This paper studies the impact of local unemployment shocks on bank profitability. Our work advances on previous studies that use national- or state-level data, as we create a bank-specific measure of local unemployment in which the bank has exposure. Using this novel measure, we determine how shocks to unemployment affect each individual bank's profitability. Our results indicate that an increase in the local market unemployment rate decreases bank profitability on average by 3.2%. The impact of local market conditions on profitability is stronger for banks that are large, operate in more markets, face more competition, and have a greater reliance on lending. We further examine what components of bank profitability are most impacted by local labor market conditions and find that net interest income is most impacted.
{"title":"Do local labor market conditions impact bank profitability?","authors":"Andrew Swanson, Danielle Zanzalari","doi":"10.1002/rfe.1130","DOIUrl":"https://doi.org/10.1002/rfe.1130","url":null,"abstract":"This paper studies the impact of local unemployment shocks on bank profitability. Our work advances on previous studies that use national- or state-level data, as we create a bank-specific measure of local unemployment in which the bank has exposure. Using this novel measure, we determine how shocks to unemployment affect each individual bank's profitability. Our results indicate that an increase in the local market unemployment rate decreases bank profitability on average by 3.2%. The impact of local market conditions on profitability is stronger for banks that are large, operate in more markets, face more competition, and have a greater reliance on lending. We further examine what components of bank profitability are most impacted by local labor market conditions and find that net interest income is most impacted.","PeriodicalId":51691,"journal":{"name":"Review of Financial Economics","volume":null,"pages":null},"PeriodicalIF":1.2,"publicationDate":"2021-04-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138529148","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":"Do crude oil futures still fuel portfolio performance?","authors":"Anja Vinzelberg, B. Auer","doi":"10.1002/RFE.1127","DOIUrl":"https://doi.org/10.1002/RFE.1127","url":null,"abstract":"","PeriodicalId":51691,"journal":{"name":"Review of Financial Economics","volume":null,"pages":null},"PeriodicalIF":1.2,"publicationDate":"2021-04-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1002/RFE.1127","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42081368","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}
Investors are not a homogeneous group. They comprise a broad spectrum of shareholders who differ, among other things, in terms of their investment horizon. While investors with a short investment horizon want to maximize current stock prices, as they expect to exit their positions soon, longterm investors seek to maximize the present value of future cash flows (e.g., Gaspar et al., 2004; Stein, 1996). In recent decades, researchers have begun focusing on distinguishing between shareholders in this manner, particularly in the context of CEO remuneration (Bolton et al., 2005, 2006; Cadman & Sunder, 2014) and monitoring of managers (Chen et al., 2007; Gaspar et al., 2005). Another highly debated topic, because of its growing international prominence, is uncertainty. Following major shocks, including the 9/11 terrorist attacks, the 2007/2008 global financial crisis, the Brexit referendum, and most recently, the COVID19 pandemic, uncertainty tends to rise sharply (see Altig et al., 2020; Bloom, 2014; Hill et al., 2019). Empirical evidence shows that uncertainty can have strong adverse effects on various corporate policies, such as capital expenditures (Gulen & Ion, 2016; Julio & Yook, 2012; Kang et al., 2014; Kim & Kung, 2017), employment growth (Baker et al., 2016; Bloom, 2009; Stein & Stone, 2013), and share repurchases (Pirgaip & Dinçergök, 2019). However, the extant literature does not examine if these uncertainty– corporate policy relationships are a function of shareholder horizons. This study aims to bridge this gap by focusing on annual firmlevel Investment, Employment, and Share repurchase decisions as key corporate policies. Investment rates and employment growth are key indicators of the real economy (Baker et al., 2016), which provide a sensible outlook on future expectations. As with capitalintensive share buybacks, they are similarly dependent on assumptions about future business conditions (Pirgaip & Dinçergök, 2019). We specifically refrain from examining dividend payments because they are considered sticky and thus relatively stable over time (Lintner, 1956), while share repurchases are Received: 7 September 2020 | Revised: 16 January 2021 | Accepted: 19 February 2021 DOI: 10.1002/rfe.1129
投资者不是一个同质的群体。他们包括各种各样的股东，他们的投资范围各不相同。虽然投资期限较短的投资者希望最大化当前股价，因为他们预计很快就会平仓，但长期投资者则寻求最大化未来现金流的现值（例如，Gaspar等人，2004年；Stein，1996年）。近几十年来，研究人员开始关注以这种方式区分股东，特别是在首席执行官薪酬的背景下（Bolton et al.，20052006；Cadman&Sunder，2014）和对经理的监督（Chen et al.，2007；Gaspar et al.，2005）。另一个备受争议的话题是不确定性，因为它在国际上日益突出。在经历了包括9/11恐怖袭击、2007/2008全球金融危机、英国脱欧公投以及最近的新冠肺炎疫情在内的重大冲击之后，不确定性往往急剧上升（见Altig等人，2020；布鲁姆，2014；Hill等人，2019）。经验证据表明，不确定性会对各种企业政策产生强烈的不利影响，如资本支出（Gulen&Ion，2016；Julio&Yook，2012；Kang等人，2014；金和孔，2017）、就业增长（Baker等人，2016；Bloom，2009；Stein&Stone，2013）和股票回购（Pirgaip&Dinçergök，2019）。然而，现有文献并没有研究这些不确定性——公司政策关系是否是股东视野的函数。本研究旨在通过将年度公司层面的投资、就业和股票回购决策作为关键的公司政策来弥补这一差距。投资率和就业增长是实体经济的关键指标（Baker et al.，2016），为未来预期提供了合理的展望。与资本密集型股票回购一样，它们同样依赖于对未来商业状况的假设（Pirgaip&Dinçergök，2019）。我们特别避免审查股息支付，因为它们被认为是粘性的，因此随着时间的推移相对稳定（Lintner，1956），而股票回购收到时间：2020年9月7日|修订时间：2021年1月16日|接受时间：2021月19日DOI:10.1002/rfe.1129
{"title":"Investor horizons and corporate policies under uncertainty","authors":"C. Dreyer, Oliver Schulz","doi":"10.1002/RFE.1129","DOIUrl":"https://doi.org/10.1002/RFE.1129","url":null,"abstract":"Investors are not a homogeneous group. They comprise a broad spectrum of shareholders who differ, among other things, in terms of their investment horizon. While investors with a short investment horizon want to maximize current stock prices, as they expect to exit their positions soon, longterm investors seek to maximize the present value of future cash flows (e.g., Gaspar et al., 2004; Stein, 1996). In recent decades, researchers have begun focusing on distinguishing between shareholders in this manner, particularly in the context of CEO remuneration (Bolton et al., 2005, 2006; Cadman & Sunder, 2014) and monitoring of managers (Chen et al., 2007; Gaspar et al., 2005). Another highly debated topic, because of its growing international prominence, is uncertainty. Following major shocks, including the 9/11 terrorist attacks, the 2007/2008 global financial crisis, the Brexit referendum, and most recently, the COVID19 pandemic, uncertainty tends to rise sharply (see Altig et al., 2020; Bloom, 2014; Hill et al., 2019). Empirical evidence shows that uncertainty can have strong adverse effects on various corporate policies, such as capital expenditures (Gulen & Ion, 2016; Julio & Yook, 2012; Kang et al., 2014; Kim & Kung, 2017), employment growth (Baker et al., 2016; Bloom, 2009; Stein & Stone, 2013), and share repurchases (Pirgaip & Dinçergök, 2019). However, the extant literature does not examine if these uncertainty– corporate policy relationships are a function of shareholder horizons. This study aims to bridge this gap by focusing on annual firmlevel Investment, Employment, and Share repurchase decisions as key corporate policies. Investment rates and employment growth are key indicators of the real economy (Baker et al., 2016), which provide a sensible outlook on future expectations. As with capitalintensive share buybacks, they are similarly dependent on assumptions about future business conditions (Pirgaip & Dinçergök, 2019). We specifically refrain from examining dividend payments because they are considered sticky and thus relatively stable over time (Lintner, 1956), while share repurchases are Received: 7 September 2020 | Revised: 16 January 2021 | Accepted: 19 February 2021 DOI: 10.1002/rfe.1129","PeriodicalId":51691,"journal":{"name":"Review of Financial Economics","volume":null,"pages":null},"PeriodicalIF":1.2,"publicationDate":"2021-04-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1002/RFE.1129","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49545440","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 investigates whether private equity (PE)-backed acquirers have a “parenting advantage” in the mergers & acquisitions (M&A) market. We employ a sample of 788 PE-backed firms and a carefully matched control group of 6,652 non-PE-backed peers, for which we observe the entire acquisition history over a 19-year time span. Difference-in-differences estimates suggest that PE backing induces a sizeable but short-lived boost to acquisition activity, while the type and complexity of acquisitions are similar to those of non-PE-backed peers. These results are consistent with the idea that PE backing enhances execution and speed in the M&A market. We find that portfolio firms benefit from this boost through improved valuations and margins. The extent to which this is true, however, depends on the institutional setting of the PE owner. Our results indicate that add-on acquisitions are detrimental if PE owners are late buyers or suffer from limited attention problems.
{"title":"What is different about private equity-backed acquirers?","authors":"Benjamin Hammer, Heiko Hinrichs, Denis Schweizer","doi":"10.1002/rfe.1128","DOIUrl":"https://doi.org/10.1002/rfe.1128","url":null,"abstract":"This paper investigates whether private equity (PE)-backed acquirers have a “parenting advantage” in the mergers & acquisitions (M&A) market. We employ a sample of 788 PE-backed firms and a carefully matched control group of 6,652 non-PE-backed peers, for which we observe the entire acquisition history over a 19-year time span. Difference-in-differences estimates suggest that PE backing induces a sizeable but short-lived boost to acquisition activity, while the type and complexity of acquisitions are similar to those of non-PE-backed peers. These results are consistent with the idea that PE backing enhances execution and speed in the M&A market. We find that portfolio firms benefit from this boost through improved valuations and margins. The extent to which this is true, however, depends on the institutional setting of the PE owner. Our results indicate that add-on acquisitions are detrimental if PE owners are late buyers or suffer from limited attention problems.","PeriodicalId":51691,"journal":{"name":"Review of Financial Economics","volume":null,"pages":null},"PeriodicalIF":1.2,"publicationDate":"2021-04-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138529153","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}
Wolfgang Breuer, Manuel Hass, David Johannes Rosenbach
Based on a large international sample, we show how the decision-making power of CEOs in conjunction with prevailing institutional discretion relates to corporate resources allocated toward CSR strategy. First, especially with greater institutional discretion, powerful CEOs pursue exaggerated CSR strategies aiming at reputational gains for their private benefit, while not necessarily bearing the costs of their decisions. Second, such CEO-induced CSR enhancements turn out to be defective CSR overinvestment, ultimately entailing a decrease in firm value. By complementing organizational factors with institutional characteristics, we refute previous contradicting empirical evidence regarding a significant CEO effect and show a conditional relation between CEO power and CSR choice. Our results are robust to alternative sample compositions, different variable definitions, and various methodological specifications.
{"title":"The impact of CEO power and institutional discretion on CSR investment","authors":"Wolfgang Breuer, Manuel Hass, David Johannes Rosenbach","doi":"10.1002/rfe.1131","DOIUrl":"https://doi.org/10.1002/rfe.1131","url":null,"abstract":"Based on a large international sample, we show how the decision-making power of CEOs in conjunction with prevailing institutional discretion relates to corporate resources allocated toward CSR strategy. First, especially with greater institutional discretion, powerful CEOs pursue exaggerated CSR strategies aiming at reputational gains for their private benefit, while not necessarily bearing the costs of their decisions. Second, such CEO-induced CSR enhancements turn out to be defective CSR overinvestment, ultimately entailing a decrease in firm value. By complementing organizational factors with institutional characteristics, we refute previous contradicting empirical evidence regarding a significant CEO effect and show a conditional relation between CEO power and CSR choice. Our results are robust to alternative sample compositions, different variable definitions, and various methodological specifications.","PeriodicalId":51691,"journal":{"name":"Review of Financial Economics","volume":null,"pages":null},"PeriodicalIF":1.2,"publicationDate":"2021-04-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138529155","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}
Using a sample of 814 transcripts from 2011 to 2018, we examine information within merger and acquisition conference calls. Textual analysis reveals significant differences between the content of M&A call transcripts and both contemporaneous corporate press releases and prior earnings conference calls. We find participation of target executive types in M&A calls occurs more frequently in diversifying acquisitions and is related to payment choice consistent with promoting managerial sector-specific skills and incentive alignment, respectively. Retention of participating target executives is associated with a negative market reaction. We also identify a negative relation between textual sentiment and market reaction consistent with a response to higher levels of information asymmetry. Greater quantitative information, however, is positively related to the market reaction of M&A calls. We develop targeted M&A motive dictionaries to identify financial and strategic content within call transcripts. Consistent with prior literature on merger motivation, deals with more finance (strategy)-oriented words have a higher (lower) market reaction. Overall, our results show that deal-related textual analysis explains a highly significant and economically important component of gains/losses to acquirers.
{"title":"What’s really in a deal? Evidence from textual analysis of M&A conference calls","authors":"Wenyao Hu, Thomas Shohfi, Runzu Wang","doi":"10.1002/rfe.1126","DOIUrl":"https://doi.org/10.1002/rfe.1126","url":null,"abstract":"Using a sample of 814 transcripts from 2011 to 2018, we examine information within merger and acquisition conference calls. Textual analysis reveals significant differences between the content of M&A call transcripts and both contemporaneous corporate press releases and prior earnings conference calls. We find participation of target executive types in M&A calls occurs more frequently in diversifying acquisitions and is related to payment choice consistent with promoting managerial sector-specific skills and incentive alignment, respectively. Retention of participating target executives is associated with a negative market reaction. We also identify a negative relation between textual sentiment and market reaction consistent with a response to higher levels of information asymmetry. Greater quantitative information, however, is positively related to the market reaction of M&A calls. We develop targeted M&A motive dictionaries to identify financial and strategic content within call transcripts. Consistent with prior literature on merger motivation, deals with more finance (strategy)-oriented words have a higher (lower) market reaction. Overall, our results show that deal-related textual analysis explains a highly significant and economically important component of gains/losses to acquirers.","PeriodicalId":51691,"journal":{"name":"Review of Financial Economics","volume":null,"pages":null},"PeriodicalIF":1.2,"publicationDate":"2021-01-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138529154","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}
Pub Date : 2020-11-30DOI: 10.1146/annurev-financial-012720-013903
B. Eckbo, A. Malenko, K. Thorburn
We review recent research into how firms navigate four complex decisions in corporate takeovers: (a) deal initiation, (b) pre-offer toehold acquisition, (c) the initial (public) offer price, and (d...
{"title":"Strategic Decisions in Takeover Auctions: Recent Developments","authors":"B. Eckbo, A. Malenko, K. Thorburn","doi":"10.1146/annurev-financial-012720-013903","DOIUrl":"https://doi.org/10.1146/annurev-financial-012720-013903","url":null,"abstract":"We review recent research into how firms navigate four complex decisions in corporate takeovers: (a) deal initiation, (b) pre-offer toehold acquisition, (c) the initial (public) offer price, and (d...","PeriodicalId":51691,"journal":{"name":"Review of Financial Economics","volume":null,"pages":null},"PeriodicalIF":1.2,"publicationDate":"2020-11-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1146/annurev-financial-012720-013903","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43271975","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}
Pub Date : 2020-11-30DOI: 10.1146/annurev-financial-012820-113815
Francisco Gomes
Life-cycle portfolio choice models capture the role of human capital, housing, borrowing constraints, background risk, and several other crucial ingredients for determining the savings and investme...
{"title":"Portfolio Choice Over the Life Cycle: A Survey","authors":"Francisco Gomes","doi":"10.1146/annurev-financial-012820-113815","DOIUrl":"https://doi.org/10.1146/annurev-financial-012820-113815","url":null,"abstract":"Life-cycle portfolio choice models capture the role of human capital, housing, borrowing constraints, background risk, and several other crucial ingredients for determining the savings and investme...","PeriodicalId":51691,"journal":{"name":"Review of Financial Economics","volume":null,"pages":null},"PeriodicalIF":1.2,"publicationDate":"2020-11-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1146/annurev-financial-012820-113815","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42776837","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}
Pub Date : 2020-11-30DOI: 10.1146/annurev-financial-021920-112021
C. Buch, L. Goldberg
Global activities of banks are a core manifestation of broader patterns of globalization of production, trade, and finance. This article reviews the extensive recent empirical and theoretical liter...
{"title":"Global Banking: Toward an Assessment of Benefits and Costs","authors":"C. Buch, L. Goldberg","doi":"10.1146/annurev-financial-021920-112021","DOIUrl":"https://doi.org/10.1146/annurev-financial-021920-112021","url":null,"abstract":"Global activities of banks are a core manifestation of broader patterns of globalization of production, trade, and finance. This article reviews the extensive recent empirical and theoretical liter...","PeriodicalId":51691,"journal":{"name":"Review of Financial Economics","volume":null,"pages":null},"PeriodicalIF":1.2,"publicationDate":"2020-11-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1146/annurev-financial-021920-112021","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49307029","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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