Finance Commons^™

Deconstructing The Corporate Psychopath: An Examination Of Deceptive Behavior, Corey A. Shank

School of Economics and Finance Faculty Publications

This paper examines whether business students deceive others more often than non-business students. A cheap talk experiment and an ethics questionnaire are employed to examine the subject’s behavior. Fundamental differences, such as psychopathic personality, are used to examine their role in deceptive and unethical behavior. The results show that business students deceive others for personal gain more often than non-business students when there is the most to gain; however, business students find deception committed by others as unethical. Business students exhibit more psychopathic tendencies compared to non-business students, including being more likely to fit the prototypical psychopath profile. This fundamental …

School District Consolidation Policies: Endogenous Cost Inefficiency And Saving Reversals, Mustafa U. Karakaplan, Levent Kutlu

School of Economics and Finance Faculty Publications

Some education policy studies suggest that consolidation of public school districts saves resources. However, endogeneity in cost models would result in incorrect estimates of the effects of consolidation. We use a new stochastic frontier methodology to examine district expenditures while handling endogeneity. Using the data from California, we find that the effects of student achievement and education market concentration on expenditure per pupil are substantially larger when endogeneity is handled. Our findings are robust to concerns such as instrumental variable adequacy and spatial interactions. Our consolidation simulations indicate that failure to address endogeneity can result in unrealistic expectations of savings.

Oil Price Shocks And American Depositary Receipt Stock Returns, Shahil Sharma

School of Economics and Finance Faculty Publications

In this paper we examine the impact of oil price shocks on twelve countries American Depositary Receipt (ADR) returns using monthly data from 1999.01 to 2014.12. The results show that oil price shocks have a positive and statistically significant impact on ADR return in all twelve countries. These results are robust to the inclusion of other explanatory variables such as oil price volatility and the spillover of the United States stock market. Further analysis shows that this effect is stronger in the post financial crisis time period compared to the pre-financial crisis time period.

The Long-Run Performance Of U.S. Firms Pursuing Ipos In Foreign Markets, Robert N. Killins, Peter V. Egly

School of Economics and Finance Faculty Publications

Purpose

The purpose of this paper is to investigate the long-run performance of a unique set of US domiciled firms that have bypassed the US capital markets in pursuit of their initial public offering (IPO) overseas. Additionally, this paper then tests the popular underwriter prestige impact and the window of opportunity hypothesis on this unique subset of IPOs.

Design/methodology/approach

Using a sample of foreign and purely domestic IPOs made by US firms from 2000 to 2011, this study investigates the long-term performance, one-, two- and three-year by using two measures (buy-and-hold return and cumulative abnormal returns) to test the long-run …

Identifying Bubbles In Latin American Equity Markets: Phillips-Perron-Based Tests And Linkages, Diego Escobari, Sergio Garcia, Cristhian Mellado

School of Economics and Finance Faculty Publications

The identification of periods of price exuberance in equity markets is of great interest to policy makers and financial investors. In this paper, we identify financial bubble periods within the major equity markets in Latin America. We use the recently developed recursive Augmented Dickey-Fuller methods and propose similar recursive procedures based on Phillips-Perron. We find that conditional on bubbles in the S&P 500, there are strong links between bubble episodes across equity markets in Latin America. In addition, the financial bubble periods in Latin America begin earlier and last longer than bubble periods in the United States during the 2008 …

Female Executives And Corporate Cash Holdings, Binay K. Adhikari

School of Economics and Finance Faculty Publications

I find that firms led by female top executives hold more cash, partly due to precautionary motives. To overcome endogeneity concerns, I employ several econometric techniques, including an instrumental variable analysis based on a historical event that resulted in a plausibly exogenous variation in the female workforce participation. Overall, my results are consistent with the view that greater risk-aversion leads female executives to hold more cash.

The Impact Of Oil Shocks On The Housing Market: Evidence From Canada And U.S., Robert N. Killins, Peter V. Egly, Diego Escobari

School of Economics and Finance Faculty Publications

The recent volatility in oil energy markets invites us to re-assess the impact of oil prices changes on the macroeconomic environment. The Great Recession of 2007–2009 led to closer monitoring of global housing markets by regulators and market participants. Employing a structural vector autoregressive model, we find that the reaction of housing markets to oil price shocks varies significantly depending on whether the change in oil prices is prompted by demand or supply shocks in the oil market and on country oil trading status (i.e. net importer or net exporter). Our results are robust to the inclusion of different macroeconomic …

Airport, Airline And Departure Time Choice And Substitution Patterns: An Empirical Analysis, Diego Escobari

School of Economics and Finance Faculty Publications

This paper uses the random-coefficients logit methodology that controls for potential endogeneity of prices and allows for general substitution patterns to estimate various demand systems. The estimation takes advantage of an original ticket-level revealed preference data set on travels from the New York City area to Toronto that contains prices and characteristics of not only flight choices but also of all non-booked alternative flights. Consistent with having higher valuations, our results show that travelers buying closer to departure have a higher utility of flying. Moreover, consumers’ heterogeneity decreases as the flight date nears. At the carrier level, we identify which …

Endogeneity In Panel Stochastic Frontier Models: An Application To The Japanese Cotton Spinning Industry, Mustafa U. Karakaplan, Levent Kutlu

School of Economics and Finance Faculty Publications

We present a panel stochastic frontier model that handles the endogeneity problem. This model can treat the endogeneity of both frontier and inefficiency variables. We apply our method to examine the technical efficiency of Japanese cotton spinning industry. Our results indicate that market concentration is endogenous, and when its endogeneity is properly handled, it has a larger negative impact on the technical efficiency of cotton spinning plants. We find that the exogenous model substantially overestimates efficiency in concentrated markets.

Effects Of Bush Tax Cut And Obama Tax Increase On Corporate Payout Policy And Stock Returns, Andre Vianna

School of Economics and Finance Faculty Publications

Abstract This article analyzes the effects of the American Taxpayer Relief Act of 2012 (Obama Tax Increase) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (Bush Tax Cut) on corporate payout decision and stock returns. Logit and fixed-effect panel data analyses are conducted on all firms listed in NYSE, Amex and NASDAQ in the announcement windows of two, three and four quarters before and after the tax reforms. The results show that the implementation of these tax reforms more persistently affects dividend payments than stock repurchases. It also has a boosting effect on stock returns in the …

Stock Returns And Interest Rates Around The World: A Panel Data Approach, Tibebe A. Assefa, Omar A. Esqueda, Andre V. Mollick

School of Economics and Finance Faculty Publications

We examine quarterly stock returns of 21 developed and 19 developing economies from 1999 to 2013. Over this period, mean quarterly stock returns of 1.188% in developed economies contrast to 4.220% in developing economies. Economic growth has been substantially lower and interest rates have fallen (risen) in developed (developing) economies. Using dynamic panels, we find statistically significant negative effects of interest rates on stock returns in the developed countries, consistent with the expected cash flow hypothesis. In the developing markets, however, the world market portfolio is the sole determinant of stock returns. The contrasting effect of interest rates change on …

The Impact Of Exports To China On Latin American Growth, Andre C. Vianna

School of Economics and Finance Faculty Publications

This article analyzes the relationship between GDP growth in seven major Latin American countries and China’s demand for their exports. GLS panel estimation using annual data for the period 1994-2013 shows that the relationship was both statistically and economically significant. Control variables found to be significant in positively affecting GDP growth include the investment-to-output ratio, the exchange rate, and the terms of trade, and, in negatively affecting it, population growth and the unemployment rate. Consistent with recent literature, foreign direct investment was found not to be significant. A sharp drop in exports to China for many of the countries in …

Drivers Behind The Monitoring Effectiveness Of Global Institutional Investors: Evidence From Earnings Management, Incheol Kim, Steve Miller, Hong Wan, Bin Wang

School of Economics and Finance Faculty Publications

This paper studies the drivers behind the monitoring effectiveness of institutional investors in curbing earnings management in an international setting. We identify three distinct drivers and propose two competing hypotheses: the hometown advantage hypothesis predicts that because of proximity to monitoring information, domestic institutions have a comparative advantage over foreign institutions in deterring earnings management, whereas the global investor hypothesis predicts that foreign institutions have a comparative advantage because of their proclivity toward activism and ability to deploy superior monitoring technologies. Consistent with the hometown advantage hypothesis, in aggregate, domestic, but not foreign, institutional ownership is associated with less earnings …

Are Us-Dollar-Hedged-Etf Investors Aggressive On Exchange Rates? A Panel Var Approach, Corey A. Shank, Andre C. Vianna

School of Economics and Finance Faculty Publications

Exchange traded funds (ETFs) are a multi-trillion dollar market that epitomizes financialization due to its recent growth. This study examines the behavior of U.S. listed currency hedged ETF investors towards changes in the underlying benchmark and foreign exchange rate from July 2011 to November 2015 using a panel VAR approach. We find that investors are able to anticipate changes in future exchange rates and invest in currency hedged ETFs prior to changes. Granger-causality tests confirm that these investors proactively trade before large real exchange rate movements. These results suggest that the use of financial instruments such as ETFs to hedge …

Does Globalization Affect Top Income Inequality?, Rene Cabral, Rocio Garcia-Diaz, Andre V. Mollick

School of Economics and Finance Faculty Publications

We reexamine in this paper the role of globalization on top income shares (five classes from top 0.1% to top 10% of the income distribution) for a sample of 15 economies over the period 1970–2004. We investigate financial globalization measures that complement trade openness. Our system GMM (SGMM) estimations allow for a robust treatment of the endogeneity between income concentration and GDP per capita (as well as with taxation or government size). We find two interesting new results. First, the financial integration measure based on portfolio equity and FDI stocks (GEQ) turns out to have a large impact on top …

Institutional Ownership Stability And Real Earnings Management, Hamid Sakaki, Dave Jackson, Surendranath Jory

School of Economics and Finance Faculty Publications

We examine the relationship between institutional ownership stability and real earnings management. Our findings indicate that firms held by more stable institutional owners experience lower real activities manipulation by limiting overproduction. We further examine how the stability in the shareholdings of pressure-sensitive and insensitive institutional investors affect target firms’ use of real earnings management, respectively. Unlike pressure-sensitive institutional investors, the stability in the share ownership of pressure-insensitive institutional investors (i.e., investment advisors, pension funds and endowments) mitigates target firms’ use of real earnings management. Overall, our results are consistent with the view that institutional investors presence acts as a monitor …

Long-Run Equilibrium Shift And Short-Run Dynamics Of U.S. Home Price Tiers During The Housing Bubble, Damian S. Damianov, Diego Escobari

School of Economics and Finance Faculty Publications

We use vector error correction models to examine the interdependence between the high and the low price tiers during the latest housing market boom and bust. For 118 of the 364 US statistical areas analyzed, the tiered price indexes are bound by a long-run relationship. In general, low tier homes appreciated more than high tier homes in the past two decades. In contrast to previous periods of high volatility, however, low tier homes appreciated more during the boom and lost more value during the bust of the market. We find a shift in the long-run equilibrium during the bubble —the …

Reducing Asymmetric Information In Venture Capital Backed Ipos, Diego Escobari, Alejandro Serrano

School of Economics and Finance Faculty Publications

Purpose

The purpose of this paper is to model asymmetric information and study the profitability of venture capital (VC) backed initial public offerings (IPOs). The mixtures approach endogenously separates IPOs into differentiated groups based on their returns’ determinants. The authors also analyze the factors that affect the probability that IPOs belong to a specific group.

Design/methodology/approach

The authors propose a new method to model asymmetric information between investors and firms in VC backed IPOs. The approach allows the authors to identify differentiated companies under incomplete information. The authors use a sample of 2,404 US firms from 1980 through 2012 to …

Lep Language Disability, Immigration Reform, And English-Language Acquisition, Alberto Dávila, Marie T. Mora

School of Economics and Finance Faculty Publications

Policy might partly shape the English-language acquisition of Hispanics migrating to the U.S. mainland, particularly policies related to limited-English-language disability benefits and immigration reform. Using data from the American Community Survey, we find that island-born Puerto Ricans on the U.S. mainland, as U.S. citizens, may have lower incentives to learn English than Hispanic immigrants because of their higher participation in LEP disability programs. However, among Mexican immigrants, recent immigration reform aimed at interior enforcement might have increased incentives for Mexican immigrants to learn English to reduce their probability of detection, if speaking English proxies for undocumented status.

Date Stamping Bubbles In Real Estate Investment Trusts, Diego Escobari, Mohammad Jafarinejad

School of Economics and Finance Faculty Publications

We test for the existence of single and multiple bubble periods in four Real Estate Investment Trust (REIT) indices using the Supremum Augmented Dickey-Fuller (SADF) and the Generalized SADF. These methods allow us to estimate the beginning and the end of bubble periods. Our results provide statistically significant evidence of speculative bubbles in the REIT index and its three components: Equity, Mortgage and Hybrid REITs. These results may be valuable for real estate financial managers and for investors in REITs.

Us Airport Ownership, Efficiency, And Heterogeneity, Levent Kutlu, Patrick Mccarthy

School of Economics and Finance Faculty Publications

All US commercial airports are in the public sector yet not all have the same ownership type. For medium and large hub US airports we use stochastic frontier analysis to analyze the efficiency differences for alternative airport ownership types. We find that while form of ownership may matter for cost efficiency, in general its effect is relatively small. Yet type of public sector ownership does have cost efficiency implications in certain environments. Further, when heterogeneity is not controlled, the results change substantially so that type of ownership matters much more which demonstrates the importance of controlling for cross section heterogeneity.

Violence In Mexico And Its Effects On Labor Productivity, Rene Cabral, André Varella Mollick, Eduardo Saucedo

School of Economics and Finance Faculty Publications

This paper examines the evolution of Mexico’s labor productivity (GDP per worker) across its 32 sub-national entities from 2003 to 2013, during a period of rising drug-related crimes. Using quarterly data and economic controls, fixed effects models suggest the effects of crime are small and differ depending on whether such crimes are prosecuted by state/local or federal authorities. However, results from System Generalized Methods of Moments regressions generate stronger responses for (endogenous) wages and labor productivity. First, crime has negative effects on Mexican labor productivity across states during the “war on drugs” period. Second, increases in expenditures on public security …

Do U.S. Firms Fly Higher When Bypassing The U.S. Capital Markets? An Investigation Of The Short-Term Performance Of Foreign Ipos, Robert N. Killins, Peter V. Egly

School of Economics and Finance Faculty Publications

This paper investigates the performance of U.S. firms that partake in a foreign IPO – bypassing their domestic exchanges and raising their equity in a foreign market. The globalization of equity markets along with the increased regulations to financial markets in the U.S. has potentially led to the U.S. losing its title as the premier listing market. Using a sample of 77 U.S. based firms that totally bypassed the U.S. equity markets in their capital(equity) raising activities we are able to investigate the performance of this unique sample of firms. This investigation contributes to the literature by finding that U.S. …

The Impact Of Government Intervention On The Stabilization Of Domestic Financial Markets And On U.S. Banks’ Asset Composition, Peter V. Egly, Diego Escobari, David W. Johnk

School of Economics and Finance Faculty Publications

The 2007–2009 financial crisis that evolved from various factors including the housing boom, aggressive lending activity, financial innovation, and increased access to money and capital markets prompted unprecedented U.S. government intervention in the financial sector. We examine changes in banks’ balance sheet composition associated with U.S. government intervention during the crisis. We find that the initial round of quantitative easing positively impacts bank liquidity across all bank samples. Our results show a positive impact of repurchase agreement market rates on bank liquidity for small and medium banks. We conclude that banks have become more liquid in the post-crisis period, especially …

The Liquidity Crisis, Investor Sentiment, And Reit Returns And Volatility, Daniel Huerta, Peter V. Egly, Diego Escobari

School of Economics and Finance Faculty Publications

The real estate investment trust (REIT) industry experienced a liquidity crisis resulting from reduced access to credit commitments as banks were restoring their balance sheets during the 2007–2009 financial crisis. Employing generalized autoregressive conditional heteroscedasticity (GARCH) models, we examine the impact of the liquidity crisis and investor sentiment on REIT returns and volatility over the December 2001 to February 2013 period. We find that the liquidity crisis negatively impacts REIT returns and helps explain increases in volatility; this finding is robust to multiple specifications. We show that investor sentiment is a significant factor in the REIT return-generating process with institutional …

Cross-Listing Performance And Insider Ownership: The Experience Of U.S. Investors, Omar A. Esqueda, Dave Jackson

School of Economics and Finance Faculty Publications

Insider-owned firms pursue U.S. cross-listings following periods of extraordinary performance. However, the long-run post-cross-listing abnormal returns become negative only for insider-controlled cross-listings. We find that the Sarbanes–Oxley Act (SOX) has mitigated the market-timing attempts as negative abnormal returns are limited to the pre-SOX period, supporting a cross-listing bonding benefit after U.S. securities regulation was enhanced. In addition, investors anticipate future operating performance as stock returns incorporate forthcoming operating outcomes one and two years ahead. Whereas capital-raising cross-listings show better operating performance than non-capital-raising, the returns of capital-raising firms are more sensitive to the potential agency problems created by insider-ownership.

The Economics Of Counterfeiting, Elena Quercioli, Lones Smith

School of Economics and Finance Faculty Publications

We develop a strategic theory of counterfeiting as a multi-market large game. Bad guys choose whether to counterfeit, and what quality to produce. Opposing them is a continuum of good guys who select a costly verification effort. In equilibrium, counterfeiters produce better quality at higher notes, but verifiers try sufficiently harder that verification still improves. We develop a graphical framework for deducing comparative statics. Passed and counterfeiting rates vanish for low and high notes. Our predictions are consistent with time series and cross-sectional patterns in a unique data set assembled largely from the Secret Service

The Impact Of Securitization And Bank Liquidity Shocks On Bank Lending: Evidence From The U.S., Peter V. Egly, Dave Jackson, David W. Johnk

School of Economics and Finance Faculty Publications

The securitization expansion preceding the 2007-2009 financial crisis introduced alternative liquidity sources and increased bank lending capacity. During the securitization expansion there was a rise and subsequent collapse of the subprime mortgage market. We investigate the impact of securitization and the subprime mortgage collapse on bank lending during the crisis. The results suggest that securitization, for the large and money-center bank, is a cost effective liquidity source since traditional bank funding costs play a diminished role in the supply of bank lending. We find that for the small and medium bank samples increases in REPO rates fostered lending during the …

Expectations And The Dynamic Feedback Between Foreign Direct Investment And Economic Growth, Diego Escobari, Diego E. Vacaflores

School of Economics and Finance Faculty Publications

This paper seeks to analyze the dynamic feedback between Foreign Direct Investment (FDI) and economic growth – larger FDI promotes higher GDP, while higher GDP can be achieved with higher levels of FDI. We use panels and a sample of 19 Latin American countries to estimate a dynamic FDI and a dynamic GDP equation that jointly characterize the evolution of both variables. We find that the dynamics of GDP and FDI are mostly driven by the expectations. Shocks of GDP or FDI were found to play no role affecting the dynamics.

Trading Income And Bank Charter Value During The Financial Crisis: Does Derivatives Dealer Designation Matter?, Peter V. Egly, Jun Sun

School of Economics and Finance Faculty Publications

Derivative markets have exploded over the last decade, remained active in the midst of the 2007-2009 financial crises and continue to be dominated by a small group of bank holding companies (BHC). BHC motives for derivative usage are usually tied to hedging purposes (balance sheet risk management), trading purposes (profit motives) or some combination thereof. This paper examines the relationship between derivative trading income and bank charter value for 27 BHC between 2001Q1-2011Q3. We find that the impact of derivative trading income on bank charter value, using Tobin’s Q, is very small and seems to be tied to BHCs derivatives …