Finance Research Seminars

The ACFR holds regular online (via MS Teams) Research Seminars that highlight current research in the Finance Industry. Format: Academic papers are presented by one of their authors and are followed by a Q&A discussion. All are welcome to join the Teams Meeting via the links below.

2024 Speakers:

4 December 2024 11pm-12pm

Niven Winchester, Auckland University of Technology

Economy-wide impacts of output-based permit allocations in emissions trading schemes

Abstract

Emissions trading schemes (ETSs) in many jurisdictions offer a free output-based allocation (OBA) of emissions permits to selected energy-intensive sectors to reduce the burden of emissions pricing. Most analyses of the impact of OBAs relative to grandfathering or auctioning permits focus on the US economy. This paper examines the economy-wide impacts of OBAs using a stylised model that is calibrated to represent different economies. The results show that OBA lead to larger increases in carbon prices and welfare costs from reducing emissions (1) the larger the relative size of sectors that receive OBAs, and (2) the tighter the emissions cap. We also find that some emissions reduction targets are infeasible when the size of sectors that receive OBAs is sufficiently large. Jurisdictions considering OBAs should carefully consider the economy-wide impacts of this allocation method before enacting policies.

4 November 2024 10am-11am

Gertjan Verdickt, University of Auckland

Man vs. Machine: The Influence of AI Forecasts on Investor Beliefs

Abstract

Do investors trust an AI-based analyst forecast? We address this question through four incentivized experiments with 3,600 U.S. participants. Our findings highlight that, although investors update their return beliefs in response to the forecast, they are less responsive when an analyst incorporates AI. This reduced trust stems from a lower perceived credibility in AI-generated forecasts. We reveal other important nuances: women, Democrats, and higher AI literacy investors are more responsive to AI forecasts. In contrast, AI model complexity reduces the probability of return updating. Additional manipulations show that forecast providers do not amplify reactions to their content. Overall, our findings challenge prevailing notions about AI adoption in financial decision-making.

21 October 2024 9am-10am

Nick Nguyen, Auckland University of Technology

The Impact of Crime on ESG Performance

Abstract

Using a large FBI dataset of reported crime incidents across the U.S., we examine how local crime rates near firm headquarters impact firm ESG outcomes. Stakeholder theory suggests that high local crime would lead firms to enhance their ESG efforts, addressing safety and community concerns. Our findings show the opposite: firm ESG performance is worse (better) in high (low) crime areas. These results are robust across three approaches addressing endogeneity. CEO characteristics, financial constraints, and stakeholder pressure shape firms’ ESG-crime responses. When crime risks appear long-lasting, firms reduce ESG activities, challenging stakeholder theory’s prediction that firms consistently meet stakeholder demands.

1 October 2024 12pm-1pm

Van Le, Newcastle Business School

Unlocking Financial Benefits: How Green Bond Issuance Lowers Bank Loan Costs Globally

Abstract

We investigate the effect of green bond issuance on the cost of bank loans across the globe. Using a large sample of firm-year observations from fifty countries, we find that corporate green bond issuers benefit from lower bank loan costs, eased collateral requirements and improved credit ratings. We further examine competing underlying mechanisms through which green bond issuance influences bank loan costs, including enhanced information efficiency, better corporate governance and improved ESG performance. Our analysis extends across diverse country, loan, and firm-level variations and includes extensive robustness tests to address potential endogeneity concerns. This study offers new insight to support the sustainable financing discourse by highlighting the positive impact of green finance on a firm’s borrowing cost, enhancing its appeal to prospective issuers and lenders.

23 September 2024 9am-10am

Lee Zhuge, Auckland University of Technology

Degenderization and Collective Labor Supply in Same-sex Couples

Abstract

I propose a refined Chiappori-style collective model to explore how degenderization influences labor allocation within same-sex couples. This study addresses the shortcomings of Becker and Gronau’s time allocation theory, which inadequately explains labor behaviors among same-sex couples solely through comparative advantages. A gender-neutral collective model is introduced to accommodate shifts away from traditional gender norms. In this framework, gay men show reduced aversion to household tasks, while lesbian women exhibit decreased aversion to paid work. Consequently, gay men are likely to allocate less labor to market work and more to home production, while lesbian women are expected to allocate more labor to market work and less to home production. With a narrower intra-household bargaining power gap, same-sex couples tend toward a more balanced distribution of labor between paid work and housework. Empirical evidence from the British Household Panel Survey supports this theoretical framework, highlighting its relevance in understanding labor dynamics within same-sex partnership.

3 September 2024 12pm-1pm

Hardjo Koerniadi, Auckland University of Technology

Testing the risk-taking hypothesis on the cash conversion cycle anomaly

Abstract

This study aims to explore whether the risk-taking hypothesis can explain the cash conversion cycle (CCC) anomaly, as documented in recent literature. By examining a dataset comprising non-financial US firms spanning from 1986 to 2022, this study finds that firms with lower CCC exhibit higher levels of operational and stock return risks. These firms also tend to allocate a more significant portion of their resources toward capital expenditures and/or research and development (R&D) expenses. These findings suggest that the significantly positive abnormal returns of firms with low CCC, as documented in the CCC anomaly, can be attributed to the undertaking of higher risks. Further analysis on the components of the CCC shows that firms with low CCC manage their inventory and accounts payable days to expose them to higher levels of risk.

2023 Speakers:

20/02/2023, 10-11 am in NZST, Room WF713

Professor Oliver Entrop, University of Passau

Local Religiosity and Stock Liquidity

Abstract

We investigate whether local religious norms affect stock liquidity for U.S. listed companies. Over the period 1997–2020, we find that firms located in more religious areas have higher liquidity, as reflected by lower bid-ask spreads. This result persists after the inclusion of additional controls, such as governance metrics, and further sensitivity and endogeneity analyses. Subsample tests indicate that the impact of religiosity on stock liquidity is particularly evident for firms operating in a poor information environment. We further show that firms located in more religious areas have a lower price impact of trades and smaller probability of information-based trading. Overall, our findings are consistent with the notion that religiosity, with its anti-manipulative ethos, probably fosters trust in corporate actions and information flows, especially when little is known about the firm. Finally, we conjecture an indirect firm value implication of religiosity through the channel of stock liquidity.

09/03/2023, 9-10 am in NZST, Room WF711

Sebastian Gehricke, Otago University

ESG ETF Divestment and Financial Performance

Abstract

This paper aims to empirically investigate whether divestment by, predominantly passive, Environmental, Social and Governance (ESG) Exchange Traded Funds (ETFs) can affect firm level share prices from 2013 to 2022. In total we identified and investigated 45,397 individual divestment events. Employing panel regression models, we find that divestment by these funds has a significant and prolonged negative effect on the returns of individual companies. More importantly, a higher number of ESG ETFs divesting in a firm, which could be seen as coordinated divestment, results in significant prolonged negative effects to stock returns. We identify that even when very few ETFs divest, this can have negative effects on contemporaneous quarter stock returns. These results provide further evidence that divestment is an important tool for the sustainability transition.

27/03/2023, 9-10 am in NZST via MS Teams

Remco Zwinkels, Vrije Universiteit Amsterdam

Risk, Return, and Sentiment in a Virtual Asset Market

Abstract

The joint-hypothesis problem casts doubt on the results of market efficiency research. Specifically, it is hard to assess to what extent financial markets reflect economic fundamentals or mispricing. To address this issue, we study price formation in a large virtual asset market where fundamentals are predetermined and publicly known. We find that a number of well-established determinants of returns from the real world also affect asset prices in this market, despite the absence of systematic risk. The results suggest that prices in real financial markets include a substantial behavioral component, which is likely underestimated in canonical asset pricing tests.

Click here to join the meeting

01/05/2023, 10-11 am, NZST, Room WF714

Stephen Bahadar, Auckland University of Technology

Forward-looking information: Does IIRC Framework adoption matter?

Abstract

We examine whether the adoption of the International Integrated Reporting Council’s Integrated Reporting Framework (IIRC Framework) influences the extent of forward-looking disclosures provided by reporters. We capture forward-looking disclosures of Australian and New Zealand-based IR reporters over a period of 10 years from 2010 to 2019 using a machine learning algorithm. We find that the adoption of the IIRC Framework has a significant positive impact on the extent of forward-looking disclosures provided by reporting entities. Our primary evidence suggests that while listing status alone negatively influences the extent of forward-looking disclosures, our additional analysis reveals that the acceptance of the IIRC Framework by listed entities leads to an increase in forward-looking information. These results remain valid when subjected to a variety of robustness (alternative variables and country fixed effect) and endogeneity (system Generalized Method of Moments (GMM) and Entropy Balancing estimations) tests. This study provides novel evidence by highlighting the role played by the IIRC Framework in promoting forward-looking disclosures.

08/05/2023, 10-11 am, NZST, via MS Teams.

Dr Yili Lian, California State University, Stanislaus

Financial Distress, Bank Branching Deregulation, and Customer-Supplier Relationships

Abstract

The paper exploits the deregulation of interstate bank branching laws to examine whether improved access to bank credit for customer firms affects the probability of their suppliers’ financial distress. The study provides robust evidence that suppliers’ financial distress risk is lower when the states of their major customer firms experience bank branching deregulation. The results are more pronounced for supplier firms with stronger customer-supplier relationships, for financially constrained suppliers, and for suppliers whose customers are financially unconstrained. Overall, the findings highlight the importance of customers’ access to credit on the financial distress risk of their suppliers.

14/08/2023, 11-12 pm, NZST, via MS Teams

Dr Matthew Wynter, Stony Brook University

The Role of Domestic and Foreign Sentiment for Cross-Border Portfolio Flows

Abstract

We show that sentiment influences the demand for foreign stocks, as identified by international portfolio flows between investors in the United States and investors in 44 other countries. We document two channels through which sentiment affects flows. First, inflows are higher in countries with higher sentiment. Second, higher sentiment in a given country is associated with lower outflows from that country to bilateral trade partners, suggesting that sentiment in one country can have spillover effects on demand for assets in other countries. The combined sentiment effects are associated with economically meaningful implications for net flows. Finally, we consider country closed-end funds and find evidence of the pricing effects of sentiment.

21/08/2023, 11-12 pm, NZST, Room WF411

Dr Jose Da Fonseca, Auckland University of Technology

A linear-rational Wishart term structure model with jumps

Abstract

This study proposes a linear-rational multi-curve model based on the Wishart process with jumps. The jump component allows the model to replicate the skew observed in the cap/floor market as well as the non-trivial correlation between the curves. The linear-rational property implies that pricing a swaption or a cap/floor is of equal numerical complexity. Thanks to the affine property of the Wishart process with jumps, we derive an explicit formula that relates the swaption/cap/floor market volatility and the model parameters. Further to this, we derive two approximate pricing formulas for interest rate derivatives that are fast to evaluate and that can be applied to liquid products, such as swaption/cap/floor, or more exotic ones, like constant maturity swap derivatives. We illustrate the model’s ability to generate skewed smiles as observed in the EUR-Euribor cap/floor market and the numerical
accuracy of the different option pricing formula approximations.

06/09/2023, 11-12 pm, NZST, Room WF702 and MS Teams

Huiqiong (Joanne) Tang, Auckland University of Technology

Responsible investment funds and their management companies' emphasis on ESG performance: First priority or icing on the cake?

Abstract to follow

18/09/2023, 11-12 pm, NZST, Room WF411

Dr Prasad Hegde, Auckland University of Technology

TBA

30/10/2023, 11-12 pm, NZST, Room WF411

Dr Nhut (Nick) Hoang Nguyen, Auckland University of Technology

TBA

13/11/2023, 11-12 pm, NZST, via MS Teams

Dr Özlem Dursun de Neef, Monash University

Monetary Policy, HTM Securities, and Uninsured Deposit Withdrawals

27/11/2023, 11-12 pm, Room

Dr Hari Srivastava, Auckland University of Technology

TBC

04/12/2023, 9-10 am, NZST via MS Teams

Dr Elio Bolliger, University of Lausanne

Do Local Forecasters Have Better Information

Abstract

Using individual inflation and GDP growth forecasts by professional forecasters for a panel of emerging and advanced economies, we provide direct evidence that foreign forecasters update their forecasts less frequently than local forecasters (about 10% less frequently) and make larger errors in absolute value (up to 9% larger). The local forecasters' more accurate expectations are not due to a more irrational expectation formation by foreigners but to local forecasters' more precise information. The asymmetry is stronger at shorter horizons and when forecasting inflation. In general, the asymmetry is not weaker when forecasting is less uncertain. Taken together, our results provide a basis for disciplining international finance and trade models with heterogeneous information. On the methodological side, we provide tests that identify differences in information frictions across groups.