Countercyclical Bank Equity Issuance

Abstract Over the period 1980–2012, large U.S. commercial banks raise and retain less equity during credit expansions, which amplifies their leverage. The decrease in equity issuance is large relative to subsequent banking losses. I consider a variety of explanations for why banks resist raising equity and find evidence consistent with the diminishment of creditor market discipline due to government guarantees. I test this explanation by analyzing the removal of government guarantees to German Landesbank creditors and find that creditor market discipline and equity issuance increase. These findings help explain why banks resist raising equity, making financial distress more likely. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

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Noncognitive Abilities and Financial Distress: Evidence from a Representative Household Panel

Review of Financial Studies ◽

10.1093/rfs/hhz010 ◽

2019 ◽

Vol 32 (10) ◽

pp. 3884-3919 ◽

Cited By ~ 4

Author(s):

Gianpaolo Parise ◽

Kim Peijnenburg

Keyword(s):

Financial Distress ◽

Web Site ◽

Income Shocks ◽

Oxford University ◽

Editorial Decision ◽

Differential Exposure ◽

Published Paper ◽

Oxford University Press ◽

Low Ability

AbstractThis paper provides evidence of how noncognitive abilities affect financial distress. In a representative panel of households, we find that people in the bottom quintile of noncognitive abilities are 10 times more likely to experience financial distress than those in the top quintile. We provide evidence that this relation largely arises from worse financial choices and lack of financial insight by low-ability individuals and reflects differential exposure to income shocks only to a lesser degree. We mitigate endogeneity concerns using an IV approach and an extensive set of controls. Implications for policy and finance research are discussed.Received September 24, 2017; editorial decision September 26, 2018 by Editor Stijn Van Nieuwerburgh. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

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Peer Financial Distress and Individual Leverage

Review of Financial Studies ◽

10.1093/rfs/hhz077 ◽

2019 ◽

Vol 33 (7) ◽

pp. 3348-3390 ◽

Cited By ~ 1

Author(s):

Ankit Kalda

Keyword(s):

Financial Distress ◽

Web Site ◽

Underlying Mechanism ◽

Health Shocks ◽

Intensive Margin ◽

Oxford University ◽

Published Paper ◽

Average Individual ◽

Oxford University Press

Abstract Using health shocks to identify financial distress situations, I document that peer distress leads to a decline in individual leverage and debt on average. Individual leverage declines by 5.7% and remains deflated for at least five years following peer distress. This decline occurs as individuals borrow less on the intensive margin, pay higher fractions of their debt and save more while their income remains unchanged. As a result, individuals are less likely to default during the period following peer distress. The heterogeneity in responses highlight the role of changes in beliefs and preferences as the underlying mechanism. (JEL D10, D12, D14, D84, H31, R20) Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

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Destructive Creation at Work: How Financial Distress Spurs Entrepreneurship

Review of Financial Studies ◽

10.1093/rfs/hhz110 ◽

2019 ◽

Vol 33 (9) ◽

pp. 4061-4101 ◽

Cited By ~ 6

Author(s):

Tania Babina

Keyword(s):

Economic Activity ◽

Financial Distress ◽

Web Site ◽

High Tech ◽

High Wage ◽

New Firms ◽

Oxford University ◽

Service Sectors ◽

The Impact ◽

Published Paper

Abstract Using U.S. Census firm-worker data, I document that firms’ financial distress has an economically important effect on employee departures to entrepreneurship. The impact is amplified in the high-tech and service sectors, where employees are key assets. In states with enforceable noncompete contracts, the effect is mitigated. Compared to typical entrepreneurs, distress-driven entrepreneurs are high-wage workers who found better firms, as measured by jobs, pay, and survival. Startup jobs compensate for 33% of job losses at the constrained incumbents. Overall, the financial inability of incumbent firms to pursue productive opportunities increases the reallocation of economic activity into new firms. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

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Resiliency and Stock Returns

Review of Financial Studies ◽

10.1093/rfs/hhz048 ◽

2019 ◽

Vol 33 (2) ◽

pp. 747-782

Author(s):

Jian Hua ◽

Lin Peng ◽

Robert A Schwartz ◽

Nazli Sila Alan

Keyword(s):

Stock Returns ◽

Web Site ◽

Trading Volume ◽

Expected Returns ◽

Control Variables ◽

Oxford University ◽

And Control ◽

Published Paper ◽

Extensive List ◽

Oxford University Press

Abstract We present resiliency as a measure of liquidity and assess its relationship to expected returns. We establish a covariance-based measure, RES, that captures opening period resiliency, and use it to find a significant nonresiliency premium that ranges from 33 to 57 basis points per month. The premium persists after accounting for an extensive list of other liquidity-related measures and control variables. The results are significant for both value-weighted and equal-weighted returns, when micro-cap stocks are excluded, and for a sample of large cap stocks. The premium is particularly pronounced when trading volume is high. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

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The Value of Offshore Secrets: Evidence from the Panama Papers

Review of Financial Studies ◽

10.1093/rfs/hhz017 ◽

2019 ◽

Vol 32 (11) ◽

pp. 4117-4155 ◽

Cited By ~ 16

Author(s):

James O’Donovan ◽

Hannes F Wagner ◽

Stefan Zeume

Keyword(s):

Web Site ◽

Market Capitalization ◽

Listed Firms ◽

Oxford University ◽

Editorial Decision ◽

Published Paper ◽

Oxford University Press

AbstractWe exploit one of the largest data leaks, to date, to study whether and how firms use secret offshore vehicles. From the leaked data, we identify 338 listed firms as users of secret offshore vehicles and document that these vehicles are used to finance corruption, avoid taxes, and expropriate shareholders. Overall, the leak erased $\$$174 billion in market capitalization among implicated firms. Following the increased transparency brought about by the leak, implicated firms experience lower sales from perceptively corrupt countries and avoid less tax. We conservatively estimate that 1 in 7 firms have offshore secrets.Received May 29, 2017; editorial decision December 2, 2018 by Editor Itay Goldstein. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

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Does Partisanship Shape Investor Beliefs? Evidence from the COVID-19 Pandemic

The Review of Asset Pricing Studies ◽

10.1093/rapstu/raaa018 ◽

2020 ◽

Vol 10 (4) ◽

pp. 863-893 ◽

Cited By ~ 4

Author(s):

J Anthony Cookson ◽

Joseph E Engelberg ◽

William Mullins

Keyword(s):

Web Site ◽

Difference In Difference ◽

Cross Sectional ◽

Oxford University ◽

Published Paper ◽

Oxford University Press

Abstract We use party-identifying language—like “liberal media” and “MAGA”—to identify Republican users on the investor social platform StockTwits. Using a difference-in-difference design, we find that partisan Republicans remain relatively unfazed in their beliefs about equities during the COVID-19 pandemic, while other users become considerably more pessimistic. In cross-sectional tests, we find Republicans become relatively more optimistic about stocks that suffered the most during the COVID-19 crisis, but more pessimistic about Chinese stocks. Finally, stocks with the greatest partisan disagreement on StockTwits have significantly more trading in the broader market, explaining 28% of the increase in stock turnover during the pandemic. Authors have furnished data and an Internet Appendix, which are available on the Oxford University Press Web site next to the link to the final published paper online.

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Seed-Stage Success and Growth of Angel Co-investment Networks

The Review of Corporate Finance Studies ◽

10.1093/rcfs/cfab016 ◽

2021 ◽

Author(s):

Buvaneshwaran Venugopal ◽

Vijay Yerramilli

Keyword(s):

Web Site ◽

Oxford University ◽

Editorial Decision ◽

Success Experience ◽

Angel Investment ◽

To Receive ◽

Published Paper ◽

Oxford University Press

Abstract Using hand-collected data, we show that coinvestment is widespread in the angel investment market, even among seed-stage startups. Individual angels with demonstrated seed-stage success experience an increase in the quantity, quality, and geographic and industry spread of their coinvestment connections relative to unsuccessful peers and are rewarded with more deal flow. These results are stronger for less-established angels and for angels whose successes are more indicative of their ability. Success also begets more success: the portfolio companies of successful angels are more likely to receive follow-on financing, especially from VC firms. Our results highlight how angels grow their coinvestment networks. (JEL G24, L14, L26, M13). Received June 8, 2020; editorial decision June 21, 2021 by Editor Isil Erel. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

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How Close Are Close Shareholder Votes?

Review of Financial Studies ◽

10.1093/rfs/hhy126 ◽

2018 ◽

Vol 32 (8) ◽

pp. 3183-3214 ◽

Cited By ~ 11

Author(s):

Laurent Bach ◽

Daniel Metzger

Keyword(s):

Corporate Governance ◽

Web Site ◽

Causal Effects ◽

Say On Pay ◽

Oxford University ◽

Shareholder Proposals ◽

Editorial Decision ◽

Published Paper ◽

Oxford University Press

Abstract We show that close votes on shareholder proposals are disproportionately more likely to be won by management than by shareholder activists. Using a sample of shareholder proposals from 2003 to 2016, we uncover a large and discontinuous drop in the density of voting results at the 50% threshold. We document similar patterns for say on pay votes and director elections. Our findings imply that shareholder influence through voting is limited by managerial opposition. It also follows that one cannot routinely use an RDD to identify the causal effects of changes in corporate governance generated by shareholder votes. Received May 29, 2017; editorial decision August 21, 2018 by Editor Itay Goldstein. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

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Mortgage Dollar Roll

Review of Financial Studies ◽

10.1093/rfs/hhy117 ◽

2018 ◽

Vol 32 (8) ◽

pp. 2955-2996 ◽

Cited By ~ 3

Author(s):

Zhaogang Song ◽

Haoxiang Zhu

Keyword(s):

Web Site ◽

Risk Exposure ◽

Quantitative Easing ◽

Prepayment Risk ◽

Oxford University ◽

Editorial Decision ◽

Financing Strategy ◽

Published Paper ◽

Oxford University Press

Abstract Mortgage dollar roll, the most common financing strategy for agency MBS, differs from repo in that the returned collateral can differ from those received. Also, MBS ownership changes hands in the funding period. We show that dollar roll “specialness,” how much implied financing rates fall below MBS repo rates, (1) increases in the value of the cheapest-to-deliver option, (2) decreases in the leverage of primary dealers, (3) decreases in prepayment risk exposure during the financing period, and (4) decreases in MBS returns. The Federal Reserve’s dollar roll sales in quantitative easing operations are associated with lower specialness. Received February 3, 2016; editorial decision July 30, 2018 by Editor Itay Goldstein. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

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Financing Efficiency of Securities-Based Crowdfunding

Review of Financial Studies ◽

10.1093/rfs/hhaa025 ◽

2020 ◽

Vol 33 (9) ◽

pp. 3975-4023 ◽

Cited By ~ 3

Author(s):

David C Brown ◽

Shaun William Davies

Keyword(s):

Web Site ◽

Decision Threshold ◽

Winner's Curse ◽

Winner’S Curse ◽

Oxford University ◽

Published Paper ◽

Oxford University Press

Abstract We analyze early-venture fundraising from dispersed, endogenously informed investors. An entrepreneur chooses a payoff-maximizing offering, and investors communicate their information by either contributing capital or abstaining. The entrepreneur uses the information conveyed by fundraising amounts to decide whether or not to undertake a risky venture. His decision threshold hedges investors against bad projects, creating a “loser’s blessing” that encourages contributing without information. Making the offering less attractive to investors mitigates the loser’s blessing but can give rise to a winner’s curse. Both tensions reduce financing efficiency. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

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