Financial Management最新文献

The fall of fascism in Italy in 1943–1944 was followed by the issuance of laws and decrees that made former fascist politicians ineligible for political office. This setting provides a unique quasi-natural experiment that exogenously and permanently disrupted then prevalent corporate political connections. We find that following the exogenous disruption of their political connections, previously politically connected firms significantly underperform their peers both economically and statistically. These results imply that political connections lead to misallocation of economic resources.

We find that mutual fund flows respond to price returns (changes in net asset value per share or NAV returns) that are widely displayed in practice, whereas total fund returns include both price returns and fund distributions. NAV return-chasing is not driven by tax considerations or alternative performance and risk metrics and leads to suboptimal investment performance. Additionally, NAV return-chasing generates price pressure on funds’ stock holdings. These findings suggest that more prevalent displays of total investment returns could improve investor decision-making, especially for less sophisticated investors.

We show that mutual funds' lottery-like features weaken the performance-flow sensitivity, particularly among low-performing funds, thereby contributing to the convexity of the fund performance-flow relation. The results hold when different model specifications are used to test the fund performance-flow relation, are robust to alternative measures for funds' lottery-like features, and cannot be attributed to fund search costs, marketing efforts, or fund performance volatility. Utilizing retail trading data at the account level from a large brokerage firm, we offer additional evidence that funds' lottery-like features significantly reduce outflows for low-performing funds. It confirms that the weakened performance-flow sensitivity among low-performing funds with lottery-like features is driven by existing investors' reluctance to redeem their shares. Furthermore, we reveal that fund managers can cater to investors' gambling preference by tilting fund portfolios toward lottery-type stocks. Funds' lottery-like features, however, aggravate future fund performance, especially among those that have already underperformed in the past.

The Review of Finance aimed to significantly increase its standards over my 6 years as managing editor and 1 year as editor. To comply with these new standards, I had to reject nearly 1000 manuscripts. This paper aims to use these rejections constructively by distilling common reasons for rejection to guide future research. They are divided into three categories: contribution, execution, and exposition. Beyond extracts from decision letters that give reasons for rejection, this paper also shares excerpts that shed light on the editorial process, such as how an editor weighs up feedback to reach a decision, as well as emails to authors outside formal letters in response to queries on the process.

Empirically motivated theoretical models of probability weighting which overweight tail events are finding many applications in finance. However, probability weighting has not yet been applied to equity premium prediction or to constructing optimal market timing investment strategies. We show that a measure of market optimism from a representative agent asset pricing model with probability weighting can be used to construct optimal dynamic investment strategies that outperform the buy-and-hold strategy and strategies generated by 17 leading equity premium predictors. We further show that this theory-based measure of market optimism predicts the equity premium and market Sharpe ratio in-sample and out-of-sample. The predictability is not subsumed by disaster probabilities, market sentiment, or market skewness. Our results indicate that our theory-based measure provides a distinct channel for predicting aggregate stock returns.

We develop a lottery factor from five commonly utilized lottery measures and find this factor substantially enhances the well-known factor models concerning market anomalies, particularly those related to skewness and value. Our findings emphasize that stocks exhibiting high lottery characteristics display considerable anomaly returns, primarily due to the short position of these stocks rather than their financial distress. Moreover, our research consistently indicates that lottery stocks frequently correlate with low short volume and higher shorting fees. This implies that the preference of retail investors to hold onto lottery stocks results in a reduced supply of these shares available for lending.

Our paper sheds light on the complexity of liquidity injection programs by showing unintended consequences that arise when firm heterogeneity is overlooked. Utilizing firm-level data from the Paycheck Protection Program, we find government lending effectively reduced closures, particularly if received during the first two weeks. However, we find significant heterogeneity in the effectiveness of funds, resulting from broad-brush eligibility guidelines and differences in how firms process information. The implementation relied on the banking system, which exacerbated the distributional effects by favoring firms with stronger customer capital. Our findings highlight the importance of thoughtful liquidity distribution design to maximize its benefits.

This article examines the relationship between employee demographic diversity and firm performance measured by future stock returns for a large sample of US public companies. We use novel demographic data extracted from employees' online profiles and resumes and focus on three key aspects of employee demographic diversity: age, gender, and ethnicity. We find no evidence supportive of an outperformance associated with greater employee-diverse companies, neither using portfolio-sorting approaches nor cross-sectional and panel regressions. We also find no significant associations between employee demographic diversity and ROE, gross profit, and labor productivity.

This paper investigates the impact of economic policy uncertainty (EPU) on institutional investors’ holdings of common stocks. Using a large sample of quarterly institutional ownership data from 28 countries/markets between 2000 and 2021, we find that EPU negatively affects institutional investments in both domestic and overseas stock markets. Policy uncertainty also deters foreign institutions’ inbound investments. The adverse effect of policy uncertainty on crossborder institutional investment is particularly pronounced when the investment destination country does not share the same official language or legal origin as the investing country, consistent with the information asymmetry hypothesis. Additionally, firms with higher cash holdings and lower market-to-book ratios are less vulnerable to the withdrawal of investment by foreign institutional investors.

This study investigates the influence of local crime on corporate employment in China. Leveraging a comprehensive data set of 85 million court judicial documents, we construct city-level crime measures. We find that local crime is negatively associated with corporate employment. Using China's Gang Crime Crackdown program as a quasi-natural experiment and the difference-in-differences approach, we further identify the causal relationship. Violent crimes and those with longer sentences drive the negative correlation between local crime and corporate employment. This relation is particularly pronounced among low-skilled employees, in cities with inadequate commuter security, and in financially constrained firms. Our findings emphasize the role of a secure social environment in the local labor market and firms' employment decisions.