Based on a theory of portfolio choice with non‐tradable assets, we estimate hedging demands due to background risks before and after the Great Recession for U.S households. Hedging demands related to human capital, residential property and business assets reduce financial risk‐taking, but these effects decline over the Great Recession, as does expected risk‐adjusted stock market performance. We also estimate the appropriate discount rate to compute the risk‐adjusted value of human capital, which declines by around eight percent over the period. Unlike previous literature requiring panel data with large time dimensions, our approach only requires cross‐sectional data to identify hedging demands.
{"title":"Estimating background risk hedging demands from cross‐sectional data","authors":"James Brugler, Joachim Inkmann, Adrian Rizzo","doi":"10.1111/jfir.12432","DOIUrl":"https://doi.org/10.1111/jfir.12432","url":null,"abstract":"Based on a theory of portfolio choice with non‐tradable assets, we estimate hedging demands due to background risks before and after the Great Recession for U.S households. Hedging demands related to human capital, residential property and business assets reduce financial risk‐taking, but these effects decline over the Great Recession, as does expected risk‐adjusted stock market performance. We also estimate the appropriate discount rate to compute the risk‐adjusted value of human capital, which declines by around eight percent over the period. Unlike previous literature requiring panel data with large time dimensions, our approach only requires cross‐sectional data to identify hedging demands.","PeriodicalId":47584,"journal":{"name":"Journal of Financial Research","volume":null,"pages":null},"PeriodicalIF":3.5,"publicationDate":"2024-09-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142204836","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We exploit new flight connections from small cities to international airports as a quasi‐natural experiment to study the effects of local labor match on corporate investments. Using a cosine similarity of occupational makeups, we find that corporate investment rates are higher for firms with human capital profiles that are more similar to those of the local labor. The effects are more pronounced among financially constrained firms and less evident among firms with higher unionization membership and coverage. Firms with better local labor match are also more likely to downsize their employments when experiencing negative cash flow shocks. Collectively, our findings suggest that local labor match spurs corporate investments by lowering labor costs and increasing ex‐ante investment incentives.
{"title":"Local labor match and corporate investments: Evidence from new flight routes","authors":"Nasim Sabah, Linh Thompson","doi":"10.1111/jfir.12433","DOIUrl":"https://doi.org/10.1111/jfir.12433","url":null,"abstract":"We exploit new flight connections from small cities to international airports as a quasi‐natural experiment to study the effects of local labor match on corporate investments. Using a cosine similarity of occupational makeups, we find that corporate investment rates are higher for firms with human capital profiles that are more similar to those of the local labor. The effects are more pronounced among financially constrained firms and less evident among firms with higher unionization membership and coverage. Firms with better local labor match are also more likely to downsize their employments when experiencing negative cash flow shocks. Collectively, our findings suggest that local labor match spurs corporate investments by lowering labor costs and increasing ex‐ante investment incentives.","PeriodicalId":47584,"journal":{"name":"Journal of Financial Research","volume":null,"pages":null},"PeriodicalIF":3.5,"publicationDate":"2024-09-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142204835","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Md Mahmudul Hasan, Sayan Sarkar, Andrew C. Spieler
In this article, we examine the relation between managerial ability and the use of supplier‐provided trade credit. The literature documents the positive effects of high‐ability managers, including more accurate earnings forecasts, improved earnings quality, and overall improvement in corporate disclosure policies. We argue that customers (those seeking trade credit) with high‐ability managers are better able to negotiate with suppliers, provide more transparent disclosure, and maintain strong relationships. Likewise, suppliers are willing to provide more trade credit to customers with high‐ability managers because of reduced information asymmetry, creating an environment of trust and transparency. Our empirical results show that suppliers extend more trade credit to customers with high‐ability managers and that this relation is more pronounced for financially constrained firms.
{"title":"Sink or swim? Managerial ability and trade credit","authors":"Md Mahmudul Hasan, Sayan Sarkar, Andrew C. Spieler","doi":"10.1111/jfir.12434","DOIUrl":"https://doi.org/10.1111/jfir.12434","url":null,"abstract":"In this article, we examine the relation between managerial ability and the use of supplier‐provided trade credit. The literature documents the positive effects of high‐ability managers, including more accurate earnings forecasts, improved earnings quality, and overall improvement in corporate disclosure policies. We argue that customers (those seeking trade credit) with high‐ability managers are better able to negotiate with suppliers, provide more transparent disclosure, and maintain strong relationships. Likewise, suppliers are willing to provide more trade credit to customers with high‐ability managers because of reduced information asymmetry, creating an environment of trust and transparency. Our empirical results show that suppliers extend more trade credit to customers with high‐ability managers and that this relation is more pronounced for financially constrained firms.","PeriodicalId":47584,"journal":{"name":"Journal of Financial Research","volume":null,"pages":null},"PeriodicalIF":3.5,"publicationDate":"2024-09-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142204841","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper analyzes whether Christian moralities and rules formed differently by Catholics and Protestants impact the likelihood of households becoming over‐indebted. We find that over‐indebtedness is lower in regions in which Catholics outweigh Protestants, indicating that Catholics' forgiveness culture and stricter enforcement of rules by Protestants serve as explanations for our results. Our results provide evidence that religion affects the financial situations of individuals and show that even 500 years after the split between Catholics and Protestants, the differences in the mindsets of both denominations play an important role in situations of severe financial conditions.
{"title":"‘And forgive us our debts’: Christian moralities and over‐indebtedness","authors":"Iftekhar Hasan, Felix Noth, Konstantin Kiesel","doi":"10.1111/jfir.12436","DOIUrl":"https://doi.org/10.1111/jfir.12436","url":null,"abstract":"This paper analyzes whether Christian moralities and rules formed differently by Catholics and Protestants impact the likelihood of households becoming over‐indebted. We find that over‐indebtedness is lower in regions in which Catholics outweigh Protestants, indicating that Catholics' forgiveness culture and stricter enforcement of rules by Protestants serve as explanations for our results. Our results provide evidence that religion affects the financial situations of individuals and show that even 500 years after the split between Catholics and Protestants, the differences in the mindsets of both denominations play an important role in situations of severe financial conditions.","PeriodicalId":47584,"journal":{"name":"Journal of Financial Research","volume":null,"pages":null},"PeriodicalIF":3.5,"publicationDate":"2024-09-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142204840","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
First‐time minority borrowers often receive less desirable outcomes than first‐time White borrowers. Relationship lenders, who use both hard information and soft (community) information about new borrowers, can gain insights into a borrower's creditworthiness even without an existing bank–borrower relationship and provide more loan opportunities for new minority borrowers than transactional lenders. Our results show that borrowing from a relationship lender reduces lending outcome discrepancies between new minority borrowers and new White borrowers, not only in loan acceptance rates but also in borrower perceptions. These results suggest that borrowers' soft information is an important part of relationship lenders' decision‐making process.
{"title":"Lending discrimination and the role of community banks","authors":"Arthur M. Tran, Drew B. Winters","doi":"10.1111/jfir.12435","DOIUrl":"https://doi.org/10.1111/jfir.12435","url":null,"abstract":"First‐time minority borrowers often receive less desirable outcomes than first‐time White borrowers. Relationship lenders, who use both hard information and soft (community) information about new borrowers, can gain insights into a borrower's creditworthiness even without an existing bank–borrower relationship and provide more loan opportunities for new minority borrowers than transactional lenders. Our results show that borrowing from a relationship lender reduces lending outcome discrepancies between new minority borrowers and new White borrowers, not only in loan acceptance rates but also in borrower perceptions. These results suggest that borrowers' soft information is an important part of relationship lenders' decision‐making process.","PeriodicalId":47584,"journal":{"name":"Journal of Financial Research","volume":null,"pages":null},"PeriodicalIF":3.5,"publicationDate":"2024-08-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142204855","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Noninterest‐bearing deposits (NIBDs) flow out of U.S. banks in January and February. Banks respond to this seasonal outflow by increasing interest‐bearing deposit (IBD) rates. We document that branch‐level deposit spreads are 4 to 11 basis points higher in January than in December. Increasing rates works as banks replace four‐fifths of the lost NIBDs with IBDs. We also find that, following NIBD outflows, banks resist cutting lending but pass the increases in the cost of funds onto borrowers. Banks do cut lending in response to total deposit outflows, but only in the pre‐crisis period.
{"title":"Deposit flows and the January effect in deposit rates","authors":"Vladimir Kotomin, Artem Meshcheryakov","doi":"10.1111/jfir.12430","DOIUrl":"https://doi.org/10.1111/jfir.12430","url":null,"abstract":"Noninterest‐bearing deposits (NIBDs) flow out of U.S. banks in January and February. Banks respond to this seasonal outflow by increasing interest‐bearing deposit (IBD) rates. We document that branch‐level deposit spreads are 4 to 11 basis points higher in January than in December. Increasing rates works as banks replace four‐fifths of the lost NIBDs with IBDs. We also find that, following NIBD outflows, banks resist cutting lending but pass the increases in the cost of funds onto borrowers. Banks do cut lending in response to total deposit outflows, but only in the pre‐crisis period.","PeriodicalId":47584,"journal":{"name":"Journal of Financial Research","volume":null,"pages":null},"PeriodicalIF":3.5,"publicationDate":"2024-08-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142204843","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Changing disclosure requirements and the evolution of US markets in the 21st century have created historic shifts in the exit strategies and payoffs for private firms. The propensity to sell to an acquirer has dominated firm exits in recent decades, especially for smaller private firms in highly concentrated industries. Exceptions to the merger exit preference are venture capital‐backed firms, which exhibit an enduring preference for IPOs, likely due to the reputation effects associated with this strategy. While the premium for IPO exits has exceeded that for M&A exits in the past, we document a reversal in this pricing trend: in more recent years firms that sell out earn higher risk‐adjusted premiums than firms that conduct IPOs. Our empirical tests examine potential drivers of this effect. We believe we are the first to document this reversal in the economics of the exit decision.
{"title":"The impact of changing disclosure requirements, competition, and private capital on firm exit methods and premiums","authors":"James C. Brau, Ninon K. Sutton, Qiancheng Zheng","doi":"10.1111/jfir.12431","DOIUrl":"https://doi.org/10.1111/jfir.12431","url":null,"abstract":"Changing disclosure requirements and the evolution of US markets in the 21st century have created historic shifts in the exit strategies and payoffs for private firms. The propensity to sell to an acquirer has dominated firm exits in recent decades, especially for smaller private firms in highly concentrated industries. Exceptions to the merger exit preference are venture capital‐backed firms, which exhibit an enduring preference for IPOs, likely due to the reputation effects associated with this strategy. While the premium for IPO exits has exceeded that for M&A exits in the past, we document a reversal in this pricing trend: in more recent years firms that sell out earn higher risk‐adjusted premiums than firms that conduct IPOs. Our empirical tests examine potential drivers of this effect. We believe we are the first to document this reversal in the economics of the exit decision.","PeriodicalId":47584,"journal":{"name":"Journal of Financial Research","volume":null,"pages":null},"PeriodicalIF":3.5,"publicationDate":"2024-08-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142204844","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The article proposes a statistical time‐series factor model that incorporates deterministic orthogonal trend polynomials. Such polynomials allow capturing variation in returns without initially identifying a set of robust time‐series factors. This modeling approach can serve as a coherent basis for testing and selecting the most relevant factors among a set of possible ones. Additionally, it can help identify whether any factors are missing from a time‐series asset pricing model. The use of the proposed model and empirical strategy is illustrated by two empirical applications from the literature, yielding results related to the Fama‐French five‐factor model and the factor zoo.
{"title":"Time‐Series Factor Modeling and Selection","authors":"Michael Michaelides","doi":"10.1111/jfir.12429","DOIUrl":"https://doi.org/10.1111/jfir.12429","url":null,"abstract":"The article proposes a statistical time‐series factor model that incorporates deterministic orthogonal trend polynomials. Such polynomials allow capturing variation in returns without initially identifying a set of robust time‐series factors. This modeling approach can serve as a coherent basis for testing and selecting the most relevant factors among a set of possible ones. Additionally, it can help identify whether any factors are missing from a time‐series asset pricing model. The use of the proposed model and empirical strategy is illustrated by two empirical applications from the literature, yielding results related to the Fama‐French five‐factor model and the factor zoo.","PeriodicalId":47584,"journal":{"name":"Journal of Financial Research","volume":null,"pages":null},"PeriodicalIF":3.5,"publicationDate":"2024-08-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142204845","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We examine empirically how trading by peers on a new platform influences others' adoption decisions. We model the adoption process and find the relation to be U‐shaped, with first movers greatly discouraging their peers from adoption and late movers slightly discouraging or encouraging their peers. Further analysis shows that the U‐shape is explained by social transmission bias rather than profitability.
我们通过实证研究了同行在新平台上的交易如何影响他人的采用决定。我们对采用过程进行建模，发现这种关系呈 U 型，先行者会极大地阻碍同行采用新平台，而后来者则会轻微地阻碍或鼓励同行采用新平台。进一步的分析表明，这种 U 型关系是由社会传播偏差而不是盈利能力造成的。
{"title":"Do traders overweight experience from first movers?","authors":"Naomi Boyd, Shenru Li","doi":"10.1111/jfir.12427","DOIUrl":"https://doi.org/10.1111/jfir.12427","url":null,"abstract":"We examine empirically how trading by peers on a new platform influences others' adoption decisions. We model the adoption process and find the relation to be U‐shaped, with first movers greatly discouraging their peers from adoption and late movers slightly discouraging or encouraging their peers. Further analysis shows that the U‐shape is explained by social transmission bias rather than profitability.","PeriodicalId":47584,"journal":{"name":"Journal of Financial Research","volume":null,"pages":null},"PeriodicalIF":3.5,"publicationDate":"2024-08-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141949380","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The Central Bank of Iceland replaced the discriminatory method used for auctioning treasury securities with the uniform‐price method in 2009. We analyze underpricing before and after this institutional reform with a sample of 516 auctions organized from 2000 to 2018. After controlling for auction characteristics and financial market conditions, we find that underpricing is lower under the uniform‐price method. However, this underpricing decline does not translate into a reduction in sovereign issuance cost. The emergence of overpricing, observed in the late part of our sample, coincides with the growing importance of commissions paid to primary dealers. Our results provide practical implications for governments, regulators, and market participants.
{"title":"Treasury auction method and underpricing: Evidence from Iceland","authors":"Antoine Noel, Mark Wu","doi":"10.1111/jfir.12428","DOIUrl":"https://doi.org/10.1111/jfir.12428","url":null,"abstract":"The Central Bank of Iceland replaced the discriminatory method used for auctioning treasury securities with the uniform‐price method in 2009. We analyze underpricing before and after this institutional reform with a sample of 516 auctions organized from 2000 to 2018. After controlling for auction characteristics and financial market conditions, we find that underpricing is lower under the uniform‐price method. However, this underpricing decline does not translate into a reduction in sovereign issuance cost. The emergence of overpricing, observed in the late part of our sample, coincides with the growing importance of commissions paid to primary dealers. Our results provide practical implications for governments, regulators, and market participants.","PeriodicalId":47584,"journal":{"name":"Journal of Financial Research","volume":null,"pages":null},"PeriodicalIF":3.5,"publicationDate":"2024-08-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141949379","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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