Institutional investors can be segmented into investors that hold simple portfolios of traditional equities and bonds, and investors that manage complex strategies in public and private markets. Investors implementing active portfolio management and holding diversified portfolios of equities and bonds are more likely to invest in alternative asset classes. The performance of institutional investors in alternative assets is significantly lower than in equities, suggesting that investors accept lower returns in exchange for diversification benefits. Institutions delegate 90% of their alternative investments to external managers and funds-of-funds. These intermediaries capture large part of the potential diversification benefits through higher fees and lower returns.
{"title":"Delegated Investment Management in Alternative Assets","authors":"Aleksandar Andonov","doi":"10.1093/rcfs/cfac027","DOIUrl":"https://doi.org/10.1093/rcfs/cfac027","url":null,"abstract":"Institutional investors can be segmented into investors that hold simple portfolios of traditional equities and bonds, and investors that manage complex strategies in public and private markets. Investors implementing active portfolio management and holding diversified portfolios of equities and bonds are more likely to invest in alternative asset classes. The performance of institutional investors in alternative assets is significantly lower than in equities, suggesting that investors accept lower returns in exchange for diversification benefits. Institutions delegate 90% of their alternative investments to external managers and funds-of-funds. These intermediaries capture large part of the potential diversification benefits through higher fees and lower returns.","PeriodicalId":44656,"journal":{"name":"Review of Corporate Finance Studies","volume":"56 1","pages":""},"PeriodicalIF":11.3,"publicationDate":"2022-08-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138509228","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 distill evidence about the effects of COVID-19 on companies. Stock price reactions to the shock differed greatly across firms, depending on their resilience to social distancing, financial flexibility, and corporate culture. The same characteristics affected the response of firms’ sales, employment, and asset growth. Despite the shock, firms expanded their balance sheets and liquidity by raising funds from banks, bonds, and equity markets. While listed firms reduced their leverage, unlisted ones, especially small and medium enterprises, increased it. Government support programs helped firms access external funding. We conclude by identifying unexplored research issues regarding the long-run effects of COVID-19 on companies. (JEL: G11, G12, G13, G21, G24, G28, G32, G33, G35, G38, H81, H84) Received August 1, 2022; Editorial decision August 1, 2022 by editor Andrew Ellul.
{"title":"COVID-19 and Corporate Finance","authors":"Marco Pagano, Josef Zechner","doi":"10.1093/rcfs/cfac025","DOIUrl":"https://doi.org/10.1093/rcfs/cfac025","url":null,"abstract":"We distill evidence about the effects of COVID-19 on companies. Stock price reactions to the shock differed greatly across firms, depending on their resilience to social distancing, financial flexibility, and corporate culture. The same characteristics affected the response of firms’ sales, employment, and asset growth. Despite the shock, firms expanded their balance sheets and liquidity by raising funds from banks, bonds, and equity markets. While listed firms reduced their leverage, unlisted ones, especially small and medium enterprises, increased it. Government support programs helped firms access external funding. We conclude by identifying unexplored research issues regarding the long-run effects of COVID-19 on companies. (JEL: G11, G12, G13, G21, G24, G28, G32, G33, G35, G38, H81, H84) Received August 1, 2022; Editorial decision August 1, 2022 by editor Andrew Ellul.","PeriodicalId":44656,"journal":{"name":"Review of Corporate Finance Studies","volume":"180 2","pages":""},"PeriodicalIF":11.3,"publicationDate":"2022-08-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138509243","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 examine U.S. dual- and single-class firms from 1980 to 2019 and document their valuation differences over their corporate life cycle. At the IPO, dual-class firms have higher mean valuations than do single-class firms, and some evidence indicates that this premium may emanate from dual-class firm founders’ unique vision and leadership skills. As firms age, the valuation premium of dual-class firms tends to dissipate, possibly because dual-class agency problems increase due to a gradual widening of the wedge (the difference between insider voting and cash flow rights) in the post-IPO years. (JEL G32, G34)
{"title":"The Life Cycle of Dual-Class Firm Valuation","authors":"Martijn Cremers, Beni Lauterbach, Anete Pajuste","doi":"10.1093/rcfs/cfac026","DOIUrl":"https://doi.org/10.1093/rcfs/cfac026","url":null,"abstract":"We examine U.S. dual- and single-class firms from 1980 to 2019 and document their valuation differences over their corporate life cycle. At the IPO, dual-class firms have higher mean valuations than do single-class firms, and some evidence indicates that this premium may emanate from dual-class firm founders’ unique vision and leadership skills. As firms age, the valuation premium of dual-class firms tends to dissipate, possibly because dual-class agency problems increase due to a gradual widening of the wedge (the difference between insider voting and cash flow rights) in the post-IPO years. (JEL G32, G34)","PeriodicalId":44656,"journal":{"name":"Review of Corporate Finance Studies","volume":"59 8","pages":""},"PeriodicalIF":11.3,"publicationDate":"2022-08-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138509237","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}
Earlier studies have linked equity market liberalization to growth in emerging markets. Some conclude liberalization causes growth, whereas others contend contemporaneous economic policies and conditions play important roles. The causal argument contends that foreigner investability in public firms leads to lower discount rates and greater share issuance, investment, and efficiency. Using three separate measures of foreign investability, we do not find these effects. Moreover, common de jure foreigner-investability measures are poor de facto measures. Economic indicators, not directly influenced by equity market liberalization, also grow faster in countries with more investable firms. Our findings suggest foreigner investability cannot fully explain the equity-market-liberalization-growth relation.
{"title":"A Closer Look at the Effects of Equity Market Liberalization in Emerging Markets","authors":"R David McLean, Jeffrey Pontiff, Mengxin Zhao","doi":"10.1093/rcfs/cfac023","DOIUrl":"https://doi.org/10.1093/rcfs/cfac023","url":null,"abstract":"Earlier studies have linked equity market liberalization to growth in emerging markets. Some conclude liberalization causes growth, whereas others contend contemporaneous economic policies and conditions play important roles. The causal argument contends that foreigner investability in public firms leads to lower discount rates and greater share issuance, investment, and efficiency. Using three separate measures of foreign investability, we do not find these effects. Moreover, common de jure foreigner-investability measures are poor de facto measures. Economic indicators, not directly influenced by equity market liberalization, also grow faster in countries with more investable firms. Our findings suggest foreigner investability cannot fully explain the equity-market-liberalization-growth relation.","PeriodicalId":44656,"journal":{"name":"Review of Corporate Finance Studies","volume":"56 5","pages":""},"PeriodicalIF":11.3,"publicationDate":"2022-06-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138509226","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}
{"title":"Discrimination, Disparities, and Diversity in Finance","authors":"A. Ellul, Isil Erel, Camelia M. Kuhnen, U. Rajan","doi":"10.1093/rcfs/cfac022","DOIUrl":"https://doi.org/10.1093/rcfs/cfac022","url":null,"abstract":"","PeriodicalId":44656,"journal":{"name":"Review of Corporate Finance Studies","volume":" ","pages":""},"PeriodicalIF":11.3,"publicationDate":"2022-05-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47474139","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}
Kingsley Fong, Harrison Hong, Marcin Kacperczyk, Jeffrey D Kubik
Credit ratings of corporations are biased, but the forces driving this bias are unclear. We argue it would be difficult for rating agencies to issue high grades for a firm’s debt when there are a lot of objective equity analyst reports about the firm’s earnings that are informative about its default. We find that an exogenous drop in analyst coverage leads to greater optimism-bias in ratings, especially for firms with little bond analyst coverage and those that are close to default. This coverage-induced shock leads to less informative ratings about future defaults and downgrades and more subsequent bond security mispricings.
{"title":"Do Security Analysts Discipline Credit Rating Agencies?","authors":"Kingsley Fong, Harrison Hong, Marcin Kacperczyk, Jeffrey D Kubik","doi":"10.1093/rcfs/cfac021","DOIUrl":"https://doi.org/10.1093/rcfs/cfac021","url":null,"abstract":"Credit ratings of corporations are biased, but the forces driving this bias are unclear. We argue it would be difficult for rating agencies to issue high grades for a firm’s debt when there are a lot of objective equity analyst reports about the firm’s earnings that are informative about its default. We find that an exogenous drop in analyst coverage leads to greater optimism-bias in ratings, especially for firms with little bond analyst coverage and those that are close to default. This coverage-induced shock leads to less informative ratings about future defaults and downgrades and more subsequent bond security mispricings.","PeriodicalId":44656,"journal":{"name":"Review of Corporate Finance Studies","volume":"76 1","pages":""},"PeriodicalIF":11.3,"publicationDate":"2022-05-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138542139","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 U.S. banks’ payout policy in 2007–2008. We benchmark these payouts against payouts before the crisis, measure stock price reactions to announcements of dividend changes, and analyze changes in the relation between payout growth and future performance. Further, we examine cross-sectional variation in banks’ payout policy to gauge the possible motives underlying banks’ payout decisions in 2007–2008. We do not find that banks that have a higher willingness to take risk or that have higher incentives to undertake asset substitution use their payout policy to engage in more wealth transfer compared to other banks.
{"title":"Understanding Bank Payouts during the Crisis of 2007–2009","authors":"P. Cziraki, C. Laux, G. Loranth","doi":"10.1093/rcfs/cfac015","DOIUrl":"https://doi.org/10.1093/rcfs/cfac015","url":null,"abstract":"\u0000 We study U.S. banks’ payout policy in 2007–2008. We benchmark these payouts against payouts before the crisis, measure stock price reactions to announcements of dividend changes, and analyze changes in the relation between payout growth and future performance. Further, we examine cross-sectional variation in banks’ payout policy to gauge the possible motives underlying banks’ payout decisions in 2007–2008. We do not find that banks that have a higher willingness to take risk or that have higher incentives to undertake asset substitution use their payout policy to engage in more wealth transfer compared to other banks.","PeriodicalId":44656,"journal":{"name":"Review of Corporate Finance Studies","volume":" ","pages":""},"PeriodicalIF":11.3,"publicationDate":"2022-05-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48440425","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}
Redouane Elkahmi, Daniel Kim, Chanik Jo, Marco Salerno
We develop a dynamic capital structure model to study how agency conflicts between managers and shareholders affect the joint determination of financing and investment decisions. We show that there are two agency conflicts with opposing effects on a manager’s choice of investment: first, the consumption of private benefits channel leads managers not only to choose a lower optimal leverage, but also to underinvest, and second, compensation linked to firm size may lead managers to overinvest. We fit the model to the data and show that the average firm slightly overinvests, younger CEOs invest more than older ones, while CEOs with longer tenure overinvest more than CEOs with shorter tenure.
{"title":"Agency Conflicts and Investment: Evidence from a Structural Estimation","authors":"Redouane Elkahmi, Daniel Kim, Chanik Jo, Marco Salerno","doi":"10.1093/rcfs/cfac019","DOIUrl":"https://doi.org/10.1093/rcfs/cfac019","url":null,"abstract":"We develop a dynamic capital structure model to study how agency conflicts between managers and shareholders affect the joint determination of financing and investment decisions. We show that there are two agency conflicts with opposing effects on a manager’s choice of investment: first, the consumption of private benefits channel leads managers not only to choose a lower optimal leverage, but also to underinvest, and second, compensation linked to firm size may lead managers to overinvest. We fit the model to the data and show that the average firm slightly overinvests, younger CEOs invest more than older ones, while CEOs with longer tenure overinvest more than CEOs with shorter tenure.","PeriodicalId":44656,"journal":{"name":"Review of Corporate Finance Studies","volume":"58 2","pages":""},"PeriodicalIF":11.3,"publicationDate":"2022-04-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138509222","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}
Tanja Artiga González, Paul Calluzzo, G. Dong, G. Granic
We study the determinants of firms’ LGBTQ+ policies and their relation to general CSR policies. Common factors explain LGBTQ+ policies related to firms’ primary stakeholders and those aimed at public LGBTQ+ efforts: younger firms, those with more financial resources, more educated workforces, catering to retail customers, and located in liberal areas have more LGBTQ+-friendly policies. LGBTQ+ initiatives encounter less societal agreement than CSR initiatives. Illustrating the distinctiveness of LGBTQ+ issues in the CSR space, we find that firms’ LGBTQ+ friendliness only weakly correlates with overall CSR performance. Lastly, we show that firms’ LGBTQ+ policies respond to pressure from shareholder proposals.
{"title":"Determinants of LGBTQ+ Corporate Policies","authors":"Tanja Artiga González, Paul Calluzzo, G. Dong, G. Granic","doi":"10.1093/rcfs/cfac014","DOIUrl":"https://doi.org/10.1093/rcfs/cfac014","url":null,"abstract":"\u0000 We study the determinants of firms’ LGBTQ+ policies and their relation to general CSR policies. Common factors explain LGBTQ+ policies related to firms’ primary stakeholders and those aimed at public LGBTQ+ efforts: younger firms, those with more financial resources, more educated workforces, catering to retail customers, and located in liberal areas have more LGBTQ+-friendly policies. LGBTQ+ initiatives encounter less societal agreement than CSR initiatives. Illustrating the distinctiveness of LGBTQ+ issues in the CSR space, we find that firms’ LGBTQ+ friendliness only weakly correlates with overall CSR performance. Lastly, we show that firms’ LGBTQ+ policies respond to pressure from shareholder proposals.","PeriodicalId":44656,"journal":{"name":"Review of Corporate Finance Studies","volume":" ","pages":""},"PeriodicalIF":11.3,"publicationDate":"2022-04-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42220394","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}
{"title":"Correction to: Regulation, Asset Complexity, and the Informativeness of Credit Ratings","authors":"","doi":"10.1093/rcfs/cfac010","DOIUrl":"https://doi.org/10.1093/rcfs/cfac010","url":null,"abstract":"","PeriodicalId":44656,"journal":{"name":"Review of Corporate Finance Studies","volume":"1 1","pages":""},"PeriodicalIF":11.3,"publicationDate":"2022-03-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41336452","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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