Journal of Empirical Finance最新文献

After the removal of geographic restrictions on branching in 2006, China’s city commercial banks (CCBs) can apply for permission to branch outside their province. This paper shows that CCBs report a higher provision coverage ratio (PCR) before filing an application, thereby making the bank look safer to regulators. Our finding is robust to controlling for possible endogeneity of the branching application decision by employing propensity score matching estimators, and it is confirmed when we consider a quasi-natural experiment of deregulation reversal. Tests of the dynamic effects show evidence of reversals in PCR adjustment after applications. Higher PCR before branching applications cannot be explained by alternative rationales for manipulating loan loss reserves such as fundamental provisions, earnings management, capital management, and market signaling. Window dressers receive more supervisory penalties after filing applications relative to other branching banks. Our finding of window dressing in response to bank branching regulation confirms Goodhart’s insight that when a regulatory metric becomes a target, it ceases to be a good measure.

This paper examines the distinct roles played by inventors and firms in contributing to corporate innovation. Inventors are six to eight times as important as firms in contributing to innovation performance as measured by patent and citation counts, but their importance is about the same in innovation strategies as captured by patent exploratory and exploitative scores. Furthermore, when labor mobility is reduced, the relative importance of firms to inventors in contributing to innovation strategy increases. Additional tests suggest that our main findings are unlikely driven by endogenous matching between firms and inventors.

Defining a futures return as the rate of change of futures prices, as done in many empirical studies, implicitly implies that a futures contract is fully collateralized. We adjust futures’ returns to explicitly account for the holding of minimum margin (collateral) and the return to this collateral. Collateralization adjustment affects the dynamic properties of returns and modifies the risk profile of futures contracts. In our empirical study, we document the effect of such adjustment under full and partial collateralization. The effect is minimal except when the futures prices and minimum margins are volatile. Our analysis calls for a review on the extent of diversification benefits offered by futures.

This study analyzes price discrimination and household switching in the residential mortgage market. Using a unique proprietary micro dataset from Norway, we examine the factors that influence a bank’s choice to counter an offer from a competing bank and the difference between the loan rate paid by current clients when receiving a competing offer from another bank and the concurrent best rate offered to new customers by the current bank. The estimates show that a bank employs internal information to decide how to counter a competing offer and that current clients pay approximately 20 basis points more than new customers. We surmise that new regulations and digitalization enhance transparency and can reduce the rate differential. However, introducing new banking products and changes in the timing of rate differentiation —from immediate upfront to gradually over time —may be used to maintain a constant rate differential.

This paper explores whether the political connections of listed firms in China affect the costs of high leverage on a firm's product competition. We collect a sample of 1341 non-state-owned firms (i.e., private firms) with political connections listed in the Chinese stock market from 2009 to 2019. Using the sensitivity of sales growth to high leverage to proxy for the costs of high leverage, we find that the negative effect of high leverage on sales growth is significantly lower for companies with political ties. Our results are robust to a series of endogeneity corrections and robustness checks. We also find that political connections benefit highly leveraged firms by reducing the adverse behavior of customers and competitors. However, the effect of political connections on the unfavorable actions of employees and suppliers is not statistically significant. In addition, the mitigating effect of political connections on high leverage costs is more pronounced in firms with low profitability, headquartered in low-trust provinces, and experiencing high economic policy uncertainty. Finally, we find that political connections can also mitigate the negative effect of high leverage on firms’ investment and profit. Overall, our findings suggest that political connections reduce the cost of high leverage.

This paper investigates the intraday return cross-predictability of cryptocurrencies. In contrast to the positive lead–lag effect for stocks, we document a negative lead–lag effect in the cryptocurrency market. Specifically, the large coins negatively predict the other coins but the small coins rarely predict the large coins. A trading strategy that exploits the cross-predictability via the Least Absolute Shrinkage and Selection Operator ($LASSO$) yields highly significant profits across major cryptocurrency exchanges even in the presence of realistic transaction costs.

Older households face health-related risks, including risks related to long-term care and mortality. The effect of these risks on household financial portfolio choices depends on household preferences for long-term care and bequests. Using linked survey-administrative data on clients of a mutual fund company, this paper finds that the desire to have enough resources for long-term care and bequests is overall strong but also heterogeneous across households. The estimated relationship between the actual stock share of households and the strength of these preferences is qualitatively similar but quantitatively weaker compared to predictions from the life-cycle model with estimated preference heterogeneity. Based on the predictions from the model, this paper discusses directions to improve financial advice and instruments to better meet household needs.

Firms with high-ability management teams disclose more disaggregated information in financial statements than other firms after accounting for endogeneity concerns. Investors deem the disaggregated information disclosed by high-ability managers to be more credible. More disaggregated accounting information reduces stock price crash risk and lowers the cost of equity to a greater extent when provided by high-ability managers. Superior managers’ performance pay is positively related to the level of financial statement disaggregation. These results show that high-ability managers and their firms benefit more from providing granular accounting information.

Identifying the components of yields is a challenging task for monetary authorities. We use a term structure model with stochastic volatility and eurozone global macro factors to estimate time-varying term premia and short rate expectations for ten countries in the euro area. Unlike previous studies, we explicitly disentangle from these components the convexity effects that have substantial impact on long-term yields in turbulent times. The empirical evidence shows that term premia are significantly positively related to yield volatility across all countries, while term premia and expected short rates react in opposite directions to shocks in eurozone inflation and GDP growth expectations. A connectedness analysis based on variance decomposition suggests that there exist significant cross-country interconnections for the yield components, with the size of the links varying substantially over time and across countries.

We estimate variance decompositions of the real exchange rate ($q$) for 19 currencies based on a present-value relation. At very short horizons, the driving force of $q$ is predictability of the future exchange rate. At long horizons, return predictability drives most variation in $q$, with predictability of interest differentials playing a secondary role. This pattern is especially strong for the Non-G10 currencies. However, the long-run predictability mix associated with the Japanese Yen clearly deviates from the other currencies and is unstable over time. The quantitative simulation of a liquidity-based exchange rate model largely replicates our main empirical findings.