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Articles 91 - 120 of 186
Full-Text Articles in Finance
A Time-Varying True Individual Effects Model With Endogenous Regressors, Levent Kutlu, Kien C. Tran, Mike G. Tsionas
A Time-Varying True Individual Effects Model With Endogenous Regressors, Levent Kutlu, Kien C. Tran, Mike G. Tsionas
School of Economics and Finance Faculty Publications
We propose a fairly general individual effects stochastic frontier model, which allows both heterogeneity and inefficiency to change over time. Moreover, our model handles the endogeneity problems if either at least one of the regressors or one-sided error term is correlated with the two-sided error term. Our Monte Carlo experiments show that our estimator performs well. We employed our methodology to the US banking data and found a negative relationship between return on revenue and cost efficiency. Estimators ignoring time-varying heterogeneity or endogeneity did not perform well and gave very different estimates compared to our estimator.
Investors’ Uncertainty And Stock Market Risk, Diego Escobari, Mohammad Jafarinejad
Investors’ Uncertainty And Stock Market Risk, Diego Escobari, Mohammad Jafarinejad
School of Economics and Finance Faculty Publications
We propose a novel approach to model investors' uncertainty using the conditional volatility of investors' sentiment. Working with weekly data on investor sentiment, six major U.S. stock indices, and alternative measures of uncertainty, we run various tests to validate our proposed measure. The estimates show that investors' uncertainty is greater during economic downturns, and it is linked with lower investors' sentiment. In addition, the results support the existence of a positive conditional correlation between sentiment and returns. This positive spillover between sentiment and returns is interpreted as a positive link between investors' uncertainty and market risk. We also find that …
Exchange Rates, Oil Prices And World Stock Returns, Andre V. Mollick, Hamid Sakaki
Exchange Rates, Oil Prices And World Stock Returns, Andre V. Mollick, Hamid Sakaki
School of Economics and Finance Faculty Publications
This paper examines responses of 14 major currency/USD pairs to two global factors (oil and world equity returns) from January 1999 to July 2017, a period comprising the global financial crisis and oil price boom and collapse. With global equity markets advancing, risk tolerance increases and oil and stock markets impact currencies under two methodologies: transmission of shocks and mean-variance approaches. Vector autoregressions (VARs) suggest large and statistically significant responses: commodity currencies strongly appreciate following positive oil price shocks and depreciate with positive global equity shocks. GARCH models provide similar qualitative results with coefficients typically larger for global equity returns …
Return Predictability: The Dual Signaling Hypothesis Of Stock Splits, Ahmed Elnahas, Lei Gao, Ghada Ismail
Return Predictability: The Dual Signaling Hypothesis Of Stock Splits, Ahmed Elnahas, Lei Gao, Ghada Ismail
School of Economics and Finance Faculty Publications
This paper aims to differentiate between optimistic splits and overoptimistic/opportunistic splits. Although markets do not distinguish between these two groups at the split announcement time, optimistic (over-optimistic/opportunistic) splits precede positive (negative) long-term buy-and-hold abnormal returns. Using the calendar month portfolio approach, we show that the zero-investment, ex-ante identifiable, and fully implementable trading strategy proposed in this paper can generate economically and statistically significant positive abnormal returns. Our findings indicate that pre-split earnings management and how it relates to managers’ incentives, is an omitted variable in the studies of post-split long-term abnormal returns.
An Index Of Unfairness, Victor H. Aguiar, Roland Pongou, Roberto Serrano, Jean-Baptiste Tondji
An Index Of Unfairness, Victor H. Aguiar, Roland Pongou, Roberto Serrano, Jean-Baptiste Tondji
School of Economics and Finance Faculty Publications
The Shapley distance is introduced as a measure of the extent to which output sharing among the stakeholders of an organization can be considered unfair. In fact, it measures the distance between an arbitrary pay profile and the Shapley pay profile under a given technology, the latter profile defining the fair distribution. Therefore, this chapter contributes to the literature that studies economic inequality using game theory. In particular, we provide an axiomatic characterization to a notion of unfairness, namely the Shapley distance, and show that it can be used to determine the outcome of an underlying bargaining process. We also …
Institutional Investors And Corporate Environmental, Social, And Governance Policies: Evidence From Toxics Release Data, Incheol Kim, Hong Wan, Bin Wang, Tina Yang
Institutional Investors And Corporate Environmental, Social, And Governance Policies: Evidence From Toxics Release Data, Incheol Kim, Hong Wan, Bin Wang, Tina Yang
School of Economics and Finance Faculty Publications
This paper studies the role of institutional investors in influencing corporate environmental, social, and governance (ESG) policies by analyzing the relation between institutional ownership and toxic release from facilities to which institutions are geographically proximate. We develop a local preference hypothesis based on the delegated philanthropy and transaction-costs theories. Consistent with the hypothesis, local institutional ownership is negatively related to facility toxic release. The negative relation is stronger for local socially responsible investing (SRI) funds, local public pension funds, and local dedicated institutions. We also find that the relation is more negative in communities that prefer more stringent environmental policies …
Getting On And Moving Up The Property Ladder: Real Hedging In The Us Housing Market Before And After The Crisis, Damian S. Damianov, Diego Escobari
Getting On And Moving Up The Property Ladder: Real Hedging In The Us Housing Market Before And After The Crisis, Damian S. Damianov, Diego Escobari
School of Economics and Finance Faculty Publications
Real hedging is the practice of getting onto the property ladder in order to trade up to a larger home in the future. We define the value of the real hedge of home ownership as the difference between the risk premiums of renting and owning and explore how this value depends on local housing price dynamics and household characteristics. Controlling for the potential endogeneity of housing bubble bursts across different U.S metropolitan areas, we find a significantly higher correlation in the appreciation rates across the Standard & Poor's Case-Shiller tiered house price indices in the period after the housing crisis. …
Policy Uncertainty And Firm Cash Holdings, Hieu V. Phan, Nam H. Nguyen, Hien T. Nguyen, Shantaram Hegde
Policy Uncertainty And Firm Cash Holdings, Hieu V. Phan, Nam H. Nguyen, Hien T. Nguyen, Shantaram Hegde
School of Economics and Finance Faculty Publications
This research examines the relation between government economic policy uncertainty and firm cash holdings. We find evidence that policy uncertainty is positively related to firm cash holdings due to firms’ precautionary motives and, to a lesser extent, investment delays. The relation between policy uncertainty and cash holdings is more pronounced for firms dependent on government spending and extends beyond business cyclicality. Further analysis indicates that the effects of policy uncertainty on corporate cash holdings are distinct from those of political, market, or other macroeconomic uncertainty.
Do Women Managers Keep Firms Out Of Trouble? Evidence From Corporate Litigation And Policies, Binay K. Adhikari, Anup Agrawal, James Malm
Do Women Managers Keep Firms Out Of Trouble? Evidence From Corporate Litigation And Policies, Binay K. Adhikari, Anup Agrawal, James Malm
School of Economics and Finance Faculty Publications
We find that firms where women have more power in the top management team, measured by female executives’ plurality and pay slice, face fewer operations-related lawsuits. This effect is robust to several treatments of endogeneity and does not appear to be driven by female executives' greater willingness to settle the cases. Evidence from a simultaneous equations approach suggests that firms where women executives have more power avoid lawsuits partly by avoiding some risky but value-increasing firm policies, such as more aggressive R&D, intensive advertising, and policies inimical to other parties.
An Analysis Of Dynamic Price Discrimination In Airlines, Diego Escobari, Nicholas G. Rupp, Joseph Meskey
An Analysis Of Dynamic Price Discrimination In Airlines, Diego Escobari, Nicholas G. Rupp, Joseph Meskey
School of Economics and Finance Faculty Publications
Prices for the same flight change substantially depending on the time of purchase. This article uses a unique data set with round‐the‐clock posted fares to document significant within‐day price variation. Labeling time‐variation as discriminatory is difficult because the cost of an unsold airline seat changes with inventory, days before departure, and aggregate demand expectations. After controlling for these factors and aggregating hourly fares to have a framework with two consumer types, we are able to identify a component that is largely consistent with dynamic price discrimination. We find higher prices during office hours (when business travelers are likely to buy) …
Corporate Political Strategies And Return Predictability, Chansog Kim, Incheol Kim, Christos Pantzalis, Jung Chul Park
Corporate Political Strategies And Return Predictability, Chansog Kim, Incheol Kim, Christos Pantzalis, Jung Chul Park
School of Economics and Finance Faculty Publications
We assess whether observable corporate political strategies can serve as channels of value relevant political information flow into stock prices and form the basis for profitable return predictability strategies. We document that returns of politically connected firms’ stocks lead those of their non-connected peers, suggesting that information shocks associated with new policies and other political developments become evident first in the stock prices of firms that pursue political strategies and then, with delay, in those of similar non-connected firms.
The Impact Of Crime And Other Economic Forces On Mexico's Foreign Direct Investment Inflows, Rene Cabral, Andre V. Mollick, Eduardo Saucedo
The Impact Of Crime And Other Economic Forces On Mexico's Foreign Direct Investment Inflows, Rene Cabral, Andre V. Mollick, Eduardo Saucedo
School of Economics and Finance Faculty Publications
This paper examines the effect of different crimes on Foreign Direct Investment (FDI) inflows into the 32 Mexican states. Using a state-quarter panel data for the period 2005 to 2015, we estimate alternative models of FDI, with fixed effects throughout a flexible lag-lengths methodology and System Generalized Method of Moments (SGMM) models in order to identify the determinants of FDI inflows into the country. The dependent variable in our model is the annual inflow of FDI and the independent variables are state level indicators (real wages and electricity consumption), and macroeconomic forces (the real exchange rate and interest rate). We …
Government Size And Openness: Evidence From The Commodity Boom In Latin America, Andre Vianna, Andre V. Mollick
Government Size And Openness: Evidence From The Commodity Boom In Latin America, Andre Vianna, Andre V. Mollick
School of Economics and Finance Faculty Publications
Does government size increase to compensate for the volatility that arises from openness? We evaluate this compensation hypothesis by focusing on Latin America, whose economic growth in the 2000s has been often attributed to the commodity boom. Panel data regressions show that during the 2003-2010 commodity boom terms of trade volatility has positive effects on government size compared to the earlier 1990-2002 period. This key finding supports the compensation hypothesis, a result robust to dynamic panels allowing for reverse causation from government size to the real economy. Policy implications include diversification of the production structure and strengthening of regulatory framework.
Price Discrimination And Focal Points For Tacit Collusion: Evidence From The Airline Industry, Diego Escobari, Nicholas G. Rupp, Joseph Meskey
Price Discrimination And Focal Points For Tacit Collusion: Evidence From The Airline Industry, Diego Escobari, Nicholas G. Rupp, Joseph Meskey
School of Economics and Finance Faculty Publications
We use unique data sets with round-the-clock posted fares and a regression discontinuity design to identify price discrimination in advance-purchase discounts. Price discrimination increases fares by 7.6% at 14 days to departure, and by 14% at 7 days to departure. While competition reduces price discrimination, it is unaffected by product variety for a multiproduct monopolist. The results show that the arbitrary thresholds of 7 and 14 days-in-advance serve as focal points for tacit collusion and to implement price discrimination in competitive markets. For round-trip tickets price discrimination depends on the days-in-advance for both the outbound and inbound flights.
Separating Between Unobserved Consumer Types: Evidence From Airlines, Diego Escobari, Manuel A. Hernandez
Separating Between Unobserved Consumer Types: Evidence From Airlines, Diego Escobari, Manuel A. Hernandez
School of Economics and Finance Faculty Publications
We propose an alternative approach to identify unobserved consumer types and assess whether firms price discriminate. Unlike other screening schemes that rely on quantity discounts or product differentiation, in our finite mixture structure individuals have unit demands and the product is homogeneous. We implement the model using an original U.S. airlines data set. The results support the existence of two demand types. The high-type “business” traveler is less price sensitive, has a higher valuation, and pays a higher price than the low type “tourist.” The proportion of high types also increases as the departure date nears. (JEL C23, L93, …
Natural Disaster Risk And Corporate Leverage, Ahmed Elnahas, Dongnyoung Kim, Incheol Kim
Natural Disaster Risk And Corporate Leverage, Ahmed Elnahas, Dongnyoung Kim, Incheol Kim
School of Economics and Finance Faculty Publications
Firms located in more disaster-prone counties adopt more conservative leverage policies than those in less disaster-prone counties. Compared to peers in the least disastrous areas, firms in the most disastrous areas are less levered by 3.6 percentage points, equivalent of foregoing $13.47 million. We argue that this systematic difference in leverage is attributed to elevated operating disruption, increased cost of capital, and tightened financial flexibility. Our findings indicate that firms incorporate natural disaster risk in financing decision, which is consistent with the trade-off theory of capital structure.
Debt Market Illiquidity And Correlated Default Risk, Siamak Javadi, Mohsen Mollagholamali
Debt Market Illiquidity And Correlated Default Risk, Siamak Javadi, Mohsen Mollagholamali
School of Economics and Finance Faculty Publications
We empirically test the theoretical prediction of the impact of debt market liquidity on correlated default risk. Confirming the theory, our results indicate that the lower debt market liquidity, leads to an economically significant increase in the correlated default risk. Also consistent with theory, we show that this effect is more pronounced for short-term debt.
A Non-Parametric Approach To Testing The Axioms Of The Shapley Value With Limited Data, Victor H. Aguiar, Roland Pongou, Jean-Baptiste Tondji
A Non-Parametric Approach To Testing The Axioms Of The Shapley Value With Limited Data, Victor H. Aguiar, Roland Pongou, Jean-Baptiste Tondji
School of Economics and Finance Faculty Publications
The unique properties of the Shapley value–efficiency, equal treatment of identical input factors, and marginality–have made it an appealing solution concept in various classes of problems. It is however recognized that the pay schemes utilized in many real-life situations generally depart from this value. We propose a non-parametric approach to testing the empirical content of this concept with limited datasets. We introduce the Shapley distance, which, for a fixed monotone transferable-utility game, measures the distance of an arbitrary pay profile to the Shapley pay profile, and show that it is additively decomposable into the violations of the classical …
Intergenerational Mobility And The Political Economy Of Immigration, Henning Bohn, Armando R. Lopez-Velasco
Intergenerational Mobility And The Political Economy Of Immigration, Henning Bohn, Armando R. Lopez-Velasco
School of Economics and Finance Faculty Publications
Flows of US immigrants are concentrated at the extremes of the skill distribution. We develop a dynamic political economy model consistent with this observation. Individuals care about wages and the welfare of their children. Skill types are complementary in production. Voter support for immigration requires that the children of median-voter natives and of immigrants have sufficiently dissimilar skills. We estimate intergenerational transition matrices for skills, as measured by education, and find support for immigration at high and low skills, but not in the middle. In a version with guest worker programs, voters prefer high-skilled immigrants but low-skilled guest workers.
Labor Law And Innovation Revisited, Bill B. Francis, Incheol Kim, Bin Wang, Zhengyi Zhang
Labor Law And Innovation Revisited, Bill B. Francis, Incheol Kim, Bin Wang, Zhengyi Zhang
School of Economics and Finance Faculty Publications
This paper examines the impact of changes in job security on corporate innovation in 20 non-U.S. OECD countries. Using a difference-in-differences approach, we provide firm-level evidence that the enhancement of labor protection has a negative impact on innovation. We then discuss possible channels and find that employee-friendly labor reforms induce inventor shirking and a distortion in labor flow. Further investigation reveals that the negative relation is more pronounced in 1) firms that heavily rely on external financing, 2) firms that have high R&D intensity, 3) manufacturing industries, and 4) civil-law countries. Our micro-level evidence indicates that enhanced employment protection impedes …
Do Fomc Actions Speak Loudly? Evidence From Corporate Bond Credit Spreads, Siamak Javadi, Ali Nejadmalayeri, Tim Krehbiel
Do Fomc Actions Speak Loudly? Evidence From Corporate Bond Credit Spreads, Siamak Javadi, Ali Nejadmalayeri, Tim Krehbiel
School of Economics and Finance Faculty Publications
We find that Federal Open Market Committee (FOMC) actions (especially rate cuts) narrowed corporate credit spreads during the pre-crisis period of 2002-2007. During the 2008 crisis period, we find that both conventional cuts and quantitative easing decreased spreads. But FOMC inactions caused significant widening of spreads. The effects are especially large for speculative-grade and short-maturity bonds. Overall, the policy uncertainty during the crisis and macroeconomic theories during the pre-crisis period help to explain why FOMC announcements impacted credit spreads. The Fed’s actions targeted at promoting growth and/or providing systemic liquidity were especially noted by the corporate bond market. Keywords:
Disentangling The Impacts Of Industrial And Global Diversification On Firm Risk, Mohammad Jafarinejad, Thanh Ngo, Diego Escobari
Disentangling The Impacts Of Industrial And Global Diversification On Firm Risk, Mohammad Jafarinejad, Thanh Ngo, Diego Escobari
School of Economics and Finance Faculty Publications
We examine the impact of corporate diversification on firm risk exposure from 1998 to 2016. We find that both global and industrial diversification mitigate idiosyncratic and world market risk while having a negligible impact on U.S. market risk, but the effects vary before, during, and after the financial crisis of 2007–2009. Before the crisis, only global diversification mitigates idiosyncratic risk, but it increases firms' exposure to world market risk. During the crisis, industrial diversification increases idiosyncratic risk, but both types of diversification increase exposure to U.S. market risk. After the crisis, both types of diversification increase firms' exposure to U.S. …
Changes In Sentiment On Reit Industry Excess Returns And Volatility, Daniel Huerta-Sanchez, Diego Escobari
Changes In Sentiment On Reit Industry Excess Returns And Volatility, Daniel Huerta-Sanchez, Diego Escobari
School of Economics and Finance Faculty Publications
REIT characteristics pose unique risks and benefits to investors who seek liquid diversification and hedging vehicles to complement their portfolios. This paper tests for the asymmetric effect of individual and institutional investor sentiment on REIT industry returns and conditional volatility. We simultaneously model the impact of two markedly different groups of investors on the return generating process of the REIT industry. Our findings suggest that noise trading imposes significant systemic risk on the realization of REIT industry returns. Interestingly, corrections in institutional investor expectations have a larger effect on REIT industry returns and volatility than changes in individual investor expectations. …
Local Investors’ Preferences And Capital Structure, Binay K. Adhikari, David C. Cicero, Johan Sulaeman
Local Investors’ Preferences And Capital Structure, Binay K. Adhikari, David C. Cicero, Johan Sulaeman
School of Economics and Finance Faculty Publications
We provide evidence that publicly listed firms respond to capital supply conditions shaped by local investing preferences. The local supply of credit is higher and more stable in areas where demographics suggest that local investors prefer safer portfolios. We find that firms headquartered in these areas use more debt financing. The demographics-leverage relation is more pronounced for non-investment-grade and unrated firms that cannot easily tap public markets (about two-thirds of U.S. public companies). Analyses of firms’ financing activities around exogenous shocks to credit supplies – including interstate banking deregulation and the 2008-2009 financial crisis – support the capital supply effect. …
Institutional Development And Foreign Banks In Chile, Brian Du, Alejandro Serrano, Andre Vianna
Institutional Development And Foreign Banks In Chile, Brian Du, Alejandro Serrano, Andre Vianna
School of Economics and Finance Faculty Publications
This paper analyzes the effects of foreign banks on developing countries’ bank performance. We study this relationship from a different perspective by focusing on Chile, an emerging market with strong institutions. The results from dynamic panel regressions on hand-collected financial statement data from 2005 to 2014 indicate that foreign banks improve banking sector competitiveness, reduce the volatility of returns, and increase commercial and consumption loans. The overall evidence suggests that, in the presence of solid institutions, foreign banks improve the banking sector in developing countries. Therefore, public policies on foreign banks should be more effective when accompanied by advances in …
Ideological Positions Of Hispanic College Students In The Rio Grande Valley: Using A Two-Dimensional Model To Account For Domestic Policy Preference, William Greene, Mi-Son Kim
Ideological Positions Of Hispanic College Students In The Rio Grande Valley: Using A Two-Dimensional Model To Account For Domestic Policy Preference, William Greene, Mi-Son Kim
School of Economics and Finance Faculty Publications
While a good amount of research has been conducted regarding the voting behavior of Hispanics in the United States, there is a dearth of analysis of the underlying ideologies of members of this ethnic group, especially in contrast to their partisan self-identifications. This is especially true of one particular sub-category: Hispanics along the Rio Grande Valley of south Texas, of whom a majority consistently vote Democrat, but whose personal values would seem to make them a natural constituency for issue positions associated with the Republican Party (Garrett, 2010). The goal of this study is to analyze the ideological positions of …
Estimation Of Cost Efficiency Without Cost Data, Levent Kutlu, Ran Wang
Estimation Of Cost Efficiency Without Cost Data, Levent Kutlu, Ran Wang
School of Economics and Finance Faculty Publications
One of the advantages of conduct parameter games is that they enable estimation of market power without total cost data. In line with this, we develop a conduct parameter based model to estimate the firm specific “marginal cost efficiency” and conduct without using total cost data. The marginal cost efficiency is an alternative measure of efficiency that is based on deadweight loss. We illustrate our methodology by estimating firm-route-quarter specific conducts and marginal cost efficiencies of U.S. airlines for Chicago based routes without using route-level total cost data.
What Do Outside Directors Actually Do? Evidence From Their Voting Activities, Wonseok Choi, Monika K. Rabarison
What Do Outside Directors Actually Do? Evidence From Their Voting Activities, Wonseok Choi, Monika K. Rabarison
School of Economics and Finance Faculty Publications
Prior studies on the monitoring role of outside directors tend to be based on the assumption of interest differences between agents and principals and adhere to arbitrary definitions of board independence or quality. Using a unique dataset of individual outside directors’ voting activities on items proposed by managers of Korean public firms between FY2010 and FY2014, we investigate whether outside directors play an effective role in mitigating agency problems, without such assumption and arbitrary definitions. We find that outside directors can provide effective monitoring by expressing strong dissension, such as disagreeing, withdrawing their votes, or holding their votes on managers’ …
Managerial Incentives And Changes In Corporate Investments Following The Inception Of Credit Default Swap Trade, Hyun A. Hong, Ji Woo Ryou, Anup Srivastava
Managerial Incentives And Changes In Corporate Investments Following The Inception Of Credit Default Swap Trade, Hyun A. Hong, Ji Woo Ryou, Anup Srivastava
School of Economics and Finance Faculty Publications
A credit default swap (CDS) enables a lender to hedge its risk exposure on a loan given to reference client. The lender then reduces the monitoring of the client’s activities as well as aiding the distressed client. Two contrasting predictions can be made about how the borrower would respond to the altered lender-borrower relationship. (1) The borrower reduces risky investments to lower its vulnerability to financial distress. (2) The borrower pursues volatility-enhancing projects to increase the value of call options built into its shareholder investments. We find that a borrower shifts to a more conservative policy when its managers have …
Empirical Evidence On The Relationship Between Audit Probability And Internal Revenue Service Budget Levels, Akinloye Akindayomi, Gideon T. Akileye, Adeduro A. Ogunmakin
Empirical Evidence On The Relationship Between Audit Probability And Internal Revenue Service Budget Levels, Akinloye Akindayomi, Gideon T. Akileye, Adeduro A. Ogunmakin
School of Economics and Finance Faculty Publications
Despite a large literature on tax avoidance strategies by individuals and the IRS ability to curb them, how the agency’s audit/examination activities respond to tax expenditures within the individual taxation context is not well understood. We hypothesize that IRS audit probability of individual tax returns will positively respond to the magnitude of different tax expenditure drivers if the agency has a shot at curtailing them. We find that while the probability of IRS audit increases as the agency’s budget on enforcement activities increases, tax expenditures do not appear to prompt IRS enforcement activities in many of the tax expenditures drivers.