type="main"> If liquidity shortages cause financial crises, a lender of last resort can provide funds to banks facing potential fire sales. However, if funding problems primarily occur at banks with existing solvency problems, then government liquidity programs may not spur bank lending. We find that commercial bank funding does not typically dry up in a crisis, not even during the subprime crisis. Rather, weak banks are more likely to borrow less. Furthermore, banks rely more on deposits and newly issued equity than fire sales. When they do sell assets, they cherry pick assets in order to alleviate pressure from capital regulations.
{"title":"Crises, Liquidity Shocks, and Fire Sales at Commercial Banks","authors":"Nicole M. Boyson, Jean Helwege, J. Jindra","doi":"10.2139/ssrn.2021386","DOIUrl":"https://doi.org/10.2139/ssrn.2021386","url":null,"abstract":"type=\"main\"> If liquidity shortages cause financial crises, a lender of last resort can provide funds to banks facing potential fire sales. However, if funding problems primarily occur at banks with existing solvency problems, then government liquidity programs may not spur bank lending. We find that commercial bank funding does not typically dry up in a crisis, not even during the subprime crisis. Rather, weak banks are more likely to borrow less. Furthermore, banks rely more on deposits and newly issued equity than fire sales. When they do sell assets, they cherry pick assets in order to alleviate pressure from capital regulations.","PeriodicalId":178342,"journal":{"name":"D'Amore-McKim: Finance (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2014-01-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126552125","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study the determinants and effects of the relative compensation of top executives and lower-level employees. First, we show that CEO–employee pay ratio depends on the balance of power between the CEO (relative to the board) and ordinary employees (relative to management). Second, our results suggest that employees do not perceive higher pay ratios as an inequitable outcome to be redressed via costly behaviors that lower productivity. We do not find a negative relation between relative pay and employee productivity, either in the full sample or in subsamples where employees are well-informed about executive pay and are protected against retaliatory managerial actions. Rather, we find that productivity increases with relative pay when the firm has fewer employees who are well-informed, and when promotion decisions are predominantly merit-based. We also find that firm value and operating performance both increase with relative pay. We conclude that ordinary employees appear to perceive an opportunity in higher pay ratios but the extent to which such perception incentivizes them depends on the likelihood of success in a promotion tournament.
{"title":"The Determinants and Effects of CEO–Employee Relative Pay","authors":"O. Faleye, Ebru Reis, Anand Venkateswaran","doi":"10.2139/ssrn.2079369","DOIUrl":"https://doi.org/10.2139/ssrn.2079369","url":null,"abstract":"We study the determinants and effects of the relative compensation of top executives and lower-level employees. First, we show that CEO–employee pay ratio depends on the balance of power between the CEO (relative to the board) and ordinary employees (relative to management). Second, our results suggest that employees do not perceive higher pay ratios as an inequitable outcome to be redressed via costly behaviors that lower productivity. We do not find a negative relation between relative pay and employee productivity, either in the full sample or in subsamples where employees are well-informed about executive pay and are protected against retaliatory managerial actions. Rather, we find that productivity increases with relative pay when the firm has fewer employees who are well-informed, and when promotion decisions are predominantly merit-based. We also find that firm value and operating performance both increase with relative pay. We conclude that ordinary employees appear to perceive an opportunity in higher pay ratios but the extent to which such perception incentivizes them depends on the likelihood of success in a promotion tournament.","PeriodicalId":178342,"journal":{"name":"D'Amore-McKim: Finance (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2012-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124224078","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Several theoretical papers have argued that the valuation of equity will reflect the beliefs of the most optimistic investors and be at a premium over intrinsic value when rational investors subject to short sale constraints have heterogeneous priors. We test the above theories by analyzing the effect of IPO underwriter reputation on the heterogeneity in investor beliefs and the tightness of short sale constraints and consequently on equity valuation in IPOs. We propose a “market power” hypothesis, postulating that higher reputation underwriters are able to attract a greater number of higher quality market participants (such as institutional investors, analysts, and co-managing underwriters) to the IPOs backed by them, thereby yielding higher IPO valuations by increasing the heterogeneity in investor beliefs and the tightness of short sale constraints. We empirically distinguish between the above hypothesis and the “certification hypothesis,” which implies that higher reputation underwriters are associated with IPOs priced closer to intrinsic value. We find that equity in higher reputation underwriter backed IPOs are priced higher and further away from intrinsic value compared to lower reputation underwriter backed IPOs. We show that the above relationship between underwriter reputation and IPO valuation is driven by the greater heterogeneity in investor beliefs, tighter short sale constraints, and greater participation by institutional investors, analysts, and higher reputation co-managing underwriters that characterize higher reputation underwriter backed IPOs. Overall, our results support the market power hypothesis and reject the certification hypothesis.
{"title":"Heterogeneous Beliefs, Short Sale Constraints, and the Economic Role of the Underwriter in IPOs","authors":"Thomas J. Chemmanur, K. Krishnan","doi":"10.2139/ssrn.890859","DOIUrl":"https://doi.org/10.2139/ssrn.890859","url":null,"abstract":"Several theoretical papers have argued that the valuation of equity will reflect the beliefs of the most optimistic investors and be at a premium over intrinsic value when rational investors subject to short sale constraints have heterogeneous priors. We test the above theories by analyzing the effect of IPO underwriter reputation on the heterogeneity in investor beliefs and the tightness of short sale constraints and consequently on equity valuation in IPOs. We propose a “market power” hypothesis, postulating that higher reputation underwriters are able to attract a greater number of higher quality market participants (such as institutional investors, analysts, and co-managing underwriters) to the IPOs backed by them, thereby yielding higher IPO valuations by increasing the heterogeneity in investor beliefs and the tightness of short sale constraints. We empirically distinguish between the above hypothesis and the “certification hypothesis,” which implies that higher reputation underwriters are associated with IPOs priced closer to intrinsic value. We find that equity in higher reputation underwriter backed IPOs are priced higher and further away from intrinsic value compared to lower reputation underwriter backed IPOs. We show that the above relationship between underwriter reputation and IPO valuation is driven by the greater heterogeneity in investor beliefs, tighter short sale constraints, and greater participation by institutional investors, analysts, and higher reputation co-managing underwriters that characterize higher reputation underwriter backed IPOs. Overall, our results support the market power hypothesis and reject the certification hypothesis.","PeriodicalId":178342,"journal":{"name":"D'Amore-McKim: Finance (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2009-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132904175","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper examines the relation between a board's size and its monitoring effectiveness by exploring how board size affects different aspects of the CEO replacement process. I find that the probability of CEO turnover is significantly negatively related to board size, and that the abnormal return accompanying turnover announcements decreases with board size. I also find that larger boards are less likely to appoint an outsider to succeed the terminated CEO. These results suggest that a large size hinders the board's ability to perform its monitoring functions, and lends additional support to the current drive toward smaller boards.
{"title":"Are Large Boards Poor Monitors? Evidence from CEO Turnover","authors":"O. Faleye","doi":"10.2139/ssrn.498285","DOIUrl":"https://doi.org/10.2139/ssrn.498285","url":null,"abstract":"This paper examines the relation between a board's size and its monitoring effectiveness by exploring how board size affects different aspects of the CEO replacement process. I find that the probability of CEO turnover is significantly negatively related to board size, and that the abnormal return accompanying turnover announcements decreases with board size. I also find that larger boards are less likely to appoint an outsider to succeed the terminated CEO. These results suggest that a large size hinders the board's ability to perform its monitoring functions, and lends additional support to the current drive toward smaller boards.","PeriodicalId":178342,"journal":{"name":"D'Amore-McKim: Finance (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2003-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126857920","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Omesh Kini, Shehzad L. Mian, Michael Rebello, Anand Venkateswaran
In this paper, we study economic forces and constraints that shape analyst research coverage along country and sector dimensions. Our results support the hypothesis that analyst portfolios are structured to capture economies of scale in information acquisition and production. Specifically, the likelihood of an analyst specializing by country increases as the importance of the country factor in explaining stock return variability rises. Similarly, the likelihood of specialization by sector increases as the sector factor strengthens. We also find that higher country equity market capitalization increases the likelihood of country specialization while a larger total equity market capitalization of a sector in a particular country (country-sector market capitalization) increases the likelihood that analysts cover firms in a single sector. Finally, institutional features that influence the cost and value of information production also impact analyst specialization.
{"title":"On the Determinants of International Analyst Research Coverage","authors":"Omesh Kini, Shehzad L. Mian, Michael Rebello, Anand Venkateswaran","doi":"10.2139/ssrn.424042","DOIUrl":"https://doi.org/10.2139/ssrn.424042","url":null,"abstract":"In this paper, we study economic forces and constraints that shape analyst research coverage along country and sector dimensions. Our results support the hypothesis that analyst portfolios are structured to capture economies of scale in information acquisition and production. Specifically, the likelihood of an analyst specializing by country increases as the importance of the country factor in explaining stock return variability rises. Similarly, the likelihood of specialization by sector increases as the sector factor strengthens. We also find that higher country equity market capitalization increases the likelihood of country specialization while a larger total equity market capitalization of a sector in a particular country (country-sector market capitalization) increases the likelihood that analysts cover firms in a single sector. Finally, institutional features that influence the cost and value of information production also impact analyst specialization.","PeriodicalId":178342,"journal":{"name":"D'Amore-McKim: Finance (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2003-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121390602","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article shows how both technological and competitive risks affect the timing of private and initial public offerings in an emerging industry. Early private financing occurs in industries that are perceived to be risky, with high development costs and low probability of being displaced by technologically superior rivals. Early public financing occurs in industries perceived to be viable, with low development costs and low probability of displacement. Due to feedback effects between financial and product markets, the value of investors' proprietary information is greater in private than in initial public offerings. This has implications for underpricing. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.
{"title":"Technological Innovation and Initial Public Offerings","authors":"Vojislav Maksimovic, Pegaret Pichler","doi":"10.2139/ssrn.130849","DOIUrl":"https://doi.org/10.2139/ssrn.130849","url":null,"abstract":"This article shows how both technological and competitive risks affect the timing of private and initial public offerings in an emerging industry. Early private financing occurs in industries that are perceived to be risky, with high development costs and low probability of being displaced by technologically superior rivals. Early public financing occurs in industries perceived to be viable, with low development costs and low probability of displacement. Due to feedback effects between financial and product markets, the value of investors' proprietary information is greater in private than in initial public offerings. This has implications for underpricing. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.","PeriodicalId":178342,"journal":{"name":"D'Amore-McKim: Finance (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2000-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123532271","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Neoclassical economic theory describes employee compensation as being equal to the worker's marginal revenue product. Other explanations of the wage formation process exist. For example, concept formation may enable employees to manipulate organizations and thereby receive higher compensation without changing their physical productivity. This study tests the two wage models on a 1983 data set of the 100 highest paid American chief executive officers. During 1983, the data appears to support the neoclassical economic model; while, the psychological model is not fully rejected. By contrast in an earlier study, for 1981, the psychological model took precedence over the economic model. The study fully reconciles the contrasting findings by introducing `stickiness in wages' to explain why concept formation impacts executive wages during stagnant economic periods, and why productivity assumes a greater role in setting executive compensation levels during robust economic periods.
{"title":"Determinants of Executive Compensation: The Neoclassical Model Versus Concept Formation","authors":"H. Platt","doi":"10.2139/ssrn.1431520","DOIUrl":"https://doi.org/10.2139/ssrn.1431520","url":null,"abstract":"Neoclassical economic theory describes employee compensation as being equal to the worker's marginal revenue product. Other explanations of the wage formation process exist. For example, concept formation may enable employees to manipulate organizations and thereby receive higher compensation without changing their physical productivity. This study tests the two wage models on a 1983 data set of the 100 highest paid American chief executive officers. During 1983, the data appears to support the neoclassical economic model; while, the psychological model is not fully rejected. By contrast in an earlier study, for 1981, the psychological model took precedence over the economic model. The study fully reconciles the contrasting findings by introducing `stickiness in wages' to explain why concept formation impacts executive wages during stagnant economic periods, and why productivity assumes a greater role in setting executive compensation levels during robust economic periods.","PeriodicalId":178342,"journal":{"name":"D'Amore-McKim: Finance (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"1987-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124186333","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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