shows that good credit events provide significant positive abnormal stock return after …

The Hybrid Pareto Distribution, Implied Risk-Neutral Density And Option Pricing, Purin Luanloy

Chulalongkorn University Theses and Dissertations (Chula ETD)

This paper aims to develop a new European option pricing model based on the Extreme Value Theory (EVT). We assume that, in the risk-neutral probability measure, simple negative returns of the S&P500 index follow the Hybrid Pareto (HP) distribution. Then, we derive closed-form pricing formulas for call and put options according to the risk-neutral pricing method. Additionally, we assume that the distribution has a fat tail. Our study’s benchmark model is the Generalized Extreme Value (GEV) model proposed by Markose and Alenton (2011). We estimate model parameters by minimizing the root-mean-square error. The results show that the HP model provides …

Risk Management And Hedging Approaches In Energy Markets, Jim Hanly

Articles

Energy based assets are showing increased susceptibility to volatility arising out of geo-political, economic, climate and technological events. Given the economic importance of energy products, their market participants need to be able to access efficient strategies to effectively manage their exposures and reduce price risk. This chapter will outline the key futures based hedging approaches that have been developed for managing energy price risk and evaluate their effectiveness. A key element of this analysis will be the breadth of assets considered. These include Crude and Refined Oil products, Natural Gas, and wholesale Electricity markets. We find significant differences in the …