Finance and Financial Management Commons^™

The Wealth Of Subnations: Geography, Institutions, And Within-Country Development, Todd Mitton

Faculty Publications

I study determinants of economic development in a new dataset covering 1867 subnational regions from 101 countries, focusing on within-country effects of geography and institutions. Several geographic factors have significant explanatory power forwithin-country differences in per-capita GDP, including terrain ruggedness, tropical climate, ocean access, temperature range, storm risk, and natural resources such as oil, diamonds, or iron. Institutions have a significant positive effect on income among subnational regions with greater autonomy, suggesting that strong subnational institutions enhance development when not dominated by national institutions.

The Influence Of Operational Resources And Activities On Indirect Personnel Costs: A Multilevel Modeling Approach, Bradley C. Boehmke, Alan W. Johnson, Edward D. White, Jeffery D. Weir, Mark A. Gallagher

Faculty Publications

Indirect activities often represent an underemphasized, yet significant, contributing source of costs for organizations. In order to manage indirect costs, organizations must understand how these costs behave relative to changes in operational resources and activities. This is of particular interest to the Air Force and its sister services, because recent and projected reductions in defense spending are forcing reductions in their operational variables, and insufficient research exists to help them understand how this may influence indirect costs. Furthermore, although academic research on indirect costs has advanced the knowledge behind the modeling and behavior of indirect costs, significant gaps in the …

Study Of Reit Etf Beta, Stoyu Ivanov

Faculty Publications

PurposeThe aim of this study is to examine real estate investment trust exchange-traded funds (REIT ETFs) and test for the existence of the “asymmetric beta puzzle” phenomenon in these financial instruments that are relatively new and are gaining popularity. The “asymmetric beta puzzle” phenomenon is used to identify the hedging and diversification benefits of a financial instrument. “Asymmetric beta puzzle” exists when betas in declining markets are higher than betas in advancing markets.Design/methodology/approachTo study 14 REIT ETFs by using monthly and daily Center for Research in Security Prices (CRSP) data. Capital asset pricing model (CAPM) and Fama–French three-factor model were …

Scaling Up Your Story: An Experiment In Global Knowledge Sharing At The World Bank, Shad Morris, James B. Oldroyd, Sita Ramaswami

Faculty Publications

Timely and effective knowledge transfer is increasingly important in today’s technologically advanced global market. However, a myopic focus on efficiency has frequently rendered most organizational knowledge ineffective. By coupling technology with a formal system that captures informal stories in an engaging and entertaining way, actors within an organization may be more willing to listen to what geographically dispersed colleagues are doing, and may be more likely to ascribe value to that information. Focusing on the International Finance Corporation of the World Bank Group, we conducted interviews with those sharing and using knowledge, and performed content analyses of 175 knowledge-sharing narratives. …

Portfolio Spillovers And A Limit To Diversification, Bronson Argyle

Faculty Publications

Securities are exposed to the return shocks of seemingly unrelated securities in common mutual fund portfolios. Shocks to firm returns mechanically affect fund returns that hold these securities, which induce investor-driven flows and rebalancing, resulting in temporary flow-induced price pressure (FIPP) on other firms in common portfolios. Instrumenting to address flow/return endogeneity, a one standard deviation increase in the FIPP corresponds to a 15-60 bps increase in daily abnormal firm returns. This pressure reverses in 5-6 days and is larger for liquid firms and for funds experiencing outflows. Failing to properly estimate this correlation implies that an investor is exposed …

Who Is Easier To Nudge?, John Beshears, James J. Choi, David Laibson, Brigitte C. Madrian, Sean (Xixiang) Wang

Faculty Publications

Identifying who is more influenced by a default is challenging, since individuals may be more likely to remain at the default either because they are more susceptible to defaults in general or because the default is closer to their preferred choice. We apply a statistical model to ten large companies’ 401(k) plans to distinguish between these two channels. Even after controlling for contribution rate preferences, low-income and young individuals are slower to opt out of contribution rate defaults. The evidence is consistent with the default changing contribution rate preferences, as predicted by anchoring or endorsement effects, and there is weaker …

Information Exploitation? A Pre-Crisis Rmbs Issuer's Private Information, Darren Aiello

Faculty Publications

This paper describes an important borrower risk factor observed privately by the issuer of non-agency RMBS. The private information available to the issuer is drawn from behavioral cues exhibited early in the life of the loan. Mortgage borrowers that make their first six payments at least a day prior to the due date are 14.8 percentage points less likely to become delinquent (equivalent to a 91-point increase in FICO score). This effect is persistent, unobservable at loan origination, and privately observed by the issuer prior to securitization. Both the credit rating agencies and the investor do not appear to be …

The Ownership And Trading Of Debt Claims In Chapter 11 Restructurings, Victoria Ivashina, Benjamin Iverson, David C. Smith

Faculty Publications

Using a novel data set that covers individual debt claims against 136 bankrupt US companies and includes information on a subset of claims transfers, we provide new empirical insight regarding how a firm’s debt ownership relates to bankruptcy outcomes. Firms with higher debt concentration at the start of the case are more likely to file prearranged bankruptcy plans, to move quickly through the restructuring process, and to emerge successfully as independent going concerns. Moreover, higher ownership concentration within a debt class is associated with higher recovery rates to that class. Trading of claims during bankruptcy concentrates ownership further, but this …

Vaccination Rates Are Associated With Functional Proximity But Not Base Proximity Of Vaccination Clinics, John Beshears, James J. Choi, David I. Laibson, Brigitte C. Madrian, Gwendolyn I. Reynolds

Faculty Publications

Background: Routine annual influenza vaccinations are recommended for persons 6 months of age and older, but less than half of US adults get vaccinated. Many employers offer employees free influenza vaccinations at workplace clinics, but even then take-up is low.

Objective: To determine whether employees are significantly more likely to get vaccinated if they have a higher probability of walking by the clinic for reasons other than vaccination.

Method: We obtained data from an employer with a free workplace influenza vaccination clinic. Using each employee’s building entry/ exit swipe card data, we test whether functional proximity—the likelihood that the employee …

Desarrollo Del Capital Humano Y Su Impacto En El Desempeño De Una Institución Microfinanciera No Regulada Del Perú, Sylvia Gonzalez, Santos Guerrero, Alfredo Matos Chamorro, Edelmira Picon Ventocilla

Faculty Publications

This study analyzes the relationship between the promoters of human capital and performance of an unregulated microfinance institution (IMNR) in Peru in 2009. A cross-sectional study was conducted using the survey Human Capital Management (HCM, for its acronym in English ) by Bassi and McMurrer (2007) for the Community Banks program of the nongovernmental organization (NGO) ADRA Peru's workers. The results of a multiple linear regression analysis showed that the motivators of practices of leadership and learning ability are related to operational sustainability and productivity of credit execution. The variable “Leadership practices” consists of five factors: communication, inclusion, supervisory skills, …

Innovation Outcomes Of Knowledge-Seeking Chinese Foreign Direct Investment, Xianming Wu, Nathaniel C. Lupton, Yuping Du

Faculty Publications

Purpose

The purpose of this paper is to investigates how organizational learning, absorptive capacity, cultural integration, specialization of the acquired firm and characteristics of transferred knowledge impact innovation performance subsequent to overseas acquisitions.

Design/methodology/approach

Survey responses from 222 Chinese multinational enterprises engaged in overseas acquisitions.

Findings

Differences between acquiring and acquired firms’ capabilities, while having a positive direct influence, suppress the positive impact of organizational learning and absorptive capacity, suggesting that multinationals require some basic level of capabilities to appropriate value from overseas acquisitions.

Research limitations/implications

This paper investigates the impact of knowledge-seeking overseas acquisition of Chinese multinationals on innovation …

Long Term Adr Performance: How Do Regional Issues Listed On The Nyse Compare To Us And Regional Index Returns?, Mark Schaub, Todd A. Brown

Faculty Publications

This study examines the long-term performance of Asia Pacific, European, and Latin American ADRs versus the S&P500 and their respective regional indexes from 1990-2010. The sample was dividend by stable markets (1990s) and volatile markets (2000s). We find that, when analyzed in total, regional indexes perform similarly to the S&P500. However, the Asia Pacific and Latin America regions do offer diversification benefits individually. Furthermore, the ADRs from each region underperform in stable markets (1990s) and outperform in volatile markets (2000s) leading to great diversification benefits.

Financial Statement Racing, Marie Kelly, Nikki Shoemaker

Faculty Publications

This paper describes an active learning activity called Financial Statement Racing. This game has been used in several introductory financial accounting courses to help students understand the normal balances and financial statement classifications of multiple financial statement accounts. The activity encourages students to work together in a team to place racecars on the appropriate financial statement racetrack in the correct debit or credit lane. These teams compete against other teams in the class to try to win the race to the end of the financial statement racetrack.

Are The Parents To Blame? Predicting Franchisee Failure, Ilan Alon, Michèle Boulanger, Everlyne Misati, Melih Madanoglu

Faculty Publications

The Small Business Administration (SBA) supports franchising by backing up loans issued by regular lending organizations. However, the SBA does not directly consider firm strategies as part of its lending process. To appreciate how franchisor characteristics influence franchisee failure, we developed a heuristic model using the methodology and power of predictive analytics. We use multi-year data from the World Franchising Council’s surveys on franchisors’ characteristics and from the SBA on franchisee loan defaults. The data cover 271 diverse US franchise chains that are present in both databases. Our model predicts potential defaults of SBA-backed loans issued to American franchisees and …

Experiential Learning In Personal Finance: A Principles And Applications Based Approach, James C. Brau, Jacob K. Nielson, Bryan L. Sudweeks

Faculty Publications

This paper discusses the need for increased financial literacy among college-aged students and then presents and analyzes a personal finance class taught at a large, private university. The course is designed around five characteristics which, when combined, result in a high value-added pedagogy. These characteristics are the following: a humanistic approach to personal finance, a principles-based approach, an applications-based curriculum, a partnership with Intuit's Quicken, and a serviceteaching requirement. With a track record of over a dozen years and 3,128 students, the course continues to be one of the best-rated courses among both students and alumni.

Strategically Camouflaged Corporate Governance In Ipos: Entrepreneurial Masking And Impression Management, David F. Benson, James C. Brau, James Cicon, Stephen P. Ferris

Faculty Publications

Entrepreneurs attempt to persuade potential investors that their new ventures are both credible andworthy of funding. A long line of research on entrepreneurial impressionmanagement establishes that the ability to present their ventures in a favorable light is a key attribute of successful entrepreneurs. In this study, we examine the opposite side of the issue and test to determine if some entrepreneurs obscure corporate governance information.We create a newmetric tomeasure the level of camouflage used in governance documents for initial public offerings (IPOs). We find that entrepreneurs are less likely to use camouflage during periods of high scrutiny, as measured by …

Does Microfinance Fill The Funding Gap For Microentrepreneurs? A Conceptual Analysis Of Entrepreneurship Seeding In Impoverished Nations, James C. Brau, Sunshine N. Cardell, Warner P. Woodworth

Faculty Publications

We address the role microfinance institutions (MFIs) play in funding entrepreneurial ventures and present a distinction between the types of entrepreneurs that seek MFI and traditional venture funding. We argue that microfinance can serve successfully as s eed financing for microentrepreneurs in under developed economies around the world. By comparing bootstrapping and private equity seed financing in developed economies to microfinance seed financing in impoverished economies, we show that the different ent repreneurial characteristics in the two economies have similar funding gaps but are solved with different sources of funding.

The Effect Of Providing Peer Information On Retirement Savings Decisions, John Beshears, James J. Choi, David Laibson, Brigitte C. Madrian, Katherine L. Milkman

Faculty Publications

Using a field experiment in a 401(k) plan, we measure the effect of disseminating information about peer behavior on savings. Low-saving employees received simplified plan enrollment or contribution increase forms. A randomized subset of forms stated the fraction of age-matched coworkers participating in the plan or age-matched participants contributing at least 6% of pay to the plan. We document an oppositional reaction: the presence of peer information decreased the savings of nonparticipants who were ineligible for 401(k) automatic enrollment, and higher observed peer savings rates also decreased savings. Discouragement from upward social comparisons seems to drive this reaction.

Cash Holdings Of S&P Firms Over The Past Decade, Mary Fischer, Treba Marsh, Todd A. Brown

Faculty Publications

Over the past decade, financial research suggests US firms hold a significant amount of cash. This growing amount of cash has attracted attention from economists, the business press and government. A firm’s cash balance could well indicate the firm elects to hold cash rather than invest in suboptimal investments. There are trade-offs between holding too much cash and holding too little. This exploratory study attempts to find financial relationships that explain the cash held by S&P 100 firms over the decade from fiscal year 2002 to 2011.

Analysis Of The Relation Between The Spiders Spot And Option Implied Volatility., Stoyu Ivanov

Faculty Publications

In this study we use spectral analysis on SPY (Spiders) options to examine the relation between option spot and implied volatility for this exchange trade fund. We attempt to address the question is there a relation between the option spot and implied volatility or option implied volatility has no relation with the spot exchange trade fund volatility. We find that this relation does exist for SPY at-the-money call and put options and the in-the-money call and out-of-the-money put options. Using two spectral statistics – the coherence and the phase statistics, we find that the SPY option implied volatility and spot …

Stock Options As Lotteries, Brian H. Boyer, Keith Vorkink

Faculty Publications

We investigate the relationship between ex ante total skewness and holding returns on individual equity options. Recent theoretical developments predict a negative relationship between total skewness and average returns, in contrast to the traditional view that only coskewness is priced. We find, consistent with recent theory, that total skewness exhibits a strong negative relationship with average option returns. Differences in average returns for option portfolios sorted on ex ante skewness range from 10% to 50% per week, even after controlling for risk. Our findings suggest that these large premiums compensate intermediaries for bearing unhedgeable risk when accommodating investor demand for …

An Empirical Examination Of Negative Economic Value Added Firms., Stoyu Ivanov, Kenneth Leong, Janis Zaima

Faculty Publications

Economic value-added or EVA is a common metric that quantifies the value of the firm. However, recent studies that examine portfolio investment strategies using EVA suggest that portfolios formed with negative EVA earn relatively higher returns compared to some positive EVA firms. This study investigates whether firms with current negative EVAs perform well in the future. A sample of firms with negative EVAs in 2003 is identified, then four portfolios are formed by ranking firms from the most negative to the least negative EVAs. The returns of the four portfolios are tracked from 2004 through 2009 and correlated to four …

Performance Analysis Of Banks Headquartered In Hollywood Versus Silicon Valley., Stoyu Ivanov

Faculty Publications

In this study we examine the performance of banks headquartered in Hollywood and banks headquartered in Silicon Valley in the period - first quarter 2008 until second quarter 2012, which includes the period of the Great Recession - December 2007 to June 2009. We find that during the financial crisis both Silicon Valley and Hollywood banks suffered but Silicon Valley banks much less than Hollywood banks. After the recession, banks in both regions improved performance again Silicon Valley banks recovering faster. We also find that the level of deposits, the leverage ratio and total loan chargeoffs consistently play a role …

Applying Insights From Behavioral Economics To Policy Design, Brigitte C. Madrian

Faculty Publications

The premise of this article is that an understanding of psychology and other social science disciplines can inform the effectiveness of the economic tools traditionally deployed in carrying out the functions of government, which include remedying market failures, redistributing income, and collecting tax revenue. An understanding of psychology can also lead to the development of different policy tools that better motivate desired behavior change or that are more cost-effective than traditional policy tools. The article outlines a framework for thinking about the psychology of behavior change in the context of market failures. It then describes the research on the effects …

What Makes Annuitization More Appealing?, John Beshears, James J. Choi, David Laibson, Brigitte C. Madrian, Stephen P. Zeldes

Faculty Publications

We conduct and analyze two large surveys of hypothetical annuitization choices. We find that allowing individuals to annuitize a fraction of their wealth increases annuitization relative to a situation where annuitization is an “all or nothing” decision. Very few respondents choose declining real payout streams over flat or increasing real payout streams of equivalent expected present value. Highlighting the effects of inflation increases demand for cost of living adjustments. Frames that highlight flexibility, control, and investment significantly reduce annuitization. A majority of respondents prefer to receive an extra “bonus” payment during one month of the year that is funded by …

The Efects Of Cryptocurrency Wealth On Household Consumption And Investment, Darren Aiello, Scott R. Baker, Tetyana Balyuk, Marco Di Maggio, Mark J. Johnson, Jason Kotter

Faculty Publications

This paper uses transaction-level bank and credit card data to identify cryptocurrency investors and assess the impact of crypto wealth fuctuations on household consumption, as well as on investments in other assets. We fnd an $0.09 MPC from crypto gains, exceeding most previous estimates from unrealized equity gains. However, crypto investors are mostly also active equity investors, with many similar consumption patterns across gains from both asset classes. Households sell cryptocurrencies to increase discretionary and housing expenditures, with the latter causing local house price appreciation.

Peer Effects In Risk Aversion And Trust, Kenneth R. Ahern, Ran Duchin, Tyler Shumway

Faculty Publications

Existing evidence shows that risk aversion and trust are largely determined by environmental factors. We test whether one such factor is peer influence. Using random assignment of MBA students to peer groups and predetermined survey responses of economic attitudes, we find causal evidence of positive peer effects in risk aversion and no effects in trust. After the first year of the MBA program, the difference between an individual and her peers' average risk aversion is only 41% as large as the difference was before starting the MBA. Finding no peer effects in trust is consistent with recent research showing that …

A Direct Test Of Agency Theories Of Debt, Yilin Huang, Taylor D. Nadauld

Faculty Publications

When a firm is facing default, equity holders have incentives to engage in asset substitution, underinvest, or directly transfer wealth. Few papers document investment distortions on account of debt-equity agency conflicts, only that the threat of distortions influence ex ante financing costs. A non-agency RMBS deal represents an entity that is highly leveraged where, ex ante, equity holders know they will face default. This provides an ideal laboratory for testing whether the threat of default creates any of the distortions predicted in theory. We estimate agency costs associated with direct wealth transfers to range between $.011 and $.025 per dollar.

Housing Regulation, Externalities And Residential Property Prices, Henry J. Munneke, C. F. Sirmans, Barrett A. Slade, Geoffrey K. Turnbull

Faculty Publications

This article examines the effects of quantity restrictions on residential property prices in the presence of neighborhood externalities. A Brigham Young University policy limiting students’ location choices provides a natural experiment for studying the externality and quantity restriction effects on property values. A flexible hedonic model is used to control for nonstudent population spatial sorting by type. The estimates show significant positive quantity restriction and student agglomeration effects on student housing prices. There are also significant differences in the negative student externality across nonstudent neighborhoods, with the quantity restriction reinforcing (offsetting) the student price premium (discount) at the boundary.

Who Uses The Roth 401(K), And How Do They Use It?, John Beshears, James J. Choi, David Laibson, Brigitte C. Madrian

Faculty Publications

Using administrative data from twelve companies that added a Roth 401(k) option between 2006 and 2010, we describe the characteristics of Roth contributions. Approximately one year after the Roth is introduced, 9% of 401(k) participants have positive Roth balances. Roth participation is more than twice as high among 401(k) participants who were hired after the Roth introduction than among 401(k) participants who were hired before the Roth introduction. In essence, once an employee joins a 401(k) she becomes passive/inattentive, thereby reducing the likelihood of reacting to the introduction of a new Roth option. Conditional on contributing to the Roth, 66% …