Finance and Financial Management Commons^™

Get In Line: Chapter 11 Restructuring In Crowded Bankruptcy Courts, Benjamin Iverson

Faculty Publications

Bankruptcy costs depend not only on the laws that govern financial distress but also on the ability of the court to rehabilitate distressed firms. This paper tests whether Chapter 11 restructuring outcomes are affected by time constraints in busy bankruptcy courts. Using the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act as an exogenous shock to caseloads, I find that commercial banks report lower charge-offs on business lending when court caseloads decline, suggesting that the costs of financial distress are lower in less-congested courts. Further, court caseload affects how restructuring takes place. Less-busy bankruptcy judges liquidate fewer small …

Trade Creditors' Information Advantage, Victoria Ivashina, Benjamin Iverson

Faculty Publications

Using information on the sales of debt claims for 132 U.S. Chapter 11 bankruptcy cases, we show that large trade creditors’ decisions to sell receivables of a distressed company in bankruptcy are predictive of lower recovery rates, and that in such cases these creditors sell ahead of less informed suppliers and other creditors. This result is especially pronounced for more opaque distressed firms, when trade creditors’ information advantage is likely largest. This evidence shows that suppliers that extend significant amounts of trade credit hold private information about their trade partners. Trade creditors who are geographically closer or in similar industries …

Public Ownership And The Local Economy, Jess Cornaggia, Matthew Gustafson, Jason Kotter, Kevin Pisciotta

Faculty Publications

We provide evidence that a firm’s transition from private to public ownership stunts local economic growth, especially in less populated and poorer areas. After accounting for endogeneity in the ownership decision, areas hosting companies that go public experience muted growth in employment, establishments, population, and wages, relative to areas where firms file to go public and remain private. Establishment-level analyses reveal that transitioning to public ownership causes firms to geographically diversify their establishments and employee base. These findings are consistent with public ownership reducing a firm’s reliance on local agglomeration economies, to the detriment of the local community.

Comparables Pricing, Justin Murfin, Ryan Pratt

Faculty Publications

Finance professionals commonly set prices based on the analysis of recently closed, comparable transactions. Using data on syndicated loans, we exploit the lag between loans’ closing dates and their inclusion in a widely used comparables database to identify the effect of past transactions on new transaction pricing. Comparables pricing is an important determinant of individual loan spreads, but a failure to account for overlap in information across loans leads to pricing mistakes. Comparables used repeatedly are overweighted as they develop redundant channels of influence on later transactions. Market conditions prevailing at the time a comparable was priced also unduly influence …

Credit Supply And The Rise In College Tuition: Evidence From The Expansion In Federal Student Aid Programs, David O. Lucca, Taylor Nadauld, Karen Shen

Faculty Publications

We study the link between the student credit expansion of the past 15 years and the contemporaneous rise in college tuition. To disentangle simultaneity issues, we analyze the effects of increases in federal student loan caps using detailed student-level financial data. We find a pass-through effect on tuition of changes in subsidized loan maximums of about 60 cents on the dollar and of about 20 cents on the dollar for unsubsidized federal loans. The effect is most pronounced for more expensive degrees and degrees offered by for-profit and 2-year institutions.

Big-Box Stores And Urban Land Prices: Friend Or Foe?, Barrett A. Slade

Faculty Publications

This study examined the effect of a new Walmart store on nearby U.S. urban land prices and found that, within one quarter mile of a new Walmart store locale, land prices increased by almost 39% over the four-year development time period. Supercenters and commercial land sales were instrumental in driving the positive price effects. Robustness tests found a positive land price effect with other big-box stores, suggesting that the land price effect was not limited to Walmart stores, but in fact, was a big-box store effect.

Sunrise Presentations: A Study In Valuing And Divesting A Small Business, Cyndi Barrus, James C. Brau, Amy Cyr, Jessica West

Faculty Publications

Sarah Barnett has decided to go back to school to earn an MBA. For several years she has run a graphic design business. Sarah has unexpectedly been accepted into the MBA program with a scholarship a year earlier than she planned. Classes begin in two weeks and the school she is attending does not allow first year MBAs to work outside of the school curriculum. Sarah has decided to divest her business and now must consider several options to do so. She is most concerned about making sure her customers continue to receive outstanding service, and secondarily concerned about selling …

Behavioral Household Finance, John Beshears, James J. Choi, David Laibson, Brigitte C. Madrian

Faculty Publications

This chapter provides an overview of household finance. The first part summarizes key facts regarding household financial behavior, emphasizing empirical regularities that are inconsistent with the standard classical economic model and discussing extensions of the classical model and explanations grounded in behavioral economics that can account for the observed patterns. This part covers five topics: consumption and savings, borrowing, payments, asset allocation, and insurance. The second part addresses interventions that firms, governments, and other parties deploy to shape household financial outcomes: education and information, peer effects and social influence, product design, advice and disclosure, choice architecture, and interventions that directly …

Potential Vs. Realized Savings Under Automatic Enrollment, John Beshears, James J. Choi, David Laibson, Brigitte C. Madrian

Faculty Publications

Employer adoption of automatic enrollment can dramatically increase retirement savings plan participation. However, many savings plan participants withdraw some, or even all, of their accumulated balances prior to reaching retirement. The extent to which individuals’ preretirement withdrawal decisions, sometimes months or even years after they have been automatically enrolled, offset the increased savings induced by automatic enrollment is an open question. We explore this issue by studying the evolution of retirement savings outcomes over time for the employees at a large firm that introduced automatic enrollment in 2005. Comparing employees hired in the 12 months after the introduction of automatic …

Financial Success From The Start: Personal Finance For New Pastors, Annetta M. Gibson

Faculty Publications

Presentation for the Mid-America Union Conference Pastor's Convention, July 31, 2017

An Introduction To Financial Analysis, Annetta M. Gibson

Faculty Publications

Presentation for the WAD Quinquennial Division-wide Council, July 5, 2017

Managing And Analyzing Cash Flow, Annetta M. Gibson

Faculty Publications

Presentation for the WAD Quinquennial Division - Wide Council, July 4, 2017

Managing And Analyzing Cash Flow, Annetta M. Gibson

Faculty Publications

Presentation for SPD 2017 Business Professional Convention May 18, 2017

Utah County Housing Trends From 2000-2016: A Quantitative Research Analysis, James C. Brau, Jeremy R. Endicott, Barrett A. Slade, David N. Wilson

Faculty Publications

We examine the Utah County housing market using a sample of over 70,000 single-family residential transactions from 2000 through 2016. To measure the strength of the Utah County residential market, we examine selling price, transaction volume, and number of days the house is on the market. We compare housing prices using two models: a naïve model that calculates the average transaction price over a period, and a hedonic pricing model that gives a detailed, holistic view of how homes are priced. The latter incorporates characteristics of homes not priced in the naïve model. Characteristics include total square feet above and …

Lumberjack Construction: Job-Order Costing & Manufacturing Simulation, Marie Kelly, Nikki Shoemaker

Faculty Publications

This paper describes a classroom Job-Order Costing and manufacturing simulation called Lumberjack Construction. This simulation is used in introductory managerial accounting and cost accounting courses to help students understand the various parts of the manufacturing process and the application of Job-Order Costing principles. For this simulation, students are placed into manufacturing groups. Each group is responsible for manufacturing a building and calculating the cost of that building using job-order costing.

Does Front-Loading Taxation Increase Savings? Evidence From Roth 401(K) Introductions, John Beshears, James J. Choi, David Laibson, Brigitte C. Madrian

Faculty Publications

Can governments increase private savings by taxing savings up front instead of in retirement? Roth 401(k) contributions are not tax-deductible in the contribution year, butwithdrawals in retirement are untaxed. The more common before-tax 401(k) contribution is tax-deductible in the contribution year, but both principal and investment earnings are taxed upon withdrawal. Using administrative data from eleven companies that added a Roth contribution option to their existing 401(k) plan between 2006 and 2010, we find no evidence that total 401(k) contribution rates differ between employees hired before versus after Roth introduction, which implies that take-home pay declines and the amount of …

Does Aggregated Returns Disclosure Increase Portfolio Risk Taking?, John Beshears, James J. Choi, David Laibson, Brigitte C. Madrian

Faculty Publications

Many experiments have found that participants take more investment risk if they see less frequent returns, portfolio-level returns (rather than each individual asset’s returns), or longhorizon (rather than one-year) historical return distributions. In contrast, we find that such information aggregation treatments do not affect total equity investment when we make the investment environment more realistic than in prior experiments. Previously documented aggregation effects are not robust to changes in the risky asset’s return distribution or to the introduction of a multiday delay between portfolio choice and return realizations.

A Commitment Contract To Achieve Virologic Suppression In Poorly Adherent Patients With Hiv/Aids, Marcella Alsan, John Beshears, Wendy S. Armstrong, James J. Choi, Brigitte C. Madrian, Minh Ly T. Nguyen, Carlos Del Rio, David Laibson, Vincent C. Marconi

Faculty Publications

Objective—Assess whether a commitment contract informed by behavioral economics leads to persistent virologic suppression among HIV-positive patients with poor antiretroviral therapy (ART) adherence.

Design—Single-center pilot randomized clinical trial, plus a non-randomized control group.

Setting—Publicly-funded HIV clinic in Atlanta, Georgia, USA.

Intervention—The study involved three arms. (i) Participants in the provider visit incentive arm received $30 after attending each scheduled provider visit. (ii) Participants in the incentive choice arm were given a choice between the above arrangement and a commitment contract that made the $30 payment conditional on both attending the provider visit and meeting an ART adherence threshold. (iii) The …

Short And Long Run Uncertainty, Jose Maria Barrero, Nicholas Bloom, Ian Wright

Faculty Publications

Uncertainty appears to have both a short-run and a long-run component, which we measure using firm and macro implied volatility data from options of 30 days to 10 years duration. We ask what may be driving uncertainty over these different time horizons, finding that oil price volatility is particularly important for short-run uncertainty, policy uncertainty is particularly important for long-run uncertainty, while currency volatility and CEO turnover appear to equally impact shortand long-run uncertainty. Examining a panel of over 4,000 firms from 1996 to 2013 we find that R&D is relatively more sensitive to long-run uncertainty than investment, and in …

Pricing Kernel Monotonicity And Conditional Information, Matthew Linn, Sophie Shive, Tyler Shumway

Faculty Publications

A large literature finds evidence that pricing kernels nonparametrically estimated from option prices and historical returns are not monotonically decreasing in market index returns. We argue that existing estimation methods are inconsistent and propose a new nonparametric estimator of the pricing kernel that reflects the information available to investors who set asset prices. In simulations, the estimator outperforms existing techniques. Our empirical estimates using S&P 500 index option data from 1996 to 2014 and FTSE 100 index option data from 2002 to 2014 suggest that the "pricing kernel puzzle'' is due to flaws in existing estimators rather than a behavioral …

Bankruptcy Spillovers, Shai Bernstein, Emanuele Colonnelli, Xavier Giroud, Benjamin Iverson

Faculty Publications

How do different bankruptcy approaches affect the local economy? Using U.S. Census microdata at the establishment level, we explore the spillover effects of reorganization and liquidation on geographically proximate firms. We exploit the random assignment of bankruptcy judges as a source of exogenous variation in the probability of liquidation. We find that within a five-year period, employment declines substantially in the immediate neighborhood of the liquidated establishments, relative to reorganized establishments. Most of the decline is due to lower growth of existing establishments and, to a lesser extent, reduced entry into the area. The spillover effects are highly localized and …

Behaviorally Informed Policies For Household Financial Decisionmaking, Brigitte C. Madrian, Hal E. Hershfield, Abigail B. Sussman, Saurabh Bhargava, Jeremy Burke, Scott A. Huettel, Julian Jamison, Eric J. Johnson, John G. Lynch, Stephan Meier, Scott Rick, Suzanne B. Shu

Faculty Publications

Low incomes, limited financial literacy, fraud, and deception are just a few of the many intractable economic and social factors that contribute to the financial difficulties that households face today. Addressing these issues directly is difficult and costly. But poor financial outcomes also result from systematic psychological tendencies, including imperfect optimization, biased judgments and preferences, and susceptibility to influence by the actions and opinions of others. Some of these psychological tendencies and the problems they cause may be countered by policies and interventions that are both low cost and scalable. We detail the ways that these behavioral factors contribute to …

Equity Issuance Of Health Care Firms After The 2007 Market Crash And The 2010 Affordable Ca1·E Act, James C. Brau, J. Troy Carpenter

Faculty Publications

We provide an empirical analysis of 195 initial public offerings (IPOs) and 547 seasoned equity offerings (SEOs) of health care firms that issued between 2008 and October 2016. This period represents eight years after the US financial crisis of late 2007 and also includes all equity issuances since the passage of the Affordable Care Act of late 2010. We compare and contrast our results with those of Brau and Holloway (2009) who study health care equity issuances from 1970-2008. We find that global health care issues in both the IPO and SEO markets are significantly over-represented in both the post-crash …

Final Demand For Structured Finance Securities, Craig B. Merrill, Taylor Nadauld, Philip E. Strahan

Faculty Publications

Structured finance boomed during the run-up to the 2008 financial crisis. Highly rated, structured securities offered higher yield than other similarly rated bonds because of their concentration of systematic risk, but regulatory capital requirements did not account for this risk. As a result, regulated entities facing capital constraints had an incentive to invest in them. We show that life insurance companies exposed to unrealized losses from low interest rates in the early 2000s increased their holdings of highly rated securitized assets, consistent with regulatory arbitrage distorting the demand to hold these assets.

Liquidity In Retirement Savings Systems: An International Comparison, John Beshears, James J. Choi, Joshua Hurwitz, David Laibson, Brigitte C. Madrian

Faculty Publications

What is the socially optimal level of liquidity in a retirement savings system? Liquid retirement savings are desirable because liquidity enables agents to flexibly respond to preretirement events that raise the marginal utility of consumption, like income shocks.¹ On the other hand, preretirement liquidity is undesirable when it leads to undersaving arising from, for example, planning mistakes or self- control problems.²

Release Of Restricted Funds And How To Account For Them, Annetta M. Gibson

Faculty Publications

Presentation for treasurers of the North American Division, March 29, 2016

Using Option Theory To Determine Optimal Ira Investment, Treba Marsh, Todd A. Brown, Mary Fischer

Faculty Publications

Given the current uncertain economic trends, the decision to contribute to a personal retirement account can be a financial challenge taking a great deal of courage. Using the option theory, this paper presents arguments to justify the optimal contribution to maximize an IRA investment return.

Rodeo In The Classroom: Activity Based Costing Simulation, Nikki Shoemaker, Marie Kelly

Faculty Publications

This paper describes a classroom Activity Based Costing simulation called Rodeo in the Classroom. This simulation has been used in several introductory managerial accounting and cost accounting courses in order to help students understand the difference in the application of overhead between Job Order Costing and Activity Based Costing methods. Each student is assigned their own rodeo simulation and must calculate its cost using specific cost drivers. To verify their calculations, students with the same rodeos are grouped together to compare costs. Final rodeo costs are presented to the class where differences in cost allocations and reasons for these differences …

Analysis Of The Factors Impacting Etfs Net Fund Flow Changes, Stoyu Ivanov

Faculty Publications

PurposeThe purpose of this study is to identify the factors that impact the exchange-traded funds net fund flow changes on a daily basis.Design/methodology/approachA total of 1,212 different exchange-traded funds with a proprietary daily net fund flow data and logistic regressions were studied because the majority of the 1,212 exchange-traded funds have mostly zero daily net fund flow changes.FindingsIt was documented that in the period December 22, 2005 to July 28, 2010 autocorrelation at the daily frequency is not universally present for the 1,212 exchange-traded funds that we study, despite the fact that this is the case in the monthly data …

The Value Of Connections In Turbulent Times: Evidence From The United States, Daron Acemoglu, Simon Johnson, Amir Kermani, James Kwak, Todd Mitton

Faculty Publications

The announcement of Timothy Geithner as nominee for Treasury Secretary in November 2008 produced a cumulative abnormal return for financial firms with which he had a prior connection. This return was about 6% after the first full day of trading and about 12% after ten trading days. There were subsequently abnormal negative returns for connected firms when news broke that Geithner’s confirmation might be derailed by tax issues. Personal connections to top executive branch officials can matter greatly even in a country with strong overall institutions, at least during a time of acute financial crisis and heightened policy discretion.