NZFM 2022 Online Programme

Day 1

ONLINE SESSIONS A - D (NZDT)

Thursday
8th December 2022

  

CONFERENCE OPENING ADDRESS

07H45 TO 08H00

   

STREAM A - 08H00 TO 10H00

 
   

SESSION A1

Bond and Liquidity

08H00 TO 10H00

CHAIRPERSON

Mirela Sandulescu, University of Michigan

 
   
Paper
CORPORATE BASIS AND THE INTERNATIONAL ROLE OF THE U.S. DOLLAR
 
Authors Grace Xing Hu, Zhan Shi, Ganesh Viswanath-Natraj, Junxuan Wang  
Abstract The corporate basis measures the price differences between bonds issued in dollars and foreign currencies by the same corporate entity. In this Paper, we propose a novel method to decompose the corporate basis into three components: credit spread differential, convenience yield differential, and deviation from covered interest rate parity. With this decomposition, we document several stylized facts, and in particular, the substitution effect between safe and risky dollar assets. We provide further evidences on the substitution effect using the structural VAR analysis, which shows that a negative shock to financial intermediaries' balance sheets causes a tightening of credit spread differential, a demand shift toward safe assets, and an appreciation of the dollar. We also find spillover effects to the equity and commodity markets, as well as to the domestic and international economic activities. Lastly, we provide consistent holdings-level evidences using foreign investors' aggregated holdings of safe and risky dollar assets. Our results highlight the important role of the dollar, which are further amplified by financial intermediaries, in the global financial markets.  
Presenter: Junxuan Wang, Warwick Business School  
Discussant:  Quan Qi, University of Kentucky  
   
Paper
DERIVATIVE SPECULATION AND FINANCIAL FRAGILITY: EVIDENCE FROM CORPORATE MUTUAL FUNDS
 
Authors Quan Qi  
Abstract Using derivative data from a novel SEC filing, I find that corporate bond funds extensively utilize various derivative instruments to reduce transaction costs, speculate on risky asset classes, and hedge against bond risk factors. However, derivative contracts' embedded leverages can make bond funds suffer substantial losses and investor redemptions if market conditions move against their derivative strategies. In response, funds with significant derivative exposures liquidate non-derivative assets to satisfy payment obligations of derivative positions and capital withdrawals from fund shareholders. The forced liquidations generate excessive selling pressure on bond markets, causing sizable asset price drops. The fire-sale externalities can spill over onto derivative nonusers with portfolio overlaps, producing additional forced sales and second-round price pressure on sold securities. My findings reinforce the recent regulatory concerns regarding the potentially destabilizing effects of derivative usage among mutual funds.  
Presenter:   Quan Qi, University of Kentucky  
Discussant:  Junxuan Wang, Warwick Business School  
   
Paper
SPECULATION AND LIQUIDITY IN STOCK AND CORPORATE BOND MARKETS
 
Authors Paolo Pasquariello, Mirela Sandulescu  
Abstract Canonical theories of trading assume that financial asset payoffs are linear in their fundamentals.  This study argues that the nonlinearity of equity and corporate bond payoffs (by virtue of their issuer’s solvency) has novel, important effects on their price formation. We show that informed risk-neutral speculation trades strategically in a firm’s stocks and bonds on the basis of their relative sensitivity to its value, a function of its perceived probability of default. As that probability changes so does the relative intensity of informed speculation (and adverse selection), yielding differential equilibrium liquidity provision from equity and bond dealers and non-monotonic stock-bond price comovement. We find supportive evidence within a comprehensive sample of intraday U.S. stock and corporate bond trades and prices.  
Presenter:   Mirela Sandulescu, University of Michigan  
Discussant:  Ruggero Jappelli, Goethe University Frankfurt and Leibniz Institute for Financial Research SAFE  
   
Paper
LIQUIDITY DERIVATIVES
 
Authors Matteo Bagnara, Ruggero Jappelli  
Abstract It is well established that investors price market liquidity risk. Yet, there exists no financial claim contingent on liquidity. We propose a contract to hedge uncertainty over future transaction costs, detailing potential buyers and sellers. Introducing liquidity derivatives in Brunnermeier and Pedersen (2009) improves financial stability by mitigating liquidity spirals. We simulate liquidity option prices for a panel of NYSE stocks spanning 2000 to 2020 by fitting a stochastic process to their bid-ask spreads. These contracts reduce the exposure to liquidity factors. Their prices provide a novel illiquidity measure reflecting cross-sectional commonalities. Finally, stock returns significantly spread along simulated prices.   
Presenter: Ruggero Jappelli, Goethe University Frankfurt and Leibniz Institute for Financial Research SAFE  
Discussant:  Mirela Sandulescu, University of Michigan  
   

SESSION A2

Investor Demand and COVID

08H00 TO 10H00

CHAIRPERSON

Aleksandra Rzeznik, Schulich School of Business, York University

 
   
Paper
MANAGERIAL ABILITY AND SUPPLY CHAIN POWER
 
Authors G M Wali Ullah, Juan Luo, Alfred Yawson  
Abstract This Paper investigates how major customer firms managed by superior ability managers can gain bargaining power over their suppliers. Our results document a positive association between managerial ability and the supply chain power a major customer firm holds over its suppliers. This relationship is stronger for durable goods manufacturing customers because of their unique sourcing needs. The results are robust to endogeneity concerns tested through two-stage least squares (2SLS) regressions using instrumental variables and difference-in-differences estimates surrounding forced CEO turnover. We identify that engagement in socially responsible activities by higher ability managers works as a channel that enhances supply chain power. We also show that the major customer firms’ corporate innovation performance drives this positive association. Finally, we provide evidence that higher ability managers use enhanced bargaining power to procure greater trade credit from their supply chain partners.   
Presenter: G M Wali Ullah, Australian Institute of Business  
Discussant:  Sochima Uzonwanne, Halle Institute for Economic Research  
   
Paper
SUPPLY CHAIN DISRUPTIONS AND FIRM OUTCOMES
 
Authors Sochima Uzonwanne  
Abstract This Paper examines how firms’ exposure to supply chain disruptions (SCD)
affects firm outcomes in the EU. Exploiting heterogeneous responses where each country imposes work place closures during the pandemic as a shock to global SCD, we provide empirical evidence that firms in industries that rely more on foreign inputs experience a significant decline in their sales compared to other firms. Highly leveraged firms suffer less than lowly leveraged firms during the pandemic because loans from banks seem to signal firms’ reputation and help mitigate the effect of SCD. Our results also indicate that declines in firm sales are more pronounced for small and medium sized firms. Lowly diversified firms and firms that source their inputs from far distant partners are more vulnerable to global supply disruptions.
 
Presenter:  Sochima Uzonwanne, Halle Institute for Economic Research  
Discussant:  G M Wali Ullah, University of Adelaide  
   
Paper
MONEY IN THE RIGHT HANDS
 
Authors Aleksandra Rzeznik, Rudiger Weber  
Abstract We study stock liquidity from a demand-based perspective in the context of mutual fund fire sales. We construct a stock-level measure of what we call specialized demand, the available investment capacity of investors likely to have a high valuation for that stock and find that it is a key determinant of fire sale price discounts. When specialized demand is scarce, we observe the marked price pressure effects recorded previously in the literature. Our findings are robust to using the exogenous variation in fire sale pressure due to the 2003 late trading scandal. Importantly, specialized demand is not a proxy for informed trading, i.e., asset quality and adverse selection do not explain our results. Rather, inefficient allocations induced by forced sales lead to transiently higher discount rates and price pressure. This implies that fire-sale pressure in the absence of active specialized demand can be interpreted as a non-fundamental shock to prices.   
Presenter:  Aleksandra Rzeznik, Schulich School of Business, York University  
Discussant:  Marius  Mihai, Widener University  
   
Paper
IS INSTITUTIONAL BUYING MORE INFORMATIVE THAN SELLING? EVIDENCE FROM BOOK-TO-MARKET RATIOS
 
Authors Marius M. Mihai  
Abstract I document that book-to-market ratios of stocks that experience stronger institutional buying pressure are more informative for future returns. The degree of information incorporated by these valuation proxies for stocks with different levels of institutional price pressure has direct implications for return predictability. Book-to-market ratios of stocks in the highest quintile of institutional buying pressure generate higher out of sample R2s and economic gains compared to stocks in the lowest quintile. In interpreting my empirical findings, I focus the discussion on a few primary causes that may explain why institutional buying is more informative than selling for future market returns. First, the information embedded in valuation ratios of portfolios with the highest degree of buying pressure cannot be replicated from stocks that are outside institutions’ trading sets. Second, there tends to be less disagreement among similar valuation ratios (e.g. sales-to-price, earnings-to-price) in portfolios of stocks belonging to the highest quintile of institutional buying pressure. Third, the source of predictability is most likely due to the ability of this particular subset of book-to-market ratios to anticipate the cash-flow news component of future returns.  
Presenter:  Marius Mihai, Widener University  
Discussant:  Aleksandra Rzeznik, Schulich School of Business, York University  
   

SESSION A3

ESG and SRI

08H00 TO 10H00

CHAIRPERSON

Simon Xu, Haas School of Business, UC Berkeley

 
   
Paper
TO ACQUIRE OR TO ALLY? MANAGING PARTNER’S ENVIRONMENTAL RISK IN INTERNATIONAL EXPANSION
 
Authors Chenchen Huang, Di Luo, Soumyatanu Mukherjee, Tapas Mishra  
Abstract Environmental risk (ER) has become increasingly crucial in international business, and firms endeavour to integrate environmental risk management (ERM) into business strategies. Examining a sample of the cross-border mergers and acquisitions (M&As) and alliances conducted by the US firms from 39 host countries over the last two decades, we show that US firms prefer to choose cross-border M&As over alliances when the environmental risk of foreign partners is high. The propensities towards M&As are amplified by the US firms' corporate governance quality and financial flexibility. Further, the host-country passage of sustainability disclosure reforms increases the likelihood of cross-border alliances over M&As. Examining the market reaction to foreign adventure choices, we show that the US firms experience high announcement cumulative abnormal returns (CARs) when they select M&A deals rather than alliances to manage high ER from foreign partners. Overall, our study provides novel insights into ERM in firms’ decision-making of international expansion.    
Presenter:  Di Luo, University of Southampton  
Discussant:  Jiajun Tao, Bayes Business School, City, University of London  
   
Paper
CORPORATE SOCIAL RESPONSIBILITY AND POST-MERGER LABOUR RESTRUCTURING
 
Authors Jiajun Tao  
Abstract This Paper examines how corporate social responsibility (CSR) and employment policies interact by studying post-merger labour restructuring decisions of acquirers with different CSR engagements. I find that acquirers with greater CSR performance are more likely to lay off employees in target firms. My findings are primarily driven by the Social component of the CSR rating. The negative relationship between acquirers’ social performance and post-merger employment (in targets) is more pronounced for targets in human-capital-intensive industries, targets that are more financially constrained, and deals or targets with more opportunities for eliminating redundancy. I further document a generally positive impact of acquirers’ social performance on target firms’ labour productivity, technical efficiency, and staff costs. These results are consistent with the cost-saving story that higher labour costs induced by the implementation of CSR policies decrease the optimal level of employment in acquired targets. Overall, my Paper contradicts the argument that socially responsible firms are inconsistent with value maximisation and shows that they are managed to maximise shareholder interests by engaging in more post-merger labour restructuring.  
Presenter:  Jiajun Tao, Bayes Business School, City, University of London  
Discussant:  Di Luo, University of Southampton  
   
Paper
PERFORMANCE AND FLOW OF SRI MUTUAL FUNDS AND INVESTORS SOPHISTICATION
 
Authors Olga Klinkowska, Yuan Zhao„  
Abstract In this Paper we provide a comprehensive analysis of the performance of US SRI mutual funds as well as its relation to the flow of new money that those funds experience in the context of investors sophistication. In particular, we compare the performance of SRI retail and institutional shareclasses and we analyse flow-performance and performance-flow relation for those classes. Our Paper provides new insights into the role of the investors sophistication for those relations in the presence of sustainability preferences. We find that SRI mutual fund sector earns positive abnormal returns before expenses and retail SRI funds outperform their institutional peers both, before and after fees. Moreover, we find a positive flow-performance relation which is convex for SRI retail funds and linear for the SRI institutional ones. Finally, we cannot confirm the smart money effect for SRI retail funds, instead we find a dumb money effect for SRI institutional funds.  
Presenter:  Olga Klinkowska, Kozminski University  
Discussant:  Simon Xu, Haas School of Business, UC Berkeley  
   
Paper
ENVIRONMENTAL REGULATORY RISKS, FIRM POLLUTION, AND MUTUAL FUNDS' PORTFOLIO CHOICES
 
Authors Simon Xu  
Abstract This Paper examines how mutual funds' portfolio holdings respond to environmental regulations. Using county-level ozone nonattainment status as a source of exogenous variation in environmental regulation, we find that funds underweight heavy ozone-polluting stocks exposed to nonattainment designations, which is further reinforced when there is an increase in regulation intensity. An ease in regulation due to attainment redesignations leads to an overweighting of such stocks. Our results are consistent with funds hedging against environmental regulatory risks, based on expected changes in firm fundamentals due to regulatory costs, by underweighting (overweighting) those polluting stocks whose performance covaries negatively (positively) with the regulatory shock. Further analysis in the post-nonattainment period shows that heavy ozone-polluting firms exposed to nonattainment designations experience worse profitability. The most underweighted of such firms also exhibit worse abnormal stock return performance, with no signs of return reversals, and are subject to more regulatory enforcement. Such underweighting translates into better fund portfolio performance.  
Presenter:  Simon Xu, Haas School of Business, UC Berkeley  
Discussant:  Olga Klinkowska, Kozminski University  
   

SESSION A4

Discount Rate, Information, and Choice

08H00 TO 10H00

CHAIRPERSON

Dominik Walter, Vienna University of Economics and Business

 
   
Paper
TEAM VERSUS INDIVIDUAL: EVIDENCE FROM FINANCIAL ANALYSTS DURING COVID-19 PANDEMIC
 
Authors Lingbo Shen  
Abstract This Paper investigates whether the performance of teams is better than that of individuals during crisis times. I look at one important type of team in the financial market, the financial analyst team, and take advantage of the exogenous shock introduced by stay-at-home orders in the United States during the COVID-19 pandemic, to examine the forecast timeliness and accuracy differences between team analysts and individual analysts. I find that teams and individual analysts perform worse during the working from home period than they do in normal times but on average teams perform better than individual analysts do: team analysts can issue more timely forecast compared to individual analysts without the loss of forecast accuracy. In addition, team size plays an important role in teams’ performance. A further test shows that investors react more to teams’ forecasts issued during the pandemic than individual’s forecasts. In summary, this Paper provides new evidence on the performance difference between teams and individuals, especially during tough times.  
Presenter:  Lingbo Shen, HBE Department, University of Twente  
Discussant:  Zhichao Li, Durham University  
   
Paper
FINANCIAL STATEMENT ERRORS AND ANALYSTS: OBSTACLE OR OPPORTUNITY?
 
Authors Zhichao Li  
Abstract Eradicating the poverty worldwide is the first primary target of the United Nations 2030 Agenda for Sustainable Development. China, the largest developing country, has an enormous population living in the poverty, so combating poverty is of vital importance to China for achieving its development goals. In this context, Chinese government held the National Conference on Development-driven Poverty Alleviation and issued several policies in 2015 to call for corporate participation in reducing the poverty. Yet, engaging in poverty alleviation requires considerable resources, plausibly increasing a firm’s financing needs. Against this backdrop, we investigate whether Chinese firms’ involvements in poverty alleviation affect their costs of financing. We find that firms’ contribution to poverty alleviation leads to lower costs of equity and lower costs of debt, suggesting that the poverty alleviation is approbated by both shareholders and debtholders. This result is more pronounced for non-state-owned firms, financially healthy firms, firms receiving more subsidies from local government, and firms with larger spending in advertisements. Our mediating analyses further reveal that enhanced reputation and trust among stakeholders is the mechanism through which corporate alleviation of poverty reduces the costs of financing. Overall, our findings highlight to firms a potential benefit of their involvements in poverty alleviation, thereby encouraging them to make greater contribution to the poverty eradication for their countries.  
Presenter:  Zhichao Li, Durham University  
Discussant:  Lingbo Shen, HBE Department, University of Twente  
   
Paper
IS THERE AN EQUITY DURATION PREMIUM?
 
Authors Dominik Walter, Rüdiger Weber  
Abstract Equity duration is a measure of discount-rate sensitivity that is driven by both, stock-specific cash-flow timing and stock-specific discount-rate levels. Established measures of equity duration using market-price information derive their predictive power for returns from using market-implied discount rates. We introduce new measures of pure cash-flow timing which disentangle discount-rate level from cash-flow timing information. Our results indicate an unconditionally flat relationship between timing and average returns. However, it turns out that in recessions (expansion episodes), there is a negative (positive) relation between cash-flow timing and average stock returns.  
Presenter:  Dominik Walter, Vienna University of Economics and Business  
Discussant:  Jose Da Fonseca, Auckland University of Technology  
   

SESSION A5

Bank Loan

08H00 TO 10H00

CHAIRPERSON

Benedikt Ballensiefen, University of St. Gallen and World Bank Group

 
   
Paper
CORPORATE LOAN SPREADS AND ECONOMIC ACTIVITY
 
Authors Anthony Saunders, Alessandro Spina, Sascha Steffen, Daniel Streitz  
Abstract We use secondary corporate loan-market prices to construct a novel loan-market-based credit spread. This measure has considerable predictive power for economic activity across macroeconomic outcomes in both the U.S. and Europe and captures unique information not contained in public market credit spreads. Loan-market borrowers are compositionally different and particularly sensitive to supply-side frictions as well as financial frictions that emanate from their own balance sheets. This evidence highlights the joint role of financial intermediary and borrower balance-sheet frictions in understanding macroeconomic developments and enriches our understanding of which type of financial frictions matter for the economy  
Presenter:  Alessandro Spina, Copenhagen Business School  
Discussant:  Trang Vu, Norwegian School of Economics  
   
Paper
THE ROLE OF CREDIT LINES IN CORPORATE TAKEOVERS
 
Authors Trang Q.Vu  
Abstract Using a large hand-collected sample of the sources of funds in US takeover bids between 1994 and 2020, I provide new evidence on the role of credit lines in M&A. I show that credit lines are the most frequently used source in cash bids, with more than 56% of transactions financed at least partially and 23% entirely with bank lines of credit. Consistent with credit lines offering firms financial slack when making new investments, acquirers with scarce internal funds and less access to competitive financing are more likely to rely on credit lines in M&A. In addition, deals financed with new or amended credit lines are associated with more favorable market reactions upon announcement, and tend to pay lower premiums for targets relative to non-credit-line and existing credit-line-funded deals. In line with theory, I find supporting evidence that lender certification positively influences firm policies through renegotiation to make more value-enhancing acquisitions in new and amended credit-line-funded deals.  
Presenter:  Trang Vu, Norwegian School of Economics  
Discussant:  Alessandro Spina, Copenhagen Business School  
   
Paper
COLLATERAL CHOICE
 
Authors Benedikt Ballensiefen  
Abstract This is the first Paper studying collateral choices in one of the main short-term funding markets, the repurchase agreement (repo) market. In general collateral repos, the borrower can choose which bond he delivers as collateral out of a predefined list. Collateral availability and opportunity cost are the two main drivers of this collateral choice. In aggregate, on-the-run bonds are more likely to be delivered than cheapest-to-post securities which is surprising given that the former is more expensive. I rationalize those findings in a theoretical framework and show that bonds with higher repo delivery volumes have lower bond market liquidity.  
Presenter:  Benedikt Ballensiefen, University of St. Gallen and World Bank Group  
Discussant:  Junxuan Wang, Warwick Business School  
   
Paper
CENTRAL BANK SWAP LINES: MICRO-LEVEL EVIDENCE
 
Authors Gerardo Ferrara, Philippe Mueller, Ganesh Viswanath-Natraj, Junxuan Wang  
Abstract In this Paper we investigate the price, volatility and micro-level effects of central bank swap lines during the 2020 pandemic. These policies lowered the ceiling on covered interest rate parity violations and reduced volatility following settlement of swap line auctions. We then combine dealer-level  
Presenter:  Junxuan Wang, Warwick Business School  
Discussant:  Benedikt Ballensiefen, University of St. Gallen and World Bank Group  
   

STREAM B - 10H15 TO 12H15

 
   

SESSION B1

ESG and Environment

10H15 TO 12H15

CHAIRPERSON

George Tian, University of Houston

 
   
Paper ENVIRONMENTAL PENALTIES AND GREEN INNOVATION 
Authors George Zhe Tian  
Abstract In this study, I investigate how environmental penalties affect corporate green innovation. I find that U.S. manufacturing firms who receive high environmental penalties experience a significant decline in subsequent green innovation output. This negative effect is likely causal in light of a propensity score matching approach as well as an unobservable selection assessment. Further, I use a difference-in-differences strategy exploiting the passage of 1990 Clean Air Act Amendment (1990 CAAA) as an exogenous shock to environmental regulatory stringency and show that an increase in environmental regulatory stringency will decrease corporate green innovation. Also, I find that the adverse effect of environmental penalties on green innovation is only pronounced in firms with high product market competition, high institutional ownership, and a non-entrenched CEO. The evidence is consistent with the view that corporate managers tend to reduce risk exposure in presence of an effective corporate governance structure. On top of that, the evidence reveals that the managerial risk management tendency is beneficial as the reduction in corporate green innovation is accompanied by an increase in firm profitability and superior stock performance.  
Presenter:  George Tian, University of Houston  
Discussant:  Julie Ngo, Auburn University  
   
Paper
LINKING EXECUTIVE PAY TO ESG GOALS: THE ROLE OF BOARD GENDER DIVERSITY
 
Authors Thanh Dat Le, Julie Ngo  
Abstract This study examines the relationship between board gender diversity and the tendency of firms to incorporate ESG metrics in performance-based compensation. We find that firms with female directors are more likely to shape their executive remuneration plans to be more ESG-oriented. The positive relationship is the most significant with environmental and social sub-categories. Our findings highlight the benefits of female participation in corporate leadership.  
Presenter:  Julie Ngo, Auburn University  
Discussant:  George Tian, University of Houston  
   
Paper
EVERY EMISSION YOU CREATE EVERY DOLLAR YOU'LL DONATE: THE EFFECT OF REGULATION-INDUCED POLLUTION ON CORPORATE PHILANTHROPY
Authors Seungho Choi, Raphael Jonghyeon Park, and Simon Xu  
Abstract We investigate the role of charitable giving as a form of reputation insurance by analyzing donations to nonprofits from philanthropic foundations of polluting firms. Exploiting the National Ambient Air Quality Standards as localized exogenous shocks to pollution, we find that firms with more pollution subsequently donate more to local nonprofits. Firms maximize the insurance value of donations by reallocating donations to areas where they pollute the most. Potential mechanisms include firms' local media coverage, reputational risk exposure, and history of regulatory noncompliance. Welfare analysis suggests that firms underpay for the insurance value of corporate philanthropy at the cost of society.  
Presenter:  Seungho Choi, Queensland University of Technology 
Discussant:  Zhanbing Xiao, University of British Columbia  
   
Paper
LABOR EXPOSURE TO CLIMATE CHANGE AND CAPITAL DEEPENING
 
Authors Zhanbing Xiao  
Abstract Rising temperatures induced by climate change generate two types of climate risks that raise labor costs of firms relying on outdoor workers: 1) physical risk - lower labor productivity in high temperatures; and 2) regulatory risk - governments introducing regulations to protect workers against heat hazards. I find that firms exposed to climate change through the labor channel have higher capital-labor ratios, especially when managers believe in climate change or when jobs are easy to automate. After experiencing shocks to physical (abnormally high temperatures) and regulatory (the adoption of Heat Illness Prevention Standard in California) risks, high-exposure firms switch to more capital-intensive production functions. These firms also respond by innovating more, especially in technologies facilitating automation and reducing labor costs. Furthermore, labor exposure to climate change impedes job creation and hurts workers' earnings. Overall, the findings highlight that climate change accelerates automation in occupations exposed to rising temperatures.   
Presenter:  Zhanbing Xiao, University of British Columbia  
Discussant: Seungho Choi, Queensland University of Technology 
   

SESSION B2

Consumer Finance and Investor Attention

10H15 TO 12H15

CHAIRPERSON

Gustavo Schwenkler, Santa Clara University

 
   
Paper
DO INVESTORS READ THE FINE PRINT? SALIENT THINKING AND SECURITY DESIGN
 
Authors Petra Vokata  
Abstract Banks use financial engineering to distort product headline rates upward by adding value-decreasing conditions. I refer to such engineering as headline distortion. If investors overweight headline rates because they are saliently advertised, normatively irrelevant headline distortion may affect choice. I find results consistent with such salient thinking. Controlling for fair values of 28,000 retail investment products, a one percentage point increase in headline distortion leads to an increase in sales equivalent to a 0.5 pp reduction in fees. To identify a causal effect of headline distortion, I show that shocks to the structuring costs of headline rates affect demand. Yet, they have no effect once headline rates are fixed at the beginning of the offering period. Products with more distorted headline rates  charge higher fees and deliver lower returns. Banks distort more when disclosure or market conditions make the products appear less attractive.   
Presenter:  Petra Vokata, Ohio State University  
Discussant:  Gustavo Schwenkler, Santa Clara University  
   
Paper
WHY DOES NEWS COVERAGE PREDICT RETURNS? EVIDENCE FROM THE UNDERLYING EDITOR PREFERENCES FOR RISKY STOCKS
 
Authors G. Schwenkler, H. Zheng  
Abstract The literature argues that news coverage predicts future stock returns because it drives attention flows through a behavioral channel. We show that the behavioral channel only accounts for half of the predictive power. The other half is explained by a novel rational channel that posits that editorial reporting signals risky assets with high future returns to rationally inattentive investors. We establish our results by constructing a measure of editor preference that captures how much more often a stock appears in the news because of its risk characteristics. Editor preferences are highly time-varying. Long-short strategies based on editor preferences achieve annualized alphas of up to 15%. Our Paper uncovers previously undocumented information contained in news coverage data.  
Presenter:  Gustavo Schwenkler, Santa Clara University  
Discussant:  Petra Vokata, Ohio State University  
   
Paper
OPIOID EPIDEMIC AND CONSUMER FINANCE
 
Authors Sumit Agarwal, Wenli Li, Raluca Roman, Nonna Sorokina  
Abstract We investigate the spillover effects of the opioid epidemic on consumer finance: delinquency, bank consumer portfolio risk, and credit supply. Using multiple datasets and instruments capturing the pharmaceutical industry’s opioid marketing intensity, we uncover unfavorable credit consequences for consumers living in high-exposed areas and banks operating there. Specifically, low-credit-score consumers in areas with high opioid exposure are more likely to default on their credit obligations. Banks with higher opioid-crisis-exposure incur larger consumer non-performing loans and charge-offs. In response, banks contract credit supply to consumers in these areas, applying stricter credit terms and reducing credit offers. This contraction disproportionately affects riskier, minority, and younger consumers.  
Presenter:  Raluca Roman, Federal Reserve Bank of Philadelphia  
Discussant:  Chen Chen, Monash University  
   
Paper
MANAGERIAL INCENTIVES AND CONSUMER LENDING: EVIDENCE FROM A NATURAL FIELD EXPERIMENT
 
Authors Chen Chen, Difang Huang  
Abstract Using unique data from a major Chinese bank, we find that following the bank’s adoption of a nonlinear incentive scheme for its credit card sales managers, the number of credit cards approved increases sharply at the end of each month. Further analysis shows that this occurs through a combination of lax screening in the approval process, a reduction in application processing times, and the creation of “zombie” borrowers. We also find that managers who are male, have a shorter tenure, and are located further from the bank’s headquarters are more likely to exhibit this gaming behavior. Overall, we provide ample evidence on the overall benefits and costs of nonlinear incentive schemes in the customer finance sector.  
Presenter:  Chen Chen, Monash University  
Discussant:  Raluca Roman, Federal Reserve Bank of Philadelphia  
   

KEYNOTE 1

Prof. Nicholas Barberis, Yale School of Management

12H30 TO 13H30

 

Prospect Theory and Stock Market Anomalies

Abstract
One important strand of research in behavioural finance tries to make sense of financial data using models that make psychologically realistic assumptions about investor risk attitudes. In this talk, we show that this approach can shed new light on stock market anomalies. Specifically, we build a model of asset prices that incorporates the elements of prospect theory, the most influential psychological model of risk attitudes. We explain how the model can be used to make quantitative predictions about the average return on any risky asset. Finally, we show that the model can help explain a majority of 23 prominent stock market anomalies.

ZOOM LINK

 
   

STREAM C - 13H45 TO 15H45

 
   

SESSION C1

Labour and Corporate Outcome

13H45 TO 15H45

CHAIRPERSON

Sandy Klasa, University of Arizona

 
   
Paper
THE COST OF CAPITAL AND CORPORATE EMPLOYMENT
 
Authors Soku Byoun, Kai Wu, Zhaoxia Xu  
Abstract We examine how corporate employment responds to the time-varying cost of capital (COC) in the presence of labor adjustment costs and financial constraints. We find that the firm-level COC negatively affects corporate employment. The effect is stronger for firms with lower labor adjustment costs and financial constraints. We provide causal evidence for these observed impacts by exploiting several quasi-experiments that cause shocks to the COC or labor adjustment costs. Our findings suggest that financial and labor market frictions play critical roles in corporate employment decisions.  
Presenter:  Kai Wu, Central University of Finance and Economics  
Discussant:  Sunwoo Hwang, Korea University Business School  
   
Paper
CONTINGENT EMPLOYMENT AND INNOVATION
 
Authors Sunwoo Hwang  
Abstract Using novel indirect employment data and a Supreme Court ruling against subcontracted employment, this Paper shows that contingent employment of skilled labor reduces innovation. Innovation increases after establishments convert subcontracted workers into direct hires compared to the establishments that did not use subcontracted workers before the ruling. The finding is without a simultaneous increase in operating leverage, R&D, and capital intensity and conditional on compensation schemes that reward employees for their investment in firm-specific skills and long-term performance. New hires do not innovate more. New inventors, including former subcontracted workers, create more and better patents, yet only through collaboration with existing inventors, who also create more and better non-collaborative patents. Furthermore, a positive spillover follows that innovation-associated voluntary employee departure increases.  
Presenter:  Sunwoo Hwang, Korea University Business School  
Discussant:  Kai Wu, Central University of Finance and Economics  
   
Paper
DOES LABOR SHARE AFFECT CASH HOLDINGS?
 
Authors Kazuo Yamada  
Abstract Small businesses face high labor share, which implifies the firm risk. Our Paper show that for small firms with high labor share increase cash holdings to reduce their finan- cial risk utilizing the confidential Establishment Survey data in Japan. Findings show that labor share is positively associated with cash holdings, ceteris paribus especially in the small-size firms subsample. Interestingly, the positive relationship is not observed in medium- and large-size firm groups indicating the size matters. Furthermore, the positive relationship is pronounced for firms with high labor share. Additional analysis shows that the positive relationship is pronounced during the credit crunch periods indicating that firm’s financial constraints is a key factor between labor share and cash holdings. Next, we reject the alternative explanation that highly profitable firms achieve low labor share and high cash simultaneously, thereby creating a positive rela- tionship. Finally, we find that firms decrease financial leverage in addition to increasing cash holdings against labor cost risk. Overall, our analyses confirm that the increase in risk due to labor share affects corporate finance decision-making of small firms. Over- all, our findings point out that labor share is an unawared risk of small businesses  
Presenter:  Kazuo Yamada, Kyoto University  
Discussant:  Sandy Klasa, University of Arizona  
   
Paper
TEMPORARY WORKERS AND CASH HOLDINGS
 
Authors Jaehoon Hahn, Sandy Klasa, Hyuksoon Lim, S. Katie Moon  
Abstract We examine the effect of firm reliance on temporary workers on corporate cash holdings by exploiting the quasi-natural experiment created by a law in South Korea which made it more difficult for firms to use such workers. Although the law reduced firms’ abilities to manage unexpected fluctuations in workloads, our evidence shows that firms which relied more on temporary workers prior to the law strategically lowered their cash holdings afterward because the law also raised union bargaining power. We further find that low cash holdings and subcontracting are complementary mechanisms South Korean firms used to reduce union bargaining power.   
Presenter:  Sandy Klasa, University of Arizona  
Discussant:  Kazuo Yamada, Kyoto University  
   

SESSION C2

SPAC and Connection

13H45 TO 15H45

CHAIRPERSON

Yuchi Yao, University of Rochester

 
   
Paper
PORTFOLIO ALLOCATION AND BUSINESS CONNECTION: EVIDENCE FROM MUTUAL FUND MISCONDUCT
 
Authors Jaejin Lee  
Abstract I investigate whether mutual fund advisory misconduct influence the investment portfolio allocation of fund families regarding their portfolio firms with 401(k) business ties using a comprehensive data set. I find that mutual fund families significantly increase investment portfolio weights on their pension clients after mutual fund advisory misconduct is revealed to public. Increasing portfolio weights on pension client stocks is likely to be motivated by a strategic effort to minimize the probability of pension business termination induced by fraud-driven trust collapse. I find that client stocks are performing worse than non-client stocks in the same portfolio and indifferent with net selling non-client stocks. Overall, my results suggest that fund families sacrifice fund returns to keep pension clients for their private benefits and it implies the identification of systematic inferior investment decisions after fraud revelation.  
Presenter:  Jaejin Lee, Univ of Illinois at Urbana and Champaign  
Discussant:  Renping Li, Washington University in St. Louis  
   
Paper
DO BOARD CONNECTIONS BETWEEN PRODUCT MARKET PEERS IMPEDE COMPETITION?
 
Authors Radhakrishnan Gopalan, Renping Li, Alminas Zaldokas  
Abstract Using a treated-control matched sample, we find that after a new direct board connection is formed to a  product market peer, a firm's gross margin increases by 0.8 p.p. Gross margin also rises after a new indirect board connection is formed to a product market peer through a third intermediate firm. We see consistent results when the new connections are caused by changes on the board of an intermediate firm. Such third-party initiated changes are unlikely to be related to the economic prospects of the focal firm. Consistent with the anti-competitive mechanism, board connections have positive spillover effects on closest rivals, and also the effects are stronger when the newly connected peers share major customers, are located closer to each other, or have more similar businesses and when the firms are in industries with greater potential benefits of collusion.  
Presenter:  Renping Li, Washington University in St. Louis  
Discussant:  Jaejin Lee, Univ of Illinois at Urbana and Champaign  
   
Paper
SPACS' DIRECTORS NETWORK: CONFLICTS OF INTEREST, COMPENSATION, AND COMPETITION
 
Authors Michael Gofman, Yuchi Yao  
Abstract In 2010-2021, 972 SPACs raised $271 billion and hired 4,056 directors to facilitate mergers with private firms. We show theoretically and empirically that entrant SPACs inefficiently front-run the deal flow by hiring incumbent SPACs’ directors. Incumbent SPAC's lower compensation and longer time to liquidation decrease directors’ compensation from the entrant SPAC but increase the chance for the conflict of interest to emerge. Empirically, higher pay by the entrant SPAC increases the chance that a director misallocates the target, hurting the returns of the incumbent SPAC's investors. Optimal financial regulation depends on the degree of financial talent scarcity.    
Presenter:  Yuchi Yao, University of Rochester  
Discussant:  Brian Burnett, University of North Carolina at Charlotte  
   
Paper
INFORMATION RISK AND STOCK RETURNS OF COMPANIES GOING PUBLIC BY MERGING WITH SPACS
 
Authors Brian Burnett, Al (Aloke) Ghosh, Lingfei Kong  
Abstract SPAC-related regulatory efforts suggest that information risk may be unusually high for companies merging with SPACs (“SPAC-IPOs”). We empirically examine this information risk hypothesis. Using several information risk proxies, we find that relative to traditional IPOs, SPAC-IPOs are more likely to: (1) be associated with lower financial statement quality, (2) retain a non-Big 4 auditor, (3) be associated with lower earnings persistence, (4) be smaller in size,  and (5) avoid listing on NYSE for the IPO-year and for at least two subsequent years. A composite risk score confirms a larger information risk score for SPAC-IPOs than for non-SPAC-IPOs. We find that SPAC-IPOs underperform and that our information risk score also explains SPAC-IPO underperformance. Evidence from the first trading day returns suggests SPACs overpay for de-SPACs. Our results suggest that SPAC-IPO investors are likely to be the beneficiaries of the SPAC regulation.  
Presenter:  Brian Burnett, University of North Carolina at Charlotte  
Discussant:  Yuchi Yao, University of Rochester  
   

SESSION C3

Culture and Executive Characteristics

13H45 TO 15H45

CHAIRPERSON

Hanyu Zhang, Singapore Management University

 
   
Paper
CULTURE AND FIRMS
 
Authors Hanyu Zhang, Zhihui Gu, Hao Liang  
Abstract We study how societal culture shapes firm behavior and growth by analyzing the tradeoff of relying on trust in acquiring stakeholder resources, and testing with data on the number of historic Confucian schools surrounding a current firm’s location in China. Companies more exposed to Confucianism have greater social contributions and stakeholder protection, and more business courtesy expenses, patents, and trade credits, which match the five basic virtues of Confucianism: benevolence, righteousness, courteousness, wisdom, and trustworthiness. Our results cannot be explained by other cultural traits and are robust to using the distance to the prototypical Confucian academies in the Song Dynasty and the intensity of rivers in the local region as instrumental variables. The effects are likely to be transmitted via a firm’s interaction with market participants, politicians’ ideology, and board of directors. Stronger Confucianism is associated with greater profitability and growth.   
Presenter:  Hanyu Zhang, Singapore Management University  
Discussant:  Andrew Prevost, University of Vermont  
   
Paper
DO FIRMS ALWAYS RESPOND STRATEGICALLY TO ORGANIZED LABOR?
 
Authors Takeshi Nishikawa, Andrew Prevost  
Abstract We explore if religiosity influences the strategic dynamic between firms and organized labor. Our findings suggest that firms in more religious locations are more likely to achieve cooperative outcomes with labor: union shareholder activists are more likely to obtain a negotiated settlement with targeted firms in religious locations, and that religiosity moderates the positive impact of union power on work stoppages. In subsequent analyses, the negative union effect on CEO compensation documented in prior research diminishes for firm located in counties with greater religiosity. Consistently, religiosity significantly moderates corporate financial decisions identified by prior research as strategic responses to strong unions. In line with these findings, we find that religiosity significantly moderates the positive union effect on corporate bond yield spreads.   
Presenter:  Andrew Prevost, University of Vermont  
Discussant:  Hanyu Zhang, Singapore Management University  
   
Paper
TOP EXECUTIVE GENDER DIVERSITY AND FINANCIAL REPORTING QUALITY
 
Authors Karel Hrazdil, Dan A. Simunic, Stephen Spector, Nattawut Suwanyangyuan  
Abstract We examine whether gender diversity of chief executive and chief financial officers (CEOs and CFOs) is associated with financial reporting quality. The CEOs and CFOs of publicly traded companies are both required to certify the appropriateness of their financial statements and annual disclosures. We argue that gender diverse dyads (groups) of executives can bring different perspectives and professional skepticism to financial reporting. Using a sample of different CEO/CFO gender dyads during 2006-2019, we postulate and find evidence of higher accruals quality among firms led by gender-diverse dyads compared to accruals quality reported by firms led either all-male or all-female CEO/CFO pairs. Additional analyses reveal that the auditors of firms with gender-diverse executive dyads issue audit reports later, charge higher audit fees, and are more likely to be one of the Big 4 firms. In contrast, companies led by all-male executives obtain audit reports sooner, pay lower audit fees, and are less likely to appoint a Big 4 firm as auditor. These findings support the view that top executive gender diversity enhances financial reporting quality, which has important implications for corporate governance mechanisms.    
Presenter:  Nattavut Suwanyangyuan, Brock University  
Discussant:  Trang Ngo, Foreign Trade University  
   
Paper
CEO POWER AND BANK RISK-TAKING: NEW EVIDENCE FROM AN EMERGING ECONOMY
 
Authors Ngoc Anh Pham, Trang Quynh Ngo, Quan M.P. Nguyen, Thach Nguyen  
Abstract This study examines the impact of CEO power on bank risk-taking for all publicly listed commercial banks in Vietnam from 2011 to 2021. Using generalized least square (GLS) random effect (RE) estimation, this study finds that the presence of powerful CEOs (CEOs with large ownership and CEOs who are also the chairman of bank boards) reduce bank risk-taking. Regarding other bank governance factors, large bank boards are also inversely related to bank risk-taking. In contrast, board independence is positively associated with bank risk. These results are robust to different proxies for bank risk-taking and different estimation techniques.  
Presenter:  Trang Ngo, Foreign Trade University  
Discussant:  Nattavut Suwanyangyuan, Brock University  
   

STREAM D  - 16H00 TO 18H00

 
   

SESSION D1

Informed Trading and Information Efficiency

16H00 TO 18H00

CHAIRPERSON

Ivan Indriawan, Adeleide University

 
   
Paper
THE INVISIBLE HAND IN THE DARK: THE DISCIPLINARY EFFECT OF DARK POOLS ON FIRM OVERINVESTMENT
 
Authors Meingdie Deng  
Abstract We propose that the availability of dark trading induces stronger monitoring effects on corporate decisions. Utilizing the trade-at rule provision in the SEC’s Tick Size Pilot Program, we find that restrictions on dark trading lead to higher levels of corporate overinvestment for medium- and small-cap securities. As dark trading incentivizes informed traders to acquire information ex-ante, we further find the results are more pronounced for firms with a larger short-selling flow before the Program. As a consequence, the overinvestment due to the restrictions in dark trading worsens the firms’ future performance. Overall, we identify a novel external governance mechanism via dark trading venues.  
Presenter:  Mengdie Deng, University of Hong Kong  
Discussant:  Ivan Indriawan, Adeleide University  
   
Paper
THE EFFECT OF EQUITY MARKET UNCERTAINTY ON INFORMATIONAL EFFICIENCY: CROSS-SECTIONAL EVIDENCE
 
Authors Bart Frijns, Ivan Indriawan, Alireza Tourani-Rad, Hengbin Zhang  
Abstract We study the effect of equity market uncertainty (EMUNC) on the informational efficiency of equity prices in the US market. We find that EMUNC negatively affects price efficiency, i.e., as equity market uncertainty increases, equity prices become less efficient. More importantly, this negative impact is heterogeneous in the cross-section of stocks. EMUNC has a stronger negative impact on hard-to-arbitrage stocks. We also find moderate evidence that stocks with a higher historical uncertainty exposure are more sensitive to EMUNC.  
Presenter:  Ivan Indriawan, Adeleide University  
Discussant:  Mengdie Deng, University of Hong Kong  
   
Paper
SHORT SELLER SKILLS IN THE GLOBAL CONTEXT: PUBLIC NEWS PROCESSING VS. PRIVATE INFORMATION GATHERING
 
Authors Arseny Gorbenko  
Abstract Using international data on equity loans and financial news stories across 29 countries, I find that short sellers’ informational advantage comes mostly from their superior ability to process public news. With a novel method to estimate the amount of shorting from outstanding equity loans, I show that high short-selling activities on news days correspond to 10 times lower returns in the next 5–20 days than those following high short-selling activities on non-news days. In contrast, short selling before news releases does not predict sizable returns on news days. My findings indicate that short sellers in international stock markets profit mainly from trading on public news rather than from gathering private information.  
Presenter:  Arseny Gorbenko, Monash University  
Discussant:  Dien Giau (Richard) Bui, Yuan Ze University  
   
Paper
INSIDER TRADING AND CORPORATE BOARD REFORMS: INTERNATIONAL EVIDENCE
 
Authors Dien-Giau (Richard) Bui, Harvey Nguyen, Mia Hang Pham  
Abstract We examine whether changes to corporate governance resulting from board reforms affect insider trading activities. While the connection between corporate governance and informed transactions has sparked the interests of both academics and practitioners, a lack of exogenous variation in governance has hampered inference. This Paper employs a country’s implementation of major governance reforms that capture shocks to board reforms for firms in 41 countries. Our difference-in-differences analysis shows a decline in insider trading activities and trading profit following the reforms. We find that decreased information asymmetry helps curb insider trading after board reforms. Rule-based reforms and reforms involving board and audit committee independence curtail insider trading while other types of reforms do not. The effect of board reforms on insider trading is more pronounced among countries with tighter public enforcement, more effective judicial systems, and higher financial reporting quality. Overall, our findings suggest that the governance mechanisms implemented in board reforms effectively discourage insider transactions. Our Paper contributes to a growing literature on the implications of corporate governance mechanisms for financial markets and corporate management practices.  
Presenter:  Dien Giau (Richard) Bui, Yuan Ze University  
Discussant:  Arseny Gorbenko, Monash University  
   

SESSION D2

Earnings Expectations and Extrapolation

16H00 TO 18H00

CHAIRPERSON

Hongye Guo, Hong Kong University

 
   
Paper
EARNINGS EXPECTATIONS AND INTERACTIVE DISCUSSIONS WITH CORPORATE INSIDERS
 
Authors Kotaro Miwa  
Abstract This study aims to empirically clarify the informational role of interactive discussions with corporate insiders by analyzing how participants’ expectations are affected by each participant comment during analyst and investor days. To this end, I analyze the influence of the linguistic tone of management (corporate insiders) presentation, comments from peers, and management responses to each analyst’s earnings forecast. The results indicate that the tone of management presentation, as well as responses to participants’ comments, have no impact on analysts’ expectations of company performance. In contrast, analysts’ earnings forecasts significantly react to the comments from their peers (especially star analysts). Furthermore, the analysts whose earnings forecasts diverge positively (negatively) from the consensus are influenced by the negative (positive) opinions of their peers. The results also suggest that interactive meeting plays a role in acquiring information and opinions from other participants (especially informed participants) rather than from corporate insiders.  
Presenter:  Kotaro Miwa, Kyushu University  
Discussant:  Lewis H.K. Tam, University of Macau  
   
Paper
LANGUAGE BARRIER, CORPORATE SITE VISIT AND ANALYST FORECAST ACCURACY
 
Authors Lewis H.K. Tam, Shaohua Tian  
Abstract This study examines the impact of language barriers on financial analysts’ decisions to perform corporate site visits and the extent to which corporate site visits help analysts overcome language barriers to improve earnings forecast accuracy. Using a sample of analysts’ visits to listed firms on the Shenzhen Stock Exchange, we find that analysts are more likely to visit firms headquartered in areas where local dialects are largely different from Standard Mandarin. Moreover, corporate site visits increase analysts’ forecast accuracy more for those firms. Altogether, the findings suggest that language barriers create difficulties for analysts in obtaining information via verbal communication, and corporate site visits help analysts reduce the communication noise.  
Presenter:  Lewis H.K. Tam, University of Macau  
Discussant:  Kotaro Miwa, Kyushu University  
   
Paper
THE CROSS-SECTION OF EXTRAPOLATIVE BELIEF AND THE HIGH-VOLUME PREMIUM
 
Authors HuaixinWang  
Abstract Stocks with abnormally high volumes are associated with high subsequent returns (Gervais et al., 2001). I show that return extrapolation bias contributes to the spike in trading volume for individual stocks. The high-volume premium (HVP) is more pronounced among firms with low extrapolative value, whereas the premium is mitigated among firms with high extrapolative value. The difference in the HVP between low- and high- extrapolative value firms can be predicted by DOX, the market-wide extrapolation level (Cassella and Gulen, 2018). I also provide evidence that the documented heterogeneity of the HVP is not driven by stock visibility or illiquidity. The results indicate that extrapolative expectation is an important contributor to cross-sectional volume-return relations.  
Presenter:  Huaixin Wang, PBC School of Finance, Tsinghua University  
Discussant:  Hongye Guo, Hong Kong University  
   
Paper
EARNINGS EXTRAPOLATION AND PREDICTABLE STOCK MARKET RETURNS
 
Authors Hongye Guo  
Abstract The U.S. stock market’s return during the first month of a quarter correlates strongly with returns in future months, but the correlation is negative if the future month is the first month of a quarter, and positive if it is not. These effects offset, leaving the market return with its weak unconditional predictive ability known to the literature. The pattern accords with a model in which investors extrapolate announced earnings to predict future earnings, not recognizing that earnings in the first month of a quarter are inherently less predictable than in other months. Survey data support this model, as does out-of-sample return predictability across industries and international markets. These results challenge the Efficient Market Hypothesis and advance a novel mechanism of expectation formation.  
Presenter:  Hongye Guo, Hong Kong University  
Discussant:  Huaixin Wang, PBC School of Finance, Tsinghua University  
   

SESSION D3

Risk Premium

16H00 TO 18H00

CHAIRPERSON

Chung Mai, University of Technology Sydney

 
   
Paper
FORECASTING LIQUIDITY-ADJUSTED VAR: A CONDITIONAL EVT-COPULA APPROACH
 
Authors Ravi Khadotra  
Abstract This study models the joint distribution of individual stock returns and bid-ask spreads using combined EGARCH-EVT and combined GP-INGARCH-EVT processes for the marginals, and bivariate copulas for the dependence structure. We use the proposed approach to first simulate returns and spreads of individual stocks from different countries and then forecast the Liquidity-adjusted Value-at-Risk (L-VaR) measure according to three types of L-VaR models. The backtesting results suggest that the proposed simulation-based L-VaR models perform better in forecasting L-VaR than the same three L-VaR models which use original returns and spreads and the traditional VaR model which uses original returns.  
Presenter:  Ravi Khadotra, Indian Institute of Management Amritsar  
Discussant:  Yunqi Wang, Southern University of Science and Technology  
   
Paper
INTERNATIONAL STOCK RETURN PREDICTABILITY: THE ROLE OF U.S. VOLATILITY RISK
 
Authors Yizhe Deng, Fuwei Jiang, Yunqi Wang, Ti Zhou  
Abstract We study the impact of U.S. equity volatility risk on international equity risk premia. A common factor constructed from the option-implied U.S. forward variances term structure consistently predicts stock returns on the U.S. and 10 non-U.S. industrialized countries, both in- and out-of-sample. The predictability of this forward variance factor appears to be stronger when the U.S. volatility spillover intensity is higher or when international stock markets are more connected. Empirically, we find that the U.S. forward variances contain forward-looking information about local economic conditions and economic uncertainty, suggesting that the return predictability arises from the link between the U.S. volatility risk and changing international investment opportunities. Overall, our evidence underscores the role of the U.S. volatility as a source of global risks in shaping the risk-return relation among integrated markets.  
Presenter:  Yunqi Wang, Southern University of Science and Technology  
Discussant:  Ravi Khadotra, Indian Institute of Management Amritsar  
   
Paper
BENCHMARKING MORTGAGE SYSTEMATIC RISK AND IMPACT ON PRICING
 
Authors Chung Maia, Harald Scheule  
Abstract This study unifies the two dominant concepts of systematic credit risk: Beta for observed systematic risk and asset correlation (AC) for unobserved (frailty) systematic risk. An analysis for U.S. mortgages shows that Beta contributes up to 76% of the total systematic risk, and the remaining is accounted for by AC. The systematic risk levels vary across types of lenders, types of recourse laws, and states. In addition, we find a stronger sensitivity of mortgage rates to the exposures to the estimated systematic risk levels than the single regulatory value (15%). Our comprehensive findings on systematic risk components help banks develop more accurate models, enhance their risk management ability and achieve a better pricing scheme.  
Presenter:  Chung Mai, University of Technology Sydney  
Discussant:  Rajdeep Sharma, Indian Institute of Management, Bangalore  
   
Paper
PREDICTABILITY OF EQUITY RISK PREMIUM CONDITIONAL ON ECONOMIC POLICY UNCERTAINTY: EVIDENCE FROM AN EMERGING MARKET
Authors V. Ravi Anshuman, Rajdeep Sharma, Prateek Jain  
Abstract We show that the predictability of equity risk premium (ERP) in an emerging market is significantly influenced by local economic policy uncertainty (EPU). Using a dataset on the Indian equity market index (NIFTY 500), we propose a novel ERP predictor conditional on EPU that outperforms all other standard predictors, including the unconditional historical mean ERP, in out-of-sample predictions. More
specifically, we find that selecting a combination of dividend payout ratio, cash-flow to price ratio, and S&P to NIFTY 500 ratio, conditional on EPU level being low, moderate, and high, respectively, delivers the highest forecast accuracy. Using a trading strategy based on ERP forecasts from this EPU-Conditioned predictor, investors can generate a Sharpe ratio of 0.57, which is 30% higher than the next
best predictor.
 
Presenter:  Rajdeep Sharma, Indian Institute of Management, Bangalore  
Discussant:  Chung Mai, University of Technology Sydney  
   

SESSION D4

Behaviour Bias and IPO

16H00 TO 18H30

CHAIRPERSON

Jingjing Xia, Wenzhou-Kean University

 
   
Paper
WINDOW DRESSING AMONG RESPONSIBLE INVESTMENT FUNDS
 
Authors Huiqiong Tang, Bart Frijns, Aaron Gilbert, Ayesha Scott  
Abstract Window dressing is a strategy fund managers use to manipulate portfolio holdings for risk level, financial performance, and investment style to allow funds to report more favourable information to the investors. This Paper examines the presence of financial and ESG performance-based window dressing in US domestic equity responsible investment funds (RIFs). Our results support the existence of financial and ESG performance-based window dressing in RIFs. We also identify that RIFs with poor past performance, higher tracking error, or those managed by companies with a lower commitment to sustainable investment are more likely to exhibit ESG performance-based window dressing behaviours.  
Presenter:  Huiqiong Tang, Auckland University of Technology   
Discussant:  Aarti Sharma, Masters’ Union School of Business  
   
Paper
WHAT SHAPES MY STYLE? THE EFFECTS OF JOURNALISTS HOME BIAS ON MEDIA SENTIMENT OF MISCONDUCT FIRMS
 
Authors Jingjing Xia  
Abstract This Paper explores the behavioral factors that affect journalists’ idiosyncratic reporting styles by examining the effects of home bias on the sentiment of the news articles they write about firms under misconduct investigation. Using a generalized difference-in-difference design, we find that home journalists, defined as those whose hometown is in the same city as the misconduct firm’s registration address, have significantly more positive reporting sentiment about the firm in the investigation period than non-home-journalists. Their more positive sentiment is not correlated with better contemporaneous firm performance, suggesting that it is unlikely to be attributed to information advantage. The effects of home bias are attenuated by journalist expertise about the misconduct firm and its industry. However, other factors that have been commonly shown to reduce behavioral bias, such as journalist age and firm information environment proxies, are not associated with lower home bias. Stock investors do not seem to account for journalist home bias when reacting to news article sentiment in the investigation period, and there is evidence that home journalists’ coverage of the misconduct firm impedes the market’s price discovery about future investigation outcome. These findings provide an initial step to open the black box of the determinants of individual journalists' reporting styles.   
Presenter:  Jingjing Xia, Wenzhou-Kean University  
Discussant:  Huiqiong Tang, Auckland University of Technology   
   
Paper
PRE-OPENING TRADING, PRICE LIMITS, AND THE VOLATILITY OF IPO INITIAL RETURNS
 
Authors Aarti Sharma, Vishwanatha S R  
Abstract In 2012 the Securities Exchange Board of India introduced a rule mandating a pre-opening trading session for IPOs on the listing day and price limits during the first ten days of trading. We use this natural experiment to test whether the secondary market structure affects the level and volatility of IPO initial returns. We document a significant reduction in volatility after controlling for the market-wide volatility. The reduction is also significant for younger firms and hard-to-place offerings that face asymmetric information and valuation uncertainty. Our results suggest that regulatory price limits are useful in curbing the volatility of IPO initial returns.  
Presenter:  Aarti Sharma, Masters’ Union School of Business  
Discussant:  Jingjing Xia, Wenzhou-Kean University  
   
Paper
MUTUAL FUND INVESTMENTS IN RETAIL BANKING:  DO LOW INTEREST RATES MATTER?
 
Authors Guodong Chen, Yiqing Lü, Jingyuan Mo, Dan Wang  
Abstract Using proprietary account-level data from a commercial bank in China, we find significant reaching-for-yield phenomenon among mutual fund retail investors. It is manifested by lower interest rates that induce (1) higher returns of mutual fund portfolios though active rebalancing, (2) greater inflows into mutual fund products, particularly from structured deposit products, and (3) increased weighted-average risk rating of mutual fund portfolios. Interestingly, we find that the adoption of an APP technology, which allows investors to view products more easily, amplify such reaching-for-yield behavior. In particular, young, male, and lower-income investors exhibit stronger reaching-for-yield tendency. We find consistent evidence to support a backward-looking reference-dependent preference as we detect significant bunching of mutual fund holding at the initial investment level, yet only in a low interest environment. Moreover, investors who purchased mutual fund products at higher historical prices exhibit a stronger reaching-for-yield behavior. Last, we explore an interest rate shock that further supports a causal interpretation of our findings.  
Presenter: Yiqing Lu, NYU Shanghai  
Discussant Ellapulli V. Vasudevan, Indian Institute of Management Ahmedabad  
   
Paper
FAMILIARITY BREEDS SHORT-TERMISM
 
Authors Ellapulli V. Vasudevan  
Abstract Investors exhibit a robust and systematic pattern of shortening their holding period in a stock on which they execute multiple round-trip trades. On average, the holding period shortens by 11% with each additional round trip. I show this tendency to be short-termed is associated with reinforcement learning. Investors are more likely to shorten the holding period after a round trip where they could have realized a better return had they sold earlier. Investors become short-termed as they become more familiar with trading a stock.  
Presenter: Ellapulli V. Vasudevan, Indian Institute of Management Ahmedabad  
Discussant: Yiqing Lu, NYU Shanghai  
   

SESSION D5

Cryptocurrency

16H00 TO 18H00

CHAIRPERSON

De-Rong Kong, National Taiwan University

 
   
Paper
PORTFOLIO CHOICE FOR ONLINE LOANS AND IMPLICATIONS FOR PLATFORMS
 
Authors Ram D. Gopal, Xiao Qiao, Moris S. Strub, Zonghao Yang  
Abstract Using over one million LendingClub loans from 2013 to 2020, we investigate the suitability of online loans as an investment through the lens of a portfolio optimization framework. We introduce general characteristics-based portfolio policies, a framework which overcomes unique challenges associated with building a portfolio of online loans. Under this framework, we propose a nonlinear portfolio policy based on a shallow neural network. Whereas an equal-weight portfolio achieves an average annual internal rate of return of 6.55%, a nonlinear portfolio leads to an improved annual IRR of 13.08%. The nonlinear portfolio also enables more access to credit by investing more in loans with lower credit grades. To assess the attractiveness of online loans, we compare the performance of the nonlinear portfolio to other benchmark assets, including stocks, bonds, and real estate.  We find that in our sample, online loans earn competitive rates of return to the other assets while showing limited comovement. Our results indicate that online loans are an attractive novel asset class for investors, and investors can diversify their holdings by investing in online loans with increased expected returns. Platforms may consider embedding a GCPP framework in a robo-advising system, which would expand the access of sophisticated loan portfolios to a broad set of investors.  
Presenter:  Zonghao Yang, City University of Hong Kong  
Discussant:  De-Rong Kong, National Taiwan University  
   
Paper
VALUE PREMIUM, NETWORK ADOPTION, AND FACTOR PRICING OF CRYPTO ASSETS
 
Authors Lin William Cong, G. Andrew Karolyi, Ke Tang, Weiyi Zhao  
Abstract We document characteristics-based return anomalies in the largest dataset on crypto assets and develop a crypto factor pricing model (C-5) to explain the cross-sectional return variations. Cryptocurrency returns exhibit momentum in the largest-cap group, reversals in other size groups, and strong crypto value and network adoption premia, from which we derive two novel factors to add to crypto market, size, and momentum factors. The resulting model outperforms extant models in pricing the cross-section of crypto assets and test portfolios in-sample and out-of-sample. We then provide the first comprehensive classification of all major cryptocurrencies based on their economic functionality. Adopting methodologies from international finance, we demonstrate significant market segmentation across token categories, underscoring the importance of considering token categories in investment and regulatory policy-making. Finally, we describe crypto factor dynamics and market integration.  
Presenter:  Wenyi Zhao, Tsinghua University  
Discussant:  Zonghao Yang, City University of Hong Kong  
   
Paper
ALTERNATIVE INVESTMENTS IN THE FINTECH ERA: THE RISK AND RETURN OF NON-FUNGIBLE TOKEN (NFT)
 
Authors De-Rong Kong, Tse-Chun Lin  
Abstract We study one of the earliest and most representative NFT collections and find that NFTs have higher returns than traditional financial assets. However, investing in NFTs comes along with high volatility, leading to a comparable Sharpe ratio to the NASDAQ index. NFT prices surge when there is a drastic increase in demand for alternative investments and a search for yield in a low-interest-rate environment. The pricing of NFT also largely depends on a token’s scarceness and investors’ aesthetic preferences. Overall, we provide the first comprehensive analysis that NFTs serve as a novel investment vessel in this Fintech era.  
Presenter:  De-Rong Kong, National Taiwan University  
Discussant:  Wenyi Zhao, Tsinghua University  
   

Day 2

ONLINE SESSIONS E - H

Friday
9th December 2022

   

STREAM E - 08H00 TO 10H00

 
   

SESSION E1

Machine Learning

08H00 TO 10H00

CHAIRPERSON

Chukwuma Dim, The George Washington University

 
   
Paper
DEEP LEARNING FUND MANAGERS' NARRATIVES: RISK ASSESSMENT AND FUND PERFORMANCE
 
Authors Sean Cao, Baozhong Yang, Alan L. Zhang  
Abstract We use deep learning to extract syntax and context information from mutual fund managers' narrative discussions and measure their risk assessments. We validate the forward-looking nature of our measure by showing that risk assessment in managers' narratives leads to subsequent changes in their portfolio risk. Managers who identify negative risk generate superior risk-adjusted returns and higher Sharpe ratios, have better intraquarter trading skills, and receive higher Morningstar ratings. Interestingly, only sophisticated investors respond to this narrative-based measure. Our forward-looking measure can thus inform investors and researchers about fund managers' risk management and performance.  
Presenter:  Baozhong Yang, Georgia State University  
Discussant:  Christian Breitung, Technical University of Munich   
   
Paper
WHEN FIRMS OPEN UP: IDENTIFYING VALUE RELEVANT TEXTUAL DISCLOSURE USING SIMBERT
 
Authors Christian Breitung  
Abstract By introducing simBERT, a novel semantically sensitive similarity measure for textual data, we find that international annual reports contain value relevant information that is not timely priced by investors. We measure the value relevance of international corporate disclosures by constructing a portfolio that is long in stocks with a low- and short in stocks with a high level of semantically new information. Such a portfolio yields a highly significant yearly abnormal return of 8.52%. We observe a higher value relevance of textual disclosure in developed countries, which we trace back to stricter securities laws standards. Our findings thus indicate that tighter regulation promotes the disclosure of value-relevant relevant accounting information. We further find evidence that analysts update their earnings forecasts and recommendations in accordance with textual changes in firm reports. This suggests that analysts contribute to market efficiency by conveying qualitative information from accounting statements to the public.  
Presenter:  Christian Breitung, Technical University of Munich   
Discussant:  Baozhong Yang, Georgia State University  
   
Paper
HOT OFF THE PRESS: NEWS-IMPLIED SOVEREIGN DEFAULT RISK
 
Authors Chukwuma Dim, Kevin Koerner, Marcin Wolski, Sanne Zwart  
Abstract We develop a sovereign default risk index using natural language processing techniques and 10 million news articles covering over 100 countries. The index is a high-frequency measure of countries' default risk, particularly for those lacking market-based measures: it correlates with sovereign CDS spreads, predicts rating downgrades, and reflects default risk information not fully captured by CDS spreads. We assess the influence of sovereign default concerns on equity markets and find that spikes in the index are negatively associated with same-week market returns, which reverses over the next week, indicating that investors might overreact to default concerns. Equity markets' reaction to default concerns is more pronounced and persistent for countries with tight fiscal constraints. The response to global, compared to country-specific, default concerns is much stronger, underlining the relevance of global ``push" factors for local asset prices.  
Presenter:  Chukwuma Dim, The George Washington University  
Discussant:  Zhen Qi, University of Manitoba  
   
Paper
INTERNATIONAL CORPORATE BOND MARKET: UNCOVERING RISKS USING MACHINE LEARNING
 
Authors Delong Li, Lei Lu, Zhen Qi, Guofu Zhou  
Abstract In this Paper, we explore what factors drive expected corporate bond returns all over the world. With a novel dataset, and utilizing machine learning models, we find there is strong predictability of corporate bond returns in international markets. However, the documented factors that drive bonds in the U.S. and non-U.S. developed markets are substantially different from factors that impact bonds in the emerging markets, where inflation, downside risk, duration, illiquidity, and volatility are more influential. Moreover, U.S.-based equity and bond factors do not contribute predictive power to non-U.S. corporate bonds, indicating that international corporate bond markets are not well integrated.  
Presenter:  Zhen Qi, University of Manitoba  
Discussant:  Chukwuma Dim, The George Washington University  
   

SESSION E2

Cryptocurrency and Machine Learning

08H00 TO 10H00

CHAIRPERSON

Fabricius Somogyi, Northeastern University

 
   
Paper
AN ANATOMY OF CRYPTO-ENABLED CYBERCRIMES
 
Authors Lin William Cong, Campbell R. Harvey, Daniel Rabetti, Zong-Yu Wu  
Abstract While the advent of cryptocurrencies and digital assets holds promise for improving and disrupting financial systems by offering cheap, quick, and secure transfer of value, it also opens up new payment channels for cybercrimes. A prerequisite to solving a problem is understanding the nature of the problem. Assembling a diverse set of public, proprietary, and hand-collected data, including dark web conversations in Russian, we conduct the first detailed anatomy of crypto-enabled cybercrimes and highlight relevant economic issues. Our analyses reveal that a few organized ransomware gangs dominate the space and have evolved into sophisticated corporate-like operations with physical offices, franchising, and affiliation programs. Their techniques have also become more aggressive over time, entailing multiple layers of extortion and reputation management. Blanket restrictions on cryptocurrency usage may prove ineffective in tackling crypto-enabled cybercrime and hinder innovations. Instead, blockchain transparency and digital footprints enable effective forensics for tracking, monitoring, and shutting down dominant cybercriminal organizations.  
Presenter:  Daniel Rabetti, Tel Aviv University  
Discussant:  Luciano Somoza, Swiss Finance Institute and HEC-University of Lausanne  
   
Paper
THE END OF THE CRYPTO-DIVERSIFICATION MYTH
 
Authors Antoine Didisheim, Luciano Somoza  
Abstract Cryptocurrencies and equities have exhibited a high and positive correlation since March 2020. Without obvious fundamental drivers, we show theoretically that trading flows by retail investors can drive this correlation. With a unique dataset of investor- level holdings from a bank offering trading accounts and cryptocurrency wallets, we show that retail investors tend to trade equities and cryptocurrencies simultaneously, in the same direction, and that this behavior emerged in March 2020. We provide suggestive evidence showing that stocks preferred by crypto-traders exhibit a stronger correlation with Bitcoin, especially when the cross-asset retail volume is high.  
Presenter:  Luciano Somoza, Swiss Finance Institute and HEC-University of Lausanne  
Discussant:  Daniel Rabetti, Tel Aviv University  
   
Paper
CONSTRAINED LIQUIDITY PROVISION IN CURRENCY MARKETS
Authors Wenqian Huang, Angelo Ranaldo, Andreas Schrimpf, Fabricius Somogyi  
Abstract We use the triangular no-arbitrage condition to study dealers' liquidity provision in the currency market. We show that at times when their intermediation capacity is constrained  -- e.g., as dealers become more leveraged, face higher Value-at-Risk constraints or funding costs -- their cost of liquidity provision increases disproportionately. As a result, the elasticity of their liquidity provision weakens by at least 80\% relative to periods when they are unconstrained. We rationalise our novel empirical findings with a tractable model that sheds light on the key mechanisms of how liquidity provision by dealers tends to weaken when intermediary constraints are tightening.
Presenter:  Fabricius Somogyi, Northeastern University  
Discussant:  Frederik Simon, University of Cologne  
   
Paper
DEEP PARAMETRIC PORTFOLIO POLICIES
 
Authors Frederik Simon, Sebastian Weibels, Tom Zimmermann  
Abstract We directly optimize portfolio weights via deep neural networks by generalizing the parametric portfolio policy framework. Our results show that network-based portfolio policies increase investor utility of between 30 and 100 percent over a comparable linear portfolio policy, depending on whether portfolio restrictions on individual stock weights, short-selling or transaction costs are imposed, and depending on an investor's utility function. We provide extensive model interpretation and trace improvements over linear policies to the relevance of both non-linearity in variables and non-linearity in model parameters. Both approaches agree on the same dominant predictors, namely past return-based firm characteristics.  
Presenter:  Frederik Simon, University of Cologne 
Discussant:  Fabricius Somogyi, Northeastern University  
   

SESSION E3

Analyst Forecast and Discount Rate

08H00 TO 10H00

CHAIRPERSON

Diego Bonelli, Norwegian School of Economics

 
   
Paper
PRICE DISCRIMINATION AND MORTGAGE CHOICE
 
Authors Jamie Coeny, Anil Kashyapz, May Rostom  
Abstract We characterise the large number of mortgage offers for which people qualify. Almost no one picks the cheapest option, nonetheless the one selected is not usually much more expensive. A few borrowers make very expensive choices. These big mistakes are most common when the menu they face has many expensive options, and are most likely for high loan to value and loan to income borrowers. Young people and first-time buyers are more mistake-prone. The dispersion in the mortgage menu is consistent with banks attempting to price discriminate for some borrowers who might pick poorly while competing for others who might shop more effectively.  
Presenter:  Jamie Coen, Imperial College London  
Discussant:  Maximilian Schleritzko, VGSF  
   
Paper
REVISITING DISCOUNT RATES: NEW EVIDENCE FROM SURVEYS
 
Authors Phillipp Gnan, Maximilian Schleritzko  
Abstract This Paper sheds new light on retail investors' risk-return trade-off. Existing evidence from surveys suggests that households expect lower returns, i.e., lower risk compensation, in bad times. Using a direct measure of retail investors' subjective discount rates, we nevertheless find that required compensation for risk rises with perceptions of stock market risk. Our finding thus resonates well with common intuition in economics. We also show that the positive risk-return trade-off is stronger for i) financially literate retail investors and ii) during times of financial and economic distress. Our results also have important implications for the design of future surveys eliciting return expectations.  
Presenter:  Maximilian Schleritzko, VGSF  
Discussant:  Jamie Coen, Imperial College London  
   
Paper
HEDGE FUNDS, PRIME BROKERS, AND CORPORATE BOND OFFERINGS
 
Authors Diego Bonelli  
Abstract Hedge funds make abnormally large and profitable trades in stocks before corporate bond announcements when their prime broker serves as a bond underwriter, and these trades outperform other trades. The outperformance is not concentrated in announcement  periods, nor in funds serviced by prime brokers whose equity analysts follow the firm, or in new positions. Bond-market activity by hedge funds represents one possible channel of information transfer. Bonds of firms held by connected hedge funds are associated with higher secondary market volume and number of transactions during their first six months of trading, suggesting that hedge funds support underwriters in liquidity provision activities during the first months of bonds’ life when lengthy searches for high-valuation investors in the secondary market might be very costly.   
Presenter:  Diego Bonelli, Norwegian School of Economics  
Discussant:  Alexander Valentin, Goethe University Frankfurt  
   
Paper
THE POST-ECB ANNOUNCEMENT DRIFT
 
Authors Alexander Valentin  
Abstract This Paper documents a drift in equity prices in the days following monetary policy announcements of the European Central Bank (ECB). Using intraday data from European equities and yields between 2002 and 2020, I construct monetary policy shocks and analyze the long run response of European equities to these shocks. I find a prolonged drift in equity prices for up to 20 days. This drift is particularly strong in response to information shocks amounting to 160 (-114) basis points for positive (negative) shocks. To rationalize the drift I investigate the role of investor disagreement on ECB announcement days. As measures of investor disagreement, I consider trading volume, textual data from Q&A sessions of the ECB press conference, and forecast dispersion among participants of the ECB Survey of Professional Forecasters. My findings suggest that higher levels of disagreement are associated with a stronger price drift in the days following the monetary policy event.  
Presenter:  Alexander Valentin, Goethe University Frankfurt  
Discussant:  Diego Bonelli, Norwegian School of Economics  
   

STREAM F - 10H15 TO 12H15

 
   

SESSION F1

Cryptocurrency and Fintech

10H15 TO 12H15

CHAIRPERSON

Daewoung Choi, Louisiana State University, Shreveport

 
   
Paper
DO DIRECTORS PROVIDE TECHNOLOGICAL ADVISORY ASSISTANCE TO THEIR CEOS?
 
Authors Steven A. Dennis, Hua-Hsin Tsai, M. Tony Via  
Abstract We identify a director technological advisory channel by examining directors with an outside board seat on a firm operating in a matching patent tech industry class. After excluding directorships with simultaneous product market industry pairings, we find that 14% of directorships among innovative firms uniquely involve tech related industry pairings (TRIPs). TRIPs provide innovative assistance to the CEO with less fear of appropriation, and they increase firm value by 7%. This increase is concentrated among incumbent firms seeking protection from outside threats in volatile industries, and it is driven by cost-saving process patenting and breakthrough patent production.  
Presenter:  Marc Via, Kent State University  
Discussant:  Tristan Fitzgerald, Texas A&M University  
   
Paper
'TIL DEATH DO US PART: THE RELATIVE MERITS OF FOUNDER CEOS
 
Authors Tristan J. Fitzgerald  
Abstract This Paper addresses a question faced by every firm in the economy, namely is it optimal for a firm’s founder to lead the company as CEO? To identify the treatment effect of founder CEOs on corporate policy and firm value, I exploit a natural experiment involving exogenous founder-to-professional CEO turnovers that arise from a founder’s death or illness. I find that, relative to comparable firms that retain their founder CEO, firms that must switch to a professional CEO experience a 10% reduction in their internally generated innovation. However, professional CEOs counteract this reduced internal R&D productivity by undertaking other firm value enhancing activities, namely acquiring external technologies through greater M&A activity, increasing firm leverage and nurturing larger, more stable top management teams. These combined policy changes have offsetting effects on total firm value, implying that founder and professional CEOs have distinct yet valuable skill sets.  
Presenter:  Tristan Fitzgerald, Texas A&M University  
Discussant:  Marc Via, Kent State University  
   
Paper
CLASSIFIED BOARDS: ENDANGERED SPECIES OR HIDING IN PLAIN SIGHT?
 
Authors Scott Guernsey, Feng Guo, Tingting Liu, Matthew Serfling  
Abstract We combine machine learning with manual inspection to determine the classified board status of over 12,500 firms from 1996 to 2020. We find that while the fraction of S&P 1500 firms with a classified board fell from 58% to 30% over this period, it rose from 40% to 53% for non-S&P 1500 firms. Increasing attention to governance and rising index ownership of S&P 1500 firms appear to drive these trend differences. Our results suggest the conventional wisdom that classified boards are becoming an endangered species is inaccurate for most firms. Rather, they are hiding among firms neglected by commercial databases.  
Presenter:  Scott Guernsey, University of Tennessee  
Discussant:  Daewoung Choi, Louisiana State University, Shreveport  
   
Paper
INVESTOR RELATIONS EXECUTIVES IN THE TOP MANAGEMENT TEAM
 
Authors Daewoung Choi, Shawn Mobbs  
Abstract We examine the role of investor relations (IR) executives and find that firms incorporating the IR function in their top management team are more likely to beat analysts’ estimates and exhibit more downward earnings guidance. We also provide evidence that these firms manage analysts’ expectations rather than manage earnings and are more likely to have lower analyst forecast dispersion, a lower probability of informed trading, and fewer earning restatements, all of which suggest that IR executives tend to reduce information asymmetry. Consistent with this, we also find that firms with IR executives experience less capital constraints and lower litigation risk. For identification, we first provide results using a difference-in-difference framework that stock return volatility and idiosyncratic volatility are lower in firms with IR executives following the 2008 financial crisis relative to firms without IR executives. We also document a faster decrease in option market implied volatility following the exogenous shock of the 9/11 terrorist attacks in firms with IR executives in the top management team relative to firms without. Overall, the evidence is consistent with IR executives improving the alignment between management and investors.  
Presenter:  Daewoung Choi, Louisiana State University, Shreveport  
Discussant:  Scott Guernsey, University of Tennessee  
   

SESSION F2

Household and Entrepreneur

10H15 TO 12H15

CHAIRPERSON

Rebel Cole, Florida Atlantic University

 
   
Paper
INTELLECTUAL PROPERTY LICENSING AMONG INCORPORATED AND UNINCORPORATED ENTREPRENEURS
 
Authors Rebel A. Cole, Christopher J. Boudreaux  
Abstract We classify entrepreneurs as incorporated or unincorporated business owners. Previous studies report incorporated entrepreneurs are “gazelles” and unincorporated entrepreneurs are “lifestyle” businesses. We contribute to this literature in two ways. First, we document several important stylized facts about incorporated and unincorporated entrepreneurs. Second, we examine differences in intellectual property licensing between incorporated and unincorporated entrepreneurs. We use proprietary data from the Kauffman Firm Survey, comprising a sample of 2,989 U.S. firms founded in 2004 and followed annually until 2011 to document these findings and test our hypotheses. Our analysis reveals that, compared to unincorporated entrepreneurs, incorporated entrepreneurs are more likely to have intellectual property licensing and have a higher number of patents, copyrights, and trademarks. We use various matching, instrumental variable, and selection methods to control for endogeneity related concerns. Our findings reveal another difference between gazelle and lifestyle businesses—the use of intellectual property licensing.  
Presenter:  Rebel Cole, Florida Atlantic University  
Discussant:  Xiang Li, Boston College  
   
Paper
BANK COMPETITION AND ENTREPRENEURIAL GAPS: EVIDENCE FROM BANK DEREGULATION
 
Authors Xiang Li  
Abstract This Paper provides evidence that bank competition reduces gender and racial gaps in entrepreneurship by improving banking services and reducing discrimination. Exploiting the interstate bank deregulation from 1994 to 2021, I find that stronger bank competition increases the quantity and quality of banking services provided to minority borrowers. I develop a novel measure of bank discrimination based on the narrative information extracted from the complaints filed to the Consumer Financial Protection Bureau (CFPB) using textual analysis. Using this measure, I find that bank competition reduces complaints about discrimination. Owing to the improved banking services and reduced discrimination, bank competition reduces the entrepreneurial gaps by loosening the financial constraints of female and minority entrepreneurs. At the firm level, relaxed financial constraints reduce the gender and racial gap in firm performance. As a consequence, equal access to entrepreneurial opportunities reduces gender and racial disparities in entrepreneurial equity and thus fosters wealth equality. Finally, I present evidence that bank competition can reduce racial disparities in access to the Paycheck Protection Program (PPP) loans which are fully guaranteed by the federal government and risk-free. This unique setting eliminates the concern that disparities in credit risk may drive the entrepreneurial gaps. Overall, my results suggest that bank competition can promote equity in access to finance and generate equitable economic growth.   
Presenter:  Xiang Li, Boston College  
Discussant:  Rebel Cole, Florida Atlantic University  
   
Paper
HOUSEHOLD WELFARE EFFECTS OF ROSCAS
 
Authors Pushkar Maitra, Ray Miller, Ashish Sedai  
Abstract We examine the effects of Rotating Savings and Credit Associations (ROSCAs) on household welfare in India. The identification strategy is based on household fixed effects and instrumental variables (using the geographic leave-one-out instrument). We find that ROSCA membership increases household assets, consumption, energy efficiency and school expenditure, but only in rural areas. Welfare effects are stronger for poorer households and for those living in communities with stronger social ties. We argue that the persistence and success of ROSCAs depends on social ties, which are often stronger in rural communities.  
Presenter:  Ashish Sedai, University of Texas at Arlington  
Discussant:  Antonio Gargano, University of Houston and University of Melbourne  
   
Paper
INDIVIDUAL INVESTORS HOUSING INCOME AND INTEREST RATES FLUCTUATIONS
 
Authors Antonio Gargano, Marco Giacoletti  
Abstract Rental properties are a popular form of investment, and small individual landlords are common in many countries. Using unique data on tax filings from Australia, we show that approximately 20% of middle age and retirement age individuals with median income directly own rental properties. This fraction has substantially risen over the last 20 years. In particular, among retirement age individuals, the share of rental property owners has experienced a relative increase of 80%. Evidence from the data links this increase in rental market participation to surprise cuts in interest rates, and to individual investors’ preference for assets with high recurring income payments and yields. Indeed, the increase in participation in response to rate cuts is stronger in areas where real estate pays higher rental yields, and where small landlords face lower competition from developers of large multifamily rentals. Moreover, as rates drop, individuals of retirement age concurrently reduce their fixed income and interest-paying investments. The expansion of individual investors’ participation in the rental market has important implications. First, higher reliance on rental income rises the exposure of middle age and retirement age individuals to local economic shocks. Second, increased investment in rental properties, driven by interest rates cuts, leads locally to higher house prices and lower rental yields, especially in areas with constrained land supply.   
Presenter:  Antonio Gargano, University of Houston and University of Melbourne  
Discussant:  Ashish Sedai, University of Texas at Arlington  
   

SESSION F3

Risk and Anomalies

09H15 TO 11H15

CHAIRPERSON

Samuel Rosen, Temple University

 
   
Paper
THE ROLE OF THE MEDIA IN SPECULATIVE MARKETS: EVIDENCE FROM NON-FUNGIBLE TOKENS (NFTS)
 
Authors Joshua T. White, Sean Wilkoff, Serhat Yildiz  
Abstract Extant literature debates the role of news media in speculative markets. Some show media hype leads to irrational behavior, while others argue news attenuates market imperfections. To disentangle these roles, we study news about non-fungible tokens (NFTs), which are a natural laboratory since the space is typified by extreme growth coupled with skewed returns. We examine properties of NFT news using a sample of 26,000 articles and 7.6 million trades. We link the intensity and tone of NFT news to subsequent increases in market activity. Yet, seller returns and return volatility decrease following news. Thus, the media plays an information gatekeeper role by increasing informed participation in unregulated tokenized assets. These findings are inconsistent with the media hyping speculative markets. Instead, journalists appear to educate readers on the risks of NFTs.  
Presenter:  Sean Wilkoff, University of Nevada  
Discussant:  Samuel Rosen, Temple University  
   
Paper
INVESTOR EXPERIENCE MATTERS: EVIDENCE FROM GENERATIVE ART COLLECTIONS ON THE BLOCKCHAIN
 
Authors Sebeom Oh, Samuel Rosen, Anthony Lee Zhang  
Abstract In the market for non-fungible tokens (NFTs) on the blockchain, experienced investors systematically outperform inexperienced investors. Controlling for holding period, experienced investors make 8.6 percentage points more per trade on average. This outperformance is mostly explained by experienced investors' greater participation in primary market sales of NFT collections, which produced significantly higher average returns during our sample period. Our results shed light on the frictions present in NFT markets, and have implications for the design of NFT investment strategies.   
Presenter:  Samuel Rosen, Temple University  
Discussant:  Sean Wilkoff, University of Nevada  
   
Paper
CRYPTOCURRENCY, MINING POOLS CONCENTRATION, AND ASSET PRICES
 
Authors Bikramaditya Datta, Idan Hodor  
Abstract This Paper introduces mining pools’ concentration into a dynamic asset pricing setup. Our theory builds on the intuitive yet novel insight that modeling competition requires that mining pools clear markets separately from their competitors in equilibrium. Our model predicts that as concentration increases, the cryptocurrency price falls, and its volatility spikes—in line with our empirical analysis of Bitcoin. We further reveal that entry and exit of mining pools affect prices only through their effect on concentration. Lastly, equilibrium shows that mining pools’ total revenues determine the cryptocurrency’s value, and if a pricing bubble exists, it amplifies the concentration effects.  
Presenter:  Idan Hodor, Monash University  
Discussant:  Stefano Pegoraro, University of Notre Dame 
   
Paper
BORROWING FROM A BIGTECH PLATFORM
 
Authors Jian Li, Stefano Pegoraro  
Abstract We model competition in the credit market between banks and a bigtech platform which offers a marketplace for merchants. We show that, unlike banks, the platform lends to merchants based on their revenues and network externalities. To enforce partial loan repayment, the platform increases borrowers' transaction fees. Credit markets become partially segmented, with the platform targeting borrowers of low and medium credit quality. The platform benefits from advantageous selection at the expense of banks, reducing equilibrium welfare for intermediate-credit-quality merchants. When revenues, network externalities, or advantageous-selection rents are large, the platform does not value superior information about credit quality.  
Presenter:  Stefano Pegoraro, University of Notre Dame 
Discussant:  Idan Hodor, Monash University  
   

KEYNOTE 2

Prof. Jonathan Brogaard, University of Utah

12H30 TO 13H30

Modern Market Structure

Abstract
While the fundamental variables of financial markets – information, price discovery, price efficiency, liquidity, adverse selection – remain the same, the trading landscape has evolved rapidly in recent years.  This keynote address provides an overview of how recent trading advancements have influenced financial markets, and discusses what important questions have yet to be examined.

ZOOM LINK

 
   

STREAM G - 13H45 TO 15H45

 
   

SESSION G1

Executive Characteristics

13H45 TO 15H45

CHAIRPERSON

Bong Ko, University of California at Irvine

 
   
Paper
RISK-BASED MOMENTUM
 
Authors Sophia Zhengzi Li, Peixuan Yuan, Guofu Zhou  
Abstract Based on large sets of factors and big data methods, we discover a new type of momentum across frequencies and asset classes, which is stronger and more persistent than the widely used and extensively studied Jegadeesh and Titman (1993) (JT) momentum.  In particular,    we find that the risk component (i.e., the component of stock returns explained by common factors) exhibits a strong intraday risk momentum pattern.   Strikingly, it generates a risk-based return momentum: the return on the long-short portfolio of stocks sorted by  the risk component  exhibits a momentum pattern as well,    demonstrating  that high systematic  risk implies high return even intraday.  Moreover, the risk-based return momentum, whose  existence appears to stem from limits to arbitrage, holds also  daily, weekly and monthly, generating  specially  a   momentum that is  crash-free,  compared with the  JT   monthly momentum which  is not extendable to intraday.  
Presenter:  Peixuan Yuan, Renmin University of China  
Discussant:  Siyuan Ma, Stevens Institute of Technology  
   
Paper
PREDICTING MOMENTUM
 
Authors Siyuan Ma  
Abstract We construct a behavioral-based signal called momentum spread ratio (MSR) and test its ability to predict various types of momentum. The results show that it significantly predicts price momentum, risk-adjusted industry momentum, and risk-adjusted residual momentum. A one standard deviation increase
in the MSR predicts a 0.46% decrease in the monthly momentum return after controlling for existing predictors when we focus on the most recent 1 month return. Moreover, to minimize the influence of cross-sectional variation in stock returns when constructing MSR, we also build a residual-level MSR. We find that it can also predict risk-adjusted momentum, especially after 1994, implying that the risk-adjusted momentum is highly sensitive to a behavioral-based signal. The different in-sample and out-of-sample predictability before and after 1994 show that the market has largely corrected such behavioral bias after the mid-90s.
 
Presenter:  Siyuan Ma, Stevens Institute of Technology  
Discussant:  Peixuan Yuan, Renmin University of China  
   
Paper
DOES THE OPTIONS MARKET UNDERREACT TO FIRMS' LEFT-TAIL RISK?
 
Authors Bei Chen, Quan Gan, Aurelio Vasquez  
Abstract We find that firms’ left-tail risk is a strong positive predictor of future returns of bear spreads, an option trading strategy that provides downside protection on the underlying. Bear spreads of high (low) left-tail risk firms earn positive (negative) returns, suggesting that the downside protection they provide is not adequately priced and the options market underreacts to firms’ left-tail risk. This underreaction is stronger when the underlying stocks experience larger recent losses and are closer to their 52-week lows, and when information uncertainty and investor sentiment are high. Our finding is consistent with a behavioral rather than a risk-based explanation.   
Presenter:  Bei Chen, Shanghai International Studies University   
Discussant:  Bong Ko, University of California at Irvine  
   
Paper
RISK-SCALED ANOMALIES
 
Authors Bong Ko  
Abstract Existing studies imply that risk-managed portfolios lead to improved performance. Using a comprehensive set of 125 anomaly portfolios, I analyze the effectiveness of risk management. Risk-managed portfolio returns are 43% lower in pre-sample and 61% lower in post-sample consistent with the puzzle in the cross-sectional literature. Managed portfolios do not outperform their corresponding original counterparts in direct comparisons of Sharpe ratios. Portfolios whose profile exhibits the crash risk (a very long left tail) benefit most from risk management and produce higher Sharpe ratios. In the spanning regressions, risk-scaled portfolios tend to exhibit positive and significant alphas inside of the momentum group, whereas other categories show mixed evidence. My findings suggest that the benefit of risk management is isolated to strategies that have negative skewness and high kurtosis, eliminating the crash risk.  
Presenter:  Bong Ko, University of California at Irvine  
Discussant:  Bei Chen, Shanghai International Studies University   
   

SESSION G2

Risk and Investment Decision

13H45 TO 15H45

CHAIRPERSON

Tarik Umar, Rice University

 
   
Paper
REFERENCE HEALTH AND INVESTMENT DECISIONS
 
Authors Chunli Cheng, Christian Hilpert, Alexander Szimayer, Peter Zweifel  
Abstract We consider how reference health influences medical spending and decreasing health and their interaction with intertwined economic choices such as consumption and investment. While  static reference health implies early medical spending, adaptive reference health delays medical spending.  
Presenter:  Chunli Cheng, Lingnan College, Sun Yat-sen University  
Discussant:  Tarik Umar, Rice University  
   
Paper
REAL OPTIONS AND FINANCIAL FLEXIBILITY
 
Authors Gustavo Grullon, Ali Kakhbod, A. Max Reppen, Tarik Umar, Hao Xing  
Abstract  We solve a model of firm dynamics that shows a firm's financial flexibility affects the timing of investment decisions. Firms may delay investment to accumulate cash, which increases financial flexibility, or raise costly external capital to exercise immediately their real options. Small firms, valuing financial flexibility more, require more cash before exercising. Our model predicts that the value of waiting is hump-shaped in cash. Low-cash firms must delay investment longer to accumulate cash and prefer financing investments externally. High-cash firms already have high financial flexibility and thus benefit less from waiting. We empirically examine these predictions.  
Presenter:  Tarik Umar, Rice University  
Discussant:  Chunli Cheng, Lingnan College, Sun Yat-sen University  
   
Paper
LONG RUN RISKS IN FX MARKETS
 
Authors Sun Yong Kim, Konark Saxena  
Abstract This Paper investigates the empirical joint dynamics between long run consumption risks (LRRs), currency excess returns, currency risk premia and global currency risk factors. Using a novel identification strategy to identify country level LRRs, we uncover three main results. Firstly, currency excess returns and relative LRRs are negatively correlated: the currencies of countries that suffer bad relative long run shocks vis-a-vis the US appreciate against the dollar on average. Secondly, currency risk premia and relative LRRs are positively correlated: over the long run such currencies depreciate against the dollar, resulting in lower expected currency returns moving forward. Thirdly well known global currency risk factors such as the High-Minus-Low (HML) carry trade sorted on interest rate differentials and the HML dollar beta portfolio sorted on time varying dollar exposures are highly correlated with appropriately constructed global and US LRR factors respectively. An international LRR model where two LRR factors – US and global – drive common sources of risk in the world economy can quantitatively explain these empirical findings.  
Presenter:  Sun Yong Kim, Northwestern University  
Discussant:  Alessandro Melone, Ohio State University  
   
Paper
CONSUMPTION DISCONNECT REDUX
 
Authors Alessandro Melone  
Abstract I document that consumption expenditures are characterized by a permanent level warranted by productivity plus temporary deviations around this trend, termed the consumption gap. At horizons from one quarter to five years, the consumption gap forecasts stock returns in- and out-of-sample, even after controlling for alternative popular predictors. An investment strategy exploiting this predictability generates positive alphas. This predictability generates economic value from the perspective of a mean--variance investor. In the cross--section, the consumption gap relates to the time--varying coefficients of a stochastic discount factor linear in the market, suggesting that consumption fluctuations track the price of market risk, consistent with benchmark macro--finance models.  
Presenter:  Alessandro Melone, Ohio State University  
Discussant:  Sun Yong Kim, Northwestern University  
   

SESSION G3

Debt, Bank Risk, and Bond Premium

13H45 TO 15H45

CHAIRPERSON

Mehmet Canayaz, Penn State University

 
   
Paper
DATA BREACHES (HACKING) AND TRADE CREDIT
 
Authors Amanjot Singh  
Abstract This study examines the relationship between data breaches (hacking) and trade credit for U.S. firms. Employing a staggered difference-in-differences approach, we observe that breached firms face shorter payable periods from suppliers than the control group. Data breaches increase the operational risks of breached firms. Suppliers associate high information risks with breached firms. Our findings remain robust to alternative specifications and are more pronounced for firms with (1) no IT expertise, (2) an increased number of stolen records, (3) internal control weakness, (4) low product market competition, and (5) less diversified business operations. Overall, our findings suggest that supplier firms become more prudent with the extension of trade credit after data breaches.  
Presenter:  Amanjot Singh, King's University College at the University of Western Ontario  
Discussant:  Ama Samarasinghe, RMIT University  
   
Paper
WATCHDOGS OR PETDOGS: THE ROLE OF MEDIA FREEDOM ON BANKING SYSTEM STABILITY
 
Authors My Nguyen, Ama Samarasinghe, Michael Skully  
Abstract This Paper documents a positive association between media freedom and bank stability at both bank- and systemic- levels. The results are robust to addressing endogeneity concerns.  We further find evidence supporting the depositor discipline channel that enhanced media freedom diffuses more information about intermediaries to depositors, incentivising them to discipline and limit bank risk-taking activities. Media freedom also exerts a larger influence on bank stability in developed countries and state ownership of media impedes the positive relation between media freedom and bank stability. Overall, our results highlight the importance of media freedom in enhancing individual bank and systemic stability around the world.   
Presenter:  Ama Samarasinghe, RMIT University  
Discussant:  Amanjot Singh, King's University College at the University of Western Ontario  
   
Paper
FINANCIAL CONSEQUENCES OF THE BELT AND ROAD INITIATIVE
 
Authors Mehmet I. Canayaz  
Abstract As the largest ever infrastructure project, China’s Belt and Road Initiative (BRI) is expected to reshape the global economy for the coming decades. This Paper provides the first analysis of BRI's effects on financial markets and real economic activity in Europe. It exploits the opening of a subway tunnel under Istanbul's Bosporus Strait that geographically positions nearby countries on BRI's economic corridor. Governments of impacted countries sharply increase sovereign debt issuance and devote more resources to collective consumption spending. Meanwhile, their strategic infrastructure investments stagnate, news-based macroeconomic sentiments for inflation, financial stability and economic uncertainty worsen, and sovereign yields rise. Businesses in these countries issue less debt, lower capital investments, and observe reductions in their valuations. Overall, my findings highlight the distortionary effects of BRI on European businesses and raise concerns about the effectiveness of BRI-driven government spending in Europe. I provide additional findings on developmental aid, international trade, and BRI program membership that highlight China's growing influence over corridor economies.  
Presenter:  Mehmet Canayaz, Penn State University  
Discussant:  Xin He, City University of Hong Kong  
   
Paper
BENCHMARKING INDIVIDUAL CORPORATE BONDS
 
Authors Xin He, Guanhao Feng, Junbo Wang, Chunchi Wu  
Abstract We propose a new econometric model, benchmark combination model (BCM), to estimate and decompose asset risk premia in empirical asset pricing. BCM pricing kernel is a weighted combination of the basis portfolios sorted on many asset characteristics. With a no-arbitrage objective, our approach minimizes cross-sectional pricing errors and identifies the sources of risk premia. With a 45-year sample of U.S. corporate bonds, we find that BCM outperforms prevailing factor models in pricing corporate bonds. Second, we find credit ratings, maturity, short-term reversal, momentum, and variance are primary sources of bond risk premia. Finally, incorporating machine learning forecasts into BCM shows strong evidence of return predictability.  
Presenter:  Xin He, City University of Hong Kong  
Discussant:  Mehmet Canayaz, Penn State University  
   

STREAM H  - 16H00 TO 18H00

 
   

SESSION H1

ESG and Environment

16H00 TO 18H00

CHAIRPERSON

Kwok Yuen Fan, Hong Kong Polytechnic University

 
   
Paper
NAVIGATING CLIMATE UNCERTAINTY: CLEAN TECH VS FOSSIL FUEL ETFS
 
Authors Minh Nhat Nguyen, Ruipeng Liu  
Abstract Using non-parametric estimates with imposing inequality restrictions, we compare unconditional to conditional tests on green and brown portfolios constructed from fossil fuel and clean energy ETFs. While unconditional tests could not indicate that green portfolio outperform brown one, the outperformance of green portfolio is statistically significant in conditional tests incorporating climate-related information such as natural disasters and Climate policy uncertainty. The conditional tests also show that brown portfolio is riskier than green one that is hidden under unconditional tests. Furthermore, we document that non-fundamental demand proxied by fund flow for the green is higher than that for the brown only when incorporating the climate information in the inequality test. Therefore, we provide formal tests on controversial question about green and brown assets.  
Presenter:  Minh Nhat Nguyen, Deakin University  
Discussant:  Shixiang Xia, Hong Kong Polytechnic University  
   
Paper
ENVIRONMENTAL ACTIVISM, ENDOGENOUS RISK, AND STOCK PRICES
 
Authors Ravi Jagannathan, Soohun Kim, Robert McDonald, Shixiang Xia  
Abstract We consider a three-period economy with two firms, green and brown, where the brown firm generates pollution. The availability of a costly pollution-abatement technology is revealed in period 2. Without activism, the brown firm’s manager, who maximizes shareholder value, will not adopt the technology even though it is socially optimal to do so. We consider three activist strategies: Exit (divestment of shares), Boycott (of goods), and Voice (proxy-voting). Boycott is more effective than Exit. Voice is most effective, requiring fewest activists provided the brown firm is small with shares having equal voting power. The personal cost to activists can be higher for Voice. When the number of activists is large but too low to be effective, the green share’s price will rise and the brown share’s price will fall when the technology becomes available. An unanticipated jump in the number of activists can move the economy from one equilibrium to another, making activism effective. If this happens, the green share’s price will fall with a much smaller further decline in brown share’s price.  
Presenter:  Shixiang Xia, Hong Kong Polytechnic University  
Discussant:  Minh Nhat Nguyen, Deakin University  
   
Paper
NATURAL DISASTERS AND CORPORATE DEFAULT RISK
 
Authors Hasibul Chowdhury, Ihtisham Malik, Hui Sun, Searat Ali  
Abstract We examine whether and how exposure to natural disaster intensity can affect a firm’s default risk. Using data on a large sample of US companies from 1994 to 2017, we document that firms headquartered in a location with higher exposure to natural disaster intensity are associated with higher default risk. This association is robust to various endogeneity tests and the alternative measures of natural disaster intensity and default risk. Furthermore, we find that firms’ lower financial accessibility, lower debt capacity, and higher operational risk aggravate this positive association. As a corollary to these findings, we also show that financial institutions charge higher spreads and demand unfavorable credit terms for firms with higher default risk resulting from an increased exposure to natural disaster intensity. Overall, these results collectively suggest the detrimental effect of natural disasters on a firm’s financial stability. These findings indicate that the current disaster assistance from government may be insufficient and, therefore, calls for more support to firms located in disaster affected and neighboring areas, as they are more likely to experience financial distress and default.  
Presenter:  Hui Sun, University of Queensland  
Discussant:  Kwok Yuen Fan, Hong Kong Polytechnic University  
   
Paper
ESG MATERIALITY, STOCK VALUATION AND CORPORATE FUNDAMENTALS: EVIDENCE FROM REAL ESTATE INVESTMENT TRUSTS
 
Authors Kwok Yuen Fan, Jianfu Shen, Eddie Chi-man Hui  
Abstract This study explores the impact of ESG materiality on the returns to ESG-based responsible investment utilizing the framework of the ESG-efficient frontier (Pedersen et al., 2021). The relationships between material/immaterial ESG score and future stock returns are tested in a sample of equity Real Estate Investment Trusts (REITs). The results indicate that environmental ratings (material ESG component in the REITs) negatively predict expected returns, and while social and government ratings (immaterial ESG component in the REITs) are positively associated with future returns. Further tests indicate that material ESG practices reduce future profitability and the use of external financing, and increase stock risk; and while immaterial ESG practices significantly improve future firm fundamentals. Institutional investors do not fully incorporate information of environmental rating into investment but significantly buy REITs when their social and government ratings are increased. Taken together, this study suggests that ESG materiality affects the connection between ESG ratings and expected stock returns.   
Presenter:  Kwok Yuen Fan, Hong Kong Polytechnic University  
Discussant:  Hui Sun, University of Queensland  
   

SESSION H2

Political Effects and Investment Models

16H00 TO 18H00

CHAIRPERSON

Linxiang Ma, University of Melbourne

 
   
Paper
A MODEL OF INFLUENCER ECONOMY
 
Authors Lin William Cong, Siguang Li  
Abstract In an influencer economy, consumers care about both product quality and their affinity to influencers with different styles. Sellers thus compete for influencers as well as product markets. As technologies governing marketing outreach improve, influencer market concentration, payoffs, and income distribution exhibit non-monotonic changes. While influencer heterogeneity is a substitute to horizontal product differentiation, it can be either a complement or sugstitute to vertical product differentiation, depending on the style difference. Assortative matching between sellers and influencers occurs under endogenous influence-building, with the maximum horizontal differentiation principle recovered in the limit of costless style selection. Moreover, the sellers' bargaining power counteracts the influencers' tendency to overinvest in influence power and they jointly determine the direction and magnitude of influence building. Finally, which requiring balanced seller-influencer matching may encourage seller competition, uni-directional exclusivity contracts are welfare-improving for sufficiently differentiated products and uncrowded influencer markets.   
Presenter:  Siguang Li, Hong Kong University of Science and Technology  
Discussant:  Jian Sun, Singapore Management University  
   
Paper
A DYNAMIC DELEGATED INVESTMENT MODEL OF SPACS
 
Authors Dan Luo, Jian Sun  
Abstract We study SPACs (Special Purpose Acquisition Companies) in a finite-horizon continuous-time delegated investment model. Due to the misalignment in incentives, the sponsor has an increasing incentive to propose unprofitable deals to the investor as the SPAC approaches its deadline. As a response, the investor redeems shares more aggressively over time. The investor's current redemption reduces the sponsor's expected payoff from proposing unprofitable deals, but future redemption reduces his expected payoff from waiting. We discuss the welfare implications of SPAC designs related to investors' redemption: 1) prohibiting the investor from redeeming shares in late periods can be a Pareto improvement; 2) coupling the investor's deal rejection with redemption benefits the sponsor; and 3) the participation of investors with behavioral biases can be a Pareto improvement.   
Presenter:  Jian Sun, Singapore Management University  
Discussant:  Siguang Li, Hong Kong University of Science and Technology  
   
Paper
FALES HOPES: THE IMPACT OF NATIONAL LEADERS' CORPORATE VISITS ON INDUSTRY PEERS
 
Authors Linxiang Ma  
Abstract I study how politicians' activities affect the stock market and firm performance. Using hand-collected data on China's national leaders' corporate visits, I investigate the industry-wide implications of these visits. I find that over the five days surrounding a visit, an average industry peer's value increases by 4% of its total assets. This result reflects investors' favourable reactions to leaders' indications of more government support for the industry. However, the industry peer's profitability plummets by more than 10% in the following two years. Further analysis reveals that after the visits, industry peers increase their investments, presumably in anticipation of additional government subsidies and credits. However, these resources are never delivered, and the profitability of these firms falls. My findings suggest that national leaders' visits do not help boost the targeted industries, and firms should carefully interpret the politicians' activities.  
Presenter:  Linxiang Ma, University of Melbourne  
Discussant:  Wenbin Hu, University of Queensland  
   
Paper
U.S. POLITICAL CORRUPTION AND MANAGEMENT EARNINGS FORECAST
 
Authors Hasibul Chowdhury, Ashrafee Tanvir Hossain, Wenbin Hu, Kelvin Jui Keng Tan  
Abstract This study shows that US firms headquartered in more corrupt areas tend to use narrower and pessimistic management earnings forecast ranges. Managers in these firms use such strategy to mislead corrupt officials and shield their assets from rent extraction. The results are more pronounced for firms that are prone to rent extraction, such as financially unconstrained firms that have a high level of cash and a low dividend payout and firms with concentrated operations. Finally, we find that issuing narrower management earnings forecasts can mitigate the negative association between political corruption and firm value. Overall, our results suggest that issuing narrower management earnings forecasts is one of the important shielding strategies to deter expropriation from corrupt politicians.  
Presenter:  Wenbin Hu, University of Queensland  
Discussant:  Linxiang Ma, University of Melbourne  
   

SESSION H3

Debt and Shocks

16H00 TO 18H00

CHAIRPERSON

Harvey Nguyen, Massey University

 
   
Paper
FISHING IN MUDDY WATERS: MERGERS AND ACQUISITIONS DURING UNCERTAINTY
 
Authors Jagriti Srivastava  
Abstract Using the COVID-19 pandemic as an exogenous shock, we examine whether firms engage in opportunistic mergers and acquisitions during uncertainty. Particularly, we analyze the inorganic growth strategies of acquiring firms faced with disproportionate pandemic-induced opportunities using a cross-country deal-level data. We find a significant increase in the deal completion propensity and deal size, and a decrease in the deal completion time for acquirers that are more amenable to remote working. The effect is more pronounced when both the acquirer and the target are amenable to remote working. Our findings indicate that amenable firms, which were initially reluctant to engage in opportunistic acquisitions, engaged aggressively in the subsequent quarters with an abatement in pandemic-induced uncertainty. The study provides novel insights into the behaviour of acquisitive firms during the pandemic.   
Presenter:  Jagriti Srivastava, Indian Institute of Management Amritsar  
Discussant:  Harvey Nguyen, Massey University 
   
Paper
DOES LINGUISTIC COMPLEXITY OF ANNUAL REPORTS AFFECT CORPORATE LEASING DECISION?
 
Authors Danlin Chi, Hasibul Chowdhury, Nicolas Eugster, Jiayi Zheng  
Abstract In this Paper, we investigate whether the linguistic complexity of annual report is associated with firms’ lease versus buy decisions. Using a sample of 94,697 U.S. firm-year observations between 1994 and 2017, we document that annual report complexity, as measured by the BOG Index, is significantly positively associated with a firm’s operating lease ratio. In addition, we find that financially constrained and weakly governed firms with complex financial reports lease more. The results remain robust with the use of alternative measures annual report complexity and leasing intensity. Further, by employing a difference-in-differences (DID) method with The Plain Writing Act (PWA) 2010 and a regression discontinuity design (RDD) with XBRL adoption, we find that the positive association between linguistic complexity and operating leasing is highly likely to be causal. Overall, our study shows evidence that firms with linguistically complex annual reports strategically choose to use leasing as an alternative source of funding.  
Presenter:  Jiayi Zheng, Australian National University  
Discussant:  Sasidaran Gopalan, United Arab Emirates University  
   
Paper
GENDER BIAS IN ACCESS TO TRADE CREDIT: FIRM-LEVEL EVIDENCE FROM EMERGING MARKETS
 
Authors Sasidaran Gopalan, Ketan Reddy  
Abstract Using firm-level data on 95 emerging and developing economies over 2009-2020, we contribute to the literature on gender bias and credit access by examining three specific questions: First, is there a gender bias in obtaining inter-firm trade credit? Second, if there is one, can those women-led businesses (WLBs) with access to traditional bank finance use it as a signal to obtain trade credit? Third, how does this relationship hold for SMEs that are women-led? After tackling potential endogeneity bias, our empirical findings show that WLBs are less likely to obtain inter-firm trade credit relative to their male counterparts, although we observe that this bias tends to disappear when WLBs have received an institutional source of financing. We establish robustly that bank credit can act as a signaling device enabling the accessibility of inter-firm trade credit, suggesting a complementary relationship between trade credit and bank credit for WLBs.  
Presenter:  Sasidaran Gopalan, United Arab Emirates University  
Discussant:  Jiayi Zheng, Australian National University  
   
 

CLOSING ADDRESS

PAPER AWARDS AND FINAL REMARKS

18H00 TO 18H45