Other Business Commons^™

Limited Attention To Detail In Financial Markets: Evidence From Reduced-Form And Structural Estimation, Henrik Cronqvist, Tomislav Ladika, Elisa Pazaj, Zacharias Sautner

Business Faculty Articles and Research

We show that firm valuations fell after a key expense became more visible in financial statements. FAS 123-R required firms to deduct option compensation costs from earnings, instead of disclosing them in footnotes. Firms that granted high option pay experienced earnings reductions, while fundamentals remained unchanged. These firms were more likely to miss earnings forecasts, and they experienced recommendation downgrades and valuation declines. Our findings suggest that market participants exhibited limited attention to option costs before FAS 123-R. As we reuse the FAS 123-R natural experiment, we show how one can address confounding channels by integrating reduced-form and structural estimation.

Ceo Extraversion And The Cost Of Equity Capital, Biljana Adebambo, Robert M. Bowen, Shavin Malhotra, Pengcheng Zhu

Accounting Faculty Articles and Research

We examine whether CEO extraversion, an important personality trait associated with leadership, is associated with firms' expected cost of equity capital. We measure CEO extraversion using CEOs' speech patterns during the unscripted portion of conference calls. After controlling for multiple CEO and firm-specific variables, we find a strong positive incremental association between CEO extraversion and firms' expected cost of capital. Moreover, cost of equity increases when a more extraverted CEO replaces a less extraverted CEO. In addition, we find that firms with relatively extraverted CEOs take more risk and exhibit lower credit ratings, which is associated with higher cost of …

Blockholder Mutual Fund Participation In Private In-House Meetings, Robert Bowen, Shantanu Dutta, Songlian Tang, Pengcheng Zhu

Accounting Faculty Articles and Research

The Shenzhen Stock Exchange (SZSE) in China is unique worldwide in requiring disclosure of the timing, participants, and selected content of private in-house meetings between firm managers and outsider investors. We investigate whether these private meetings benefit hosting firms and their major outside institutional investors—blockholder mutual funds (i.e., funds with ownership ≥5%). Using a large data set of SZSE firms, we find that blockholder mutual funds have more access to private in-house meetings, and top management is more likely to be present, especially when a meeting is associated with negative news. Furthermore, when blockholder mutual funds attend negative-news meetings with …

The Night And Day Of Amihud’S (2002) Liquidity Measure, Yashar H. Barardehi, Dan Bernhardt, Thomas G. Ruchti, Marc Weidenmier

Business Faculty Articles and Research

Amihud’s stock (il)liquidity measure averages daily ratios of the absolute close-to-close return to dollar volume, including overnight returns. Our modified measure uses open-to-close returns matching return and trading volume measurement windows. It is more strongly correlated with trading-cost measures (by 8%–37%) and better explains cross-sections of returns, doubling estimated liquidity premiums. Using nonsynchronous trading near close, we show overnight returns are primarily information driven: including them in Amihud’s proxy for price impacts of trading magnifies measurement error, understating liquidity premiums. Our modification helps wherever Amihud’s measure is required. Our measures are publicly available for 1964–2019 and can be updated. ( …

How Social Media Communications Can Mitigate Negative Impacts Of Corporate Social Irresponsibility On Corporate Financial Performance?, Saad A. Alhoqail, Hyun Young Cho, Kristopher Floyd

Business Faculty Articles and Research

Previous research on corporate social responsibility (CSR) has focused on corporate reputation (CR) and corporate financial performance (CFP), showing a high correlation between both. While most researchers primarily focus on CSR, our research examines the other side of the coin; corporate social irresponsibility (CSI) and provides findings that counter previous thought. We contribute to the existing literature by showing that CSI has a non-significant impact on corporate financial performance, as measured by market value, while concurrently being negatively correlated to corporate reputation. Further, we show social media, as measured by the Social Media Sustainability Index (SMSI), a measure studied infrequently …

Establishing Cryptocurrency Equilibria Through Game Theory, Carey Caginalp, Gunduz Caginalp

ESI Publications

We utilize optimization methods to determine equilibria of cryptocurrencies. A core group, the wealthy, fears the loss of assets that can be seized by a government. Volatility may be influenced by speculators. The wealthy must divide their assets between the home currency and the cryptocurrency, while the government decides the probability of seizing a fraction the assets of this group. We establish conditions for existence and uniqueness of Nash equilibria. Also examined is the separate timescale problem in which the government policy cannot be reversed, while the wealthy can adjust their allocation in reaction to the government’s designation of probability.

Financial Synergies And Systemic Risk In The Organization Of Bank Afþliates, Elisa Luciano, Clas Wihlborg

Business Faculty Articles and Research

We analyze theoretically banks’ choice of organizational structures in branches, subsidiaries or stand-alone banks, in the presence of public bailouts and default costs. These structures are characterized by different arrangements for internal rescue of affiliates against default. The cost of debt and leverage are endogenous. For moderate bailout probabilities, subsidiary structures, wherein the two entities provide mutual internal rescue under limited liability, have the highest group value, but also the highest risk taking as measured by leverage and expected loss. We explore the effect of constraints on leverage and policy implications. The conflict of interests between regulators, who minimize systemic …

From Hard Money To Branch Banking California Banking In The Gold Rush Economy, Larry Schweikart, Lynne Pierson Doti

Economics Faculty Articles and Research

In Gold Rush–era California, banking and the financial sector evolved in often distinctive ways because of the Gold Rush economy. More importantly, the abundance of gold on the West Coast provided an interesting test case for some of the critical economic arguments of the day, especially for those deriving from the descending—but still powerful—positions of the “hard money” Jacksonians.

International Comparisons Of Bank Regulation, Liberalization, And Banking Crises, Puspa Amri, Apanard P. Angkinand, Clas Wihlborg

Business Faculty Articles and Research

Purpose: The recurrence of banking crises throughout the 1980s and 1990s, and in the more recent 2008-09 global financial crisis, has led to an expanding empirical literature on crisis explanation and prediction. This paper provides an analytical review of proxies for and important determinants of banking crises − credit growth, financial liberalization, bank regulation and supervision.

Design/Methodology/Approach: The study surveys the banking crisis literature by comparing proxies for and measures of banking crises and policy-related variables in the literature. Advantages and disadvantages of different proxies are discussed.

Findings: Disagreements about determinants of banking crises are in part …

Deposit Insurance Coverage, Ownership, And Banks' Risk-Taking In Emerging Markets, Apanard P. Angkinand, Clas Wihlborg

Business Faculty Articles and Research

We ask how deposit insurance systems and ownership of banks affect the degree of market discipline on banks' risk-taking. Market discipline is determined by the extent of explicit deposit insurance, as well as by the credibility of non-insurance of groups of depositors and other creditors. Furthermore, market discipline depends on the ownership structure of banks and the responsiveness of bank managers to market incentives. An expected U-shaped relationship between explicit deposit insurance coverage and banks' risk-taking is influenced by country specific institutional factors, including bank ownership. We analyze specifically how government ownership, foreign ownership and shareholder rights affect the disciplinary …