Financial Management最新文献

Despite exhibiting significant valuation discounts, dual-class shares surged from 1% of initial public offerings in 1980 to nearly half in recent years. This study investigates the potential harm of such structures by examining the identity and returns of minority shareholders. We find that sophisticated investors predominantly hold low-voting shares. Furthermore, outside shareholders earn a positive risk premium rather than suffering low returns, consistent with the hypothesis that market prices compensate for the risk associated with dual-class structures. Our analysis reveals that such structures are confounded with family control, which is present in 89% of dual-class firms in the Russell 3000. Interestingly, single-class firms with family shareholders also enjoy positive abnormal returns, implying minority shareholders care more about the presence of a controlling shareholder than a specific voting structure. This research contributes to the ongoing debate on restricting dual-class structures by highlighting the complex relationship between ownership, control, and shareholder returns.

It is generally accepted that any project has an appropriate cost of capital reflecting its riskiness and that this cost of capital can be employed to calculate the project's net present value (NPV). Consequently, any future cashflow with a positive expected value has some positive present value. We show that this is not generally true. A risky cashflow with a positive expected value may have a negative present value if the cashflow is correlated with market returns. Thus, there are many realistic projects for which no cost of capital exists. We suggest a simple test to screen out such projects.

We investigate how natural disaster shocks to customers propagate upstream to suppliers’ investment. Using data from the major customers of Chinese listed firms and earthquake information during 2009–2019, we investigate the impact of customers’ earthquake exposure on corporate investment. We find that firms significantly reduce investment after their customers experience earthquakes, particularly for non-state-owned enterprises, firms with higher product uniqueness, firms in competitive industries, and firms in nondurable goods industries. Furthermore, our analysis highlights firms’ sales as one of the potential channels through which customers’ earthquake exposure influences firm investment. We also find that following an earthquake supplier firms reduce their transactions with the affected customers and develop alternative customers.

Over 1990 to 2023, we show that time variation in the U.S. equity premium is captured well by a parsimonious model with the CBOE's implied-volatility index VIX and the sentiment index of Baker and Wurgler (2006, Journal of Finance, 61, 1645–1680). The equity premium declines linearly with sentiment but increases nonlinearly with VIX, stepping up appreciably when VIX exceeds a threshold around its 80th to 85th percentile. For 6- and 12-month forecasting horizons, the predictive adjusted R² values are about 19% and 29%, respectively. Our predictive findings are robustly evident for 1-, 3-, 6-, and 12-month horizons, in subperiods, for in-sample and out-of-sample evaluations, and when adding control variables. Our interpretation is that a high-VIX threshold identifies episodes of market stress that generally have both a sharply higher level of risk and an elevated price of risk. Sentiment complements VIX and seems particularly effective in identifying times with a low price of risk.

Research on executive compensation finds unions to be associated with lower executive compensation, particularly incentive pay, while other work documents the role of compensation consultants in facilitating stronger CEO incentives and pay. We propose and test the implications of a simple theoretical framework that integrates these empirical findings. We find empirical support for our model's prediction that in environments less favorable to union organization (e.g., right-to-work states), firms with higher unionization rates strategically engage consultants to counter union influence, place greater value on their advice as gauged by consultant fees, and offer managers greater equity incentives opposed by unions. On the other hand, in strongly prolabor environments, unions are more successful at curtailing consultant use and have greater influence on the level of pay and incentives.

We ask how idiosyncratic zero-beta risks (e.g., the risk of litigation or R&D failing) affect the firm's cost of capital under capital asset pricing model (CAPM). Surprisingly, perhaps, CAPM theory reveals that adding an idiosyncratic risk to the firm's payoff distribution will usually although not necessarily increase the firm's cost of capital. Lintner's famous original CAPM expositions revealed that the firm's CAPM cost of capital is a function of the ratio of the covariance of its cash payoff with the market to its payoff mean. Lintner proved that an idiosyncratic risk that affects the firm's payoff covariance per unit of mean is“priced” in the sense that it necessarily alters the firm's CAPM discount rate. We explain and clarify Lintner's argument using elementary CAPM equations and numerical examples.

We conduct pairwise comparisons of corporate bond ratings between three issuer-paid credit rating agencies (CRAs) and one investor-paid CRA regarding rating standard, accuracy, stability, and market impact. We find that neither compensation model results in more stringent or accurate ratings. While issuer-paid S&P ratings are more stringent and accurate than investor-paid Egan-Jones ratings (EJR), issuer-paid Fitch ratings are less stringent and have similar or lower accuracy compared to EJR ratings. In contrast, investor- and issuer-paid ratings exhibit different rating change behaviors. EJR updates its ratings more frequently with fewer multinotch downgrades but also has a higher likelihood of rating reversals, while rating change behaviors are similar among the three issuer-paid CRAs. Finally, issuer-paid rating changes trigger stronger market responses.

We show that common institutional ownership (CIO) along the supply chain mitigates hold-up problems faced by supplier–customer relationships resulting from incomplete contracts. Suppliers make more relationship-specific investments (RSIs) measured by R&D and patent filings toward their customers that share common institutional investors. Such effect is stronger as the CIO network between a supplier and customer pair becomes wider and deeper. We establish causality by exploiting exogenous shocks to CIO using a broad sample of mergers between financial institutions and further find the CIO effects on suppliers’ innovation specificity are stronger for those who ex ante face severer hold-up concerns. Lastly, we provide evidence that CIO involvement increases the combined valuations of supply chain pairs (mainly for customers). Our work sheds light on the hold-up mitigation effect of CIO on firms’ decision to make RSIs along the supply chain.

We contrast the investment strategies of hedge funds and mutual funds around mergers and acquisitions (M&A). We find that hedge funds, on average, increase their holdings of soon-to-be takeover targets by 7.5% during the quarter before M&A announcements. Conversely, mutual funds, on average, reduce their equity holdings in impending targets by 3.0% over the same time period. The reduction in M&A holdings by mutual funds is less pronounced for more actively managed funds. Our results suggest that hedge funds enjoy superior access to private information or possess superior ability to process public information related to M&A transactions.

This study examines the role of market disagreement in explaining the cross-section of hedge fund performance. In a market where disagreement fluctuates, skilled arbitrageurs may employ trading strategies to exploit the mispricing caused by disagreement and short-sale constraints. Skilled hedge funds with high sensitivity to disagreement can take advantage of mispricing in high-disagreement periods to improve their performance. We show that hedge funds with a high disagreement beta tend to possess skill in exploiting disagreement and, as such, they can earn higher cross-sectional returns compared to other hedge funds lacking this skill. Existing risk factors and a tradable disagreement factor do not fully explain the difference in hedge fund performance between those with high and low disagreement betas. Further evidence shows that experienced hedge funds and hedge funds that charge a high incentive fee are likely to have high disagreement betas. Our empirical findings are robust in using various disagreement measures and methodologies to estimate disagreement beta.