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Liquidity and clientele effects in green debt markets Journal of Corporate Finance (IF 5.107) Pub Date : 2024-04-12 Dion Bongaerts, Dirk Schoenmaker
We jointly model green and regular bond markets. Green bonds can improve allocative efficiency and lower financing costs for green projects, but economies of scale, like liquidity fragmentation, may cause friction. Consequently, profitable and welfare-enhancing projects, green and brown, can be rationed in equilibrium. Rationing green projects happens with a shortage of climate investors, large non-monetary
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On “Innovation and institutional ownership” Journal of Corporate Finance (IF 5.107) Pub Date : 2024-03-28 Markus Simeth, David Wehrheim
In their article “Innovation and Institutional Ownership”, Aghion, Van Reenen and Zingales (2013) find that the rise in institutional stock ownership in the U.S. during the 1990s led to an increase in corporate innovation, as measured by patent and patent citation counts. Their article concludes that “contrary to the view that institutional ownership induces a short-term focus in managers, we find
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Independence of board leadership of acquirers and the success of mergers and acquisitions Journal of Corporate Finance (IF 5.107) Pub Date : 2024-03-27 Edward R. Lawrence, Thanh D. Nguyen, Arun Upadhyay
Effective board monitoring prevents entrenched managers from undertaking acquisitions that are detrimental to shareholders. It also facilitates a smooth transition during the post-acquisition phase. We examine how independent board leadership affects M&A outcomes. Controlling for many firm, board, and CEO attributes, we find that acquirers with independent board chairpersons earn significantly higher
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Climate shocks, institutional investors, and the information content of stock prices Journal of Corporate Finance (IF 5.107) Pub Date : 2024-03-24 Ivan Blanco, Jose M. Martin-Flores, Alvaro Remesal
We analyze how the materialization of physical climate risk in the institutional investors’ portfolios spurs a propagation effect on the information content of stock prices. Institutional investors with a relatively high portfolio exposure to natural disasters divest from disaster-hit stocks, decrease the trading intensity in non-hit stocks, and their trading decisions predict low medium-term returns
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Local religiosity and financial advisor misconduct Journal of Corporate Finance (IF 5.107) Pub Date : 2024-03-20 Arnold R. Cowan, Lei Gao, Jianlei Han, Zheyao Pan
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Main bank impairment and corporate cash holdings during the global financial crisis Journal of Corporate Finance (IF 5.107) Pub Date : 2024-03-15 Eriko Naiki, Yuta Ogane
This paper examines how the impairment of main banks’ balance sheets affects corporate cash-holding behavior during the 2008 financial crisis using a firm–bank matched panel dataset of 2,520 firms in Japan. The major findings of this paper are as follows. First, the impairment of main banks increases firms’ cash holdings during this financial crisis. Second, this tendency is more pronounced among firms
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Foreign investors, firm level productivity, and European economic integration Journal of Corporate Finance (IF 5.107) Pub Date : 2024-03-01 Warren Bailey, Gulnur Muradoglu, Ceylan Onay, Kate Phylaktis
Using a comprehensive sample of listed and unlisted firms from 34 European countries, we study firm-level manufacturing outcomes conditioned on foreign investment, country characteristics, and EU membership. Higher foreign ownership is associated with higher productivity but lower employment, particularly when the host or source country is an EU member and scores high on disclosure and investor protection
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Uncertainty shocks, equity financing, and business cycle amplifications Journal of Corporate Finance (IF 5.107) Pub Date : 2024-02-28 Jongho Park
We develop a computable general equilibrium model of firm capital structure that predicts countercyclical financing costs and procyclical financing. We extend the standard financial accelerator model by incorporating countercyclical uncertainty shocks and equity financing frictions capturing the moral hazard problem of profit diversion. In this environment, increased uncertainty restricts equity financing
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Patent pledgeability, trade secrecy, and corporate patenting Journal of Corporate Finance (IF 5.107) Pub Date : 2024-02-24 Yanke Dai, Ting Du, Huasheng Gao, Yan Gu, Yongqin Wang
We identify a positive effect of patent pledgeability on corporate patenting. Our tests exploit staggered city-level policy changes that allow firms to use patents as collateral for financing. We find a significant increase in patents and patent citations for firms headquartered in cities that have adopted such policies relative to firms headquartered in cities that have not. We further show that patent
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Unconventional green Journal of Corporate Finance (IF 5.107) Pub Date : 2024-02-22 Andrea Zaghini
We analyse the effects of the Pandemic Emergency Purchase Programme (PEPP) launched by the ECB after the burst of the Covid-19 pandemic. The effects of the programme were different from the previous asset purchases. The PEPP significantly reduced the yield on bonds that at the same time were eligible to the programme and showed a green label. Via a triple difference estimator, we show that this effect
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Liquid stock as an acquisition currency Journal of Corporate Finance (IF 5.107) Pub Date : 2024-02-21 Sheng Huang, Johan Maharjan, Vikram Nanda
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Director self-dealing: Evidence from compensation peer groups Journal of Corporate Finance (IF 5.107) Pub Date : 2024-02-14 Melissa B. Frye, Vladimir A. Gatchev, Duong T. Pham
We find that director pay, especially the equity-based portion, is positively related to peer firms' director pay, suggesting boards benchmark when establishing their own compensation. Such benchmarking is distinct from peer benchmarking in CEO pay. We also find a significant bias in peer selection towards peers with relatively high director pay, which helps increase board pay. Peer benchmarking of
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Buffing firm innovation by lobbying Journal of Corporate Finance (IF 5.107) Pub Date : 2024-02-14 Anqi Jiao, Juntai Lu
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The deterrence effect of M&A regulatory enforcements Journal of Corporate Finance (IF 5.107) Pub Date : 2024-02-12 Eric de Bodt, Jean-Gabriel Cousin, Micah S. Officer, Richard Roll
Economic, political, and public policy uncertainty affect merger and acquisition (M&A) activity. In this paper, we use Department of Justice (DOJ) and Federal Trade Commission (FTC) interventions in the M&A market to investigate whether regulatory interventions also matter. Our results support this conjecture. Using the Hoberg and Phillips (2010) similarity scores to identify product market competitors
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Flood, farms and credit: The role of branch banking in the era of climate change Journal of Corporate Finance (IF 5.107) Pub Date : 2024-02-01 Pejman Abedifar, Seyed Javad Kashizadeh, Steven Ongena
Using Iran’s unexpected flood in April 2019 as a natural experiment, we show that local branches bridge the time gap between the disaster and governmental aids by immediately increasing their lending for two months following the flood. Analyzing proprietary information on more than 53,000 farmers, we find that farmers with a stronger relationship with their branch – particularly younger and females
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Information production in start-up firms: SPACs vs. Traditional IPOs Journal of Corporate Finance (IF 5.107) Pub Date : 2024-01-26 Keiichi Hori, Hiroshi Osano
We explore equilibrium allocation and efficiency when private firms are listed by merging with a Special Purpose Acquisition Company (SPAC), compared with when they are listed through a traditional initial public offering (IPO). We show that a traditional IPO is more informationally efficient than a SPAC, except if the traditional IPO process is significantly long and costly. We also suggest that if
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Director networks and firm value Journal of Corporate Finance (IF 5.107) Pub Date : 2024-01-24 Tor-Erik Bakke, Jeffrey R. Black, Hamed Mahmudi, Scott C. Linn
Are the professional networks of directors valuable? To separate the effect of director networks on firm value from the effect of other value-relevant director attributes, we use the unexpected deaths of directors as a shock to the director networks of interlocked directors. By studying the announcement returns and using a difference-in-differences methodology, we find the negative shock to director
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Financial resource pooling in club deals Journal of Corporate Finance (IF 5.107) Pub Date : 2024-01-11 Lara Faverzani
Using a novel hand-collected dataset on leveraged buyouts, this study tests non-mutually exclusive hypotheses for club formation: collusion; financial resource pooling, either due to the riskiness of the target firm or to the fund’s investment limits; and experience. Results of the empirical analysis support the resource pooling motivation: club deals allow their members to buy larger targets and to
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How does currency risk impact firms? New evidence from bank loan contracts Journal of Corporate Finance (IF 5.107) Pub Date : 2024-01-11 Mikael C. Bergbrant, Bill B. Francis, Delroy M. Hunter
We use unique features of the private credit market to examine if and how currency risk impacts firms' financing and whether currency risk is a priced systematic risk at the firm level. We find that currency exposure has a large impact on loan spreads. Decomposing loan spreads, we find that exposure increases the expected default loss premium and that internationalization, growth opportunities, and
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The influence of media slant on short sellers Journal of Corporate Finance (IF 5.107) Pub Date : 2024-01-06 April Knill, Baixiao Liu, John J. McConnell, Glades McKenzie
Using the positive shift in tone of Fox News coverage of macroeconomic news after the Republican Bush election in 2000, we investigate whether media slant influences the investment decisions of short sellers. We find that firms headquartered in Republican-leaning townships with Fox News availability experienced a relative decrease in short interest post the 2000 election. We further find that the relative
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Strengthening secured creditors: Implications on debt financing and investment Journal of Corporate Finance (IF 5.107) Pub Date : 2024-01-07 Óscar J. Guevara, Julio Riutort
This paper investigates the effects of a comprehensive insolvency regulation reform in Colombia, focusing on strengthening secured creditor rights, expanding the collateral menu, and establishing a national collateral registry. Leveraging a difference-in-difference design, the study examines the impact on firms with varying levels of movable assets. The reform significantly increased debt usage for
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The impact of bank mergers on corporate tax aggressiveness Journal of Corporate Finance (IF 5.107) Pub Date : 2024-01-05 Jie Chen, Tapas Mishra, Wei Song, Qingjing Zhang, Zhuang Zhang
We study whether borrowers' opaque practices, such as tax aggressiveness, are affected by their lenders' engagement in mergers and acquisitions (M&As). Our findings suggest that borrowers' tax aggressiveness is negatively associated with bank mergers as banks increasingly rely on hard information in monitoring and lending practices following mergers. This relationship is more pronounced for borrowers
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Offshore activities and corporate tax avoidance Journal of Corporate Finance (IF 5.107) Pub Date : 2024-01-03 Zhihong Chen, Ole-Kristian Hope, Qingyuan Li, Yongbo Li
We investigate the relation between tax avoidance and offshore activities using a new text-based measure for offshore activities based on Hoberg and Moon (2017, 2019). Our evidence shows that, although providing cross-border tax-avoidance opportunities, offshore activities reduce the marginal benefits of tax avoidance by introducing incremental foreign-market risk exposure. We find that the intensity
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Relationship-specific investments for up- and downstream firms and credit constraints Journal of Corporate Finance (IF 5.107) Pub Date : 2024-01-02 Thomas David, Michael Troege, Hiep Manh Nguyen, Hang Thu Nguyen
This paper argues that there exists a fundamental asymmetry between relationship-specific investments (RSI) made for downstream firms (customer-specific investments – CSI) and for upstream firms (supplier-specific investments – SSI). Both types of RSI can create a hold-up problem, but everything else equal, suppliers have higher bargaining power, rendering hold-ups by suppliers more dangerous than
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Bank market power and financial reporting quality Journal of Corporate Finance (IF 5.107) Pub Date : 2023-12-25 Biao Mi, Luqiao Zhang, Liang Han, Yun Shen
Joining the debate on the banking sector's impact on the real economy, this study examines the impact of banks' market power on local businesses' financial reporting quality. Based on the market power hypothesis and the information-based hypothesis, we propose four ways the banking market could affect the financial reporting quality. The proposed mechanisms suggest that borrowers and bank lenders face
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Partisan conflict and corporate credit spreads: The role of political connection Journal of Corporate Finance (IF 5.107) Pub Date : 2023-12-19 Liyao Wang
This paper documents the positive impact of partisan conflict on corporate credit spreads for politically connected companies and industries. The effect is both economically meaningful and statistically significant, stands under an extensive set of control variables, and is stronger for speculative-grade bonds. Several approaches are adopted to resolve endogeneity issues and further establish causality
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Business aspects in focus, investor underreaction and return predictability Journal of Corporate Finance (IF 5.107) Pub Date : 2023-12-18 Zuben Jin
Overlap in business aspects serves as a proxy for firm relatedness. Employing an unsupervised topic modelling methodology from machine learning, we characterize the attention allocations of earnings conference call participants (corporate executives, financial analysts, and investors) over the topics discussed. We construct a novel topic similarity measure that captures incremental, difficult-to-observe
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CEO personality traits, strategic flexibility, and firm dynamics Journal of Corporate Finance (IF 5.107) Pub Date : 2023-12-13 Tom Aabo, Christos Pantzalis, Jung Chul Park, Lenos Trigeorgis, Jesper N. Wulff
Reexamining CEO personality traits from a real options theory perspective, we suggest that the firm's strategic flexibility can be worsened by CEO conscientiousness and neuroticism. We use a measure of strategic flexibility as the firm's ability to take advantage of heightened volatility, which then results in superior stock returns. Our results suggest that strategic adaptability is impeded by rigid
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ESG and CEO turnover around the world Journal of Corporate Finance (IF 5.107) Pub Date : 2023-12-12 Gonul Colak, Timo P. Korkeamäki, Niclas Oskar Meyer
We investigate whether CEOs around the world are held accountable for stakeholder-related corporate misbehavior. The likelihood of CEO turnover increases significantly when the media coverage of the ESG incidents reaches extreme levels. CEO turnovers occur even in the cases where an incident does not lead to a stock price decline. In such cases, the board likely has a non-pecuniary motive for the turnover
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Boardroom networks and corporate investment Journal of Corporate Finance (IF 5.107) Pub Date : 2023-12-01 Suyong Song, Jiawei (Brooke) Wang
This paper investigates whether network effects on investment exist and whether firms strategically herd their connected firms. To construct firm networks, we utilize board-interlock networks where two firms share at least one common board member and estimate network effects on firms’ investment decisions. Our identification strategy is built on adopting characteristics of the peers of peers as legitimate
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Overlapping institutional ownership along the supply chain and earnings management of supplier firms Journal of Corporate Finance (IF 5.107) Pub Date : 2023-11-23 Lei Gao, Jianlei Han, Jeong-Bon Kim, Zheyao Pan
We explore the impact of overlapping institutional ownership (OIO) within supply chains on the earnings management practices of supplier firms. Utilizing a dataset of U.S. publicly traded supplier firms from 1988 to 2016, we discover that suppliers with institutional ownership overlapping with their major customers exhibit reduced levels of discretionary accruals. This finding implies that such overlap
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Information transfer of CEO turnover: Evidence from firm-CEO mismatch Journal of Corporate Finance (IF 5.107) Pub Date : 2023-11-22 Rosemond Desir, Scott E. Seavey, Maya Thevenot
We investigate intra-industry information transfer to news of a significant corporate event, forced CEO turnover. Intra-industry information transfer occurs when announcements made by one or more firms in an industry contemporaneously affect stock prices of peer firms. We find results strongly consistent with information transfer in response to forced CEO turnover, as evidenced by significant cumulative
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Labor-saving innovations and capital structure Journal of Corporate Finance (IF 5.107) Pub Date : 2023-11-20 Jiaping Qiu, Chi Wan, Yan Wang
This paper presents evidence that labor-saving technologies positively impact a firm's financial leverage. The results are robust with two different measures of labor-saving innovations: automation and process innovations. The effects are more pronounced in firms facing greater labor input rigidity, such as firms with higher labor intensity, share of minimum wage workers, and union coverage. Our analysis
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How do firms cope with losses from extreme weather events? Journal of Corporate Finance (IF 5.107) Pub Date : 2023-11-17 Emanuela Benincasa, Frank Betz, Luca Gattini
We document the investment and financing decisions of firms that experience monetary losses due to extreme weather events. Our sample covers firms operating in 41 economies, mainly emerging and developing markets. Consistent with the need to either replenish damaged capital or to adapt to climate change, firms with weather-related losses are more likely to invest in long-term assets and integrate climate-friendly
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Informed options trading before FDA drug advisory meetings Journal of Corporate Finance (IF 5.107) Pub Date : 2023-11-10 Zekun Wu, Paul Borochin, Joseph Golec
Months before the Food and Drug Administration (FDA) decides to approve or reject a new drug, it often asks committees of drug experts for their recommendations. The experts receive nonpublic technical reports from drug firms and FDA staff. We find significant abnormal options trading before the final reports are created and the committees meet, particularly for small drug firms. These options trades
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Clawback adoptions, managerial compensation incentives, capital investment mix and efficiency Journal of Corporate Finance (IF 5.107) Pub Date : 2023-11-10 Gary C. Biddle, Lilian H. Chan, Jeong Hwan Joo
We present evidence that clawback adoptions, by dissuading accruals management, motivate managers to shift capital investment mix from R&D to capex to preserve earnings-based compensation, thereby lowering capital investment efficiency. These effects are more pronounced for firms prone to financial misreporting, which is consistent with board incentives to adopt clawbacks, and with managerial incentives
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Do firms manage their share prices to mitigate investor short-termism? Journal of Corporate Finance (IF 5.107) Pub Date : 2023-11-09 Ibrahim Bostan, Ji-Chai Lin, G. Mujtaba Mian
Recent work documents a behavioral tendency of investors to expect excessively high upside potential for low-priced stocks. These expectations expose low-priced firms to greater pressure for short-term performance because their poor earnings news leads to greater investor disappointment and larger stock price declines. Therefore, we hypothesize that firms with a long-term focus, such as those that
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Corporate governance reforms, societal trust, and corporate financial policies Journal of Corporate Finance (IF 5.107) Pub Date : 2023-11-09 Cephas Simon Peter Dak-Adzaklo, Raymond M.K. Wong
While formal institutions are considered important in affecting corporate behaviors, little attention has been paid to the role of informal institutions in such relation. We employ the (formal) corporate governance reforms and the (informal) individual countries' trust levels to examine how the informal institution moderates the impacts of the formal institution on corporate financial policies. Using
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Dividend hibernation and future earnings: When no dividend news is good news Journal of Corporate Finance (IF 5.107) Pub Date : 2023-10-31 Jo Drienko, Bardia Khorsand
Firms frequently enter dividend hibernation, periods during which dividends remain unchanged for consecutive quarters. We employ a dividend event framework to show that, compared to non-hibernating firms, hibernators experience higher unexpected future earnings growth for up to five years by reducing underinvestment. We construct an index of adverse selection measures and find that hibernating firms
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Trademarks and the cost of equity capital Journal of Corporate Finance (IF 5.107) Pub Date : 2023-10-31 Bin Yang, Zhe An, Xin Gao, Donghui Li
Employing a sample of 4655 U.S. public firms from 1993 to 2017, we document robust evidence that firms with more registered trademarks have a lower cost of equity. We further show that the equity financing cost is lower for firms with better-protected trademarks in difference-in-differences estimation based on the enactment of the Federal Trademark Dilution Act in 1996. In addition, our analysis reveals
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Debt maturity structure and the quality of risk disclosures Journal of Corporate Finance (IF 5.107) Pub Date : 2023-10-31 Sumingyue Wang, Xinlu Wang, Liang Xu
This paper investigates whether a firm's debt maturity structure affects the quality of its risk disclosures. Using a sample of U.S. public firms from 2005 to 2017, we provide robust evidence that a firm's exposure to refinancing risk, measured as the proportion of long-term debt that matures within one year, is positively correlated with the readability and specificity of risk disclosures. This relationship
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CEO network centrality and bank risk: Evidence from US Bank holding companies Journal of Corporate Finance (IF 5.107) Pub Date : 2023-10-17 Yaoyao Fan, Yuxiang Jiang, Pengcheng Jin, Yong Mai
We investigate the impact of CEO network centrality, a central position in a social network, on bank risk. Using a sample of 471 bank holding companies (BHCs) in the US from 1999 to 2018, we find that CEO network centrality is negatively related to bank risk and this is due to CEOs with higher levels of network centrality implementing less risky policies. Additionally, we find that information flow
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Bank liquidity creation and religious observance: Evidence from Ramadan fasting Journal of Corporate Finance (IF 5.107) Pub Date : 2023-10-16 Arisyi F. Raz
I examine the effect of religious observance, represented by fasting hours during the month of Ramadan, on bank liquidity creation. I exploit exogenous variation of Ramadan fasting hours that depends on: (1) the timing of Ramadan based on the rotating Islamic calendar; and (2) a country’s latitude. My results document that one additional Ramadan fasting hour reduces bank liquidity creation by 1.1%
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Women directors and E&S performance: Evidence from board gender quotas Journal of Corporate Finance (IF 5.107) Pub Date : 2023-10-13 Edith Ginglinger, Caroline Raskopf
Using the natural experiment created by France's 2011 board gender quota law, we find that the presence of women on boards increases firms' environmental and social (E&S) performance. After the quota law, firms are more likely to create an E&S committee, and women directors are increasingly serving as members of the main board committees and as chairs of E&S committees. We find that prior to being
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Social diversity in corporate boards and firm outcomes Journal of Corporate Finance (IF 5.107) Pub Date : 2023-10-13 Suresh Bhagavatula, Manaswini Bhalla, Manisha Goel, Balagopal Vissa
We examine how firm performance is associated with social diversity among corporate directors, proxied by diversity along religion and caste, a deep-rooted institution dividing India’s Hindu society into hundreds of communities. To identify directors’ social identities, we build one of the first data-driven mappings of last names to caste and religion. We find that Indian corporate boards are strikingly
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Pandemics and financial development: A lesson from the 1918 influenza pandemic Journal of Corporate Finance (IF 5.107) Pub Date : 2023-10-11 Wenxuan Hou, Mao Li, Brian G.M. Main, Xiaofan Liu
This paper examines the long-lasting impact of one of the deadliest pandemics in history on present-day financial development. Based on the variation in the severity of the 1918 influenza pandemic (Spanish flu) across the regions within Italy and the variation across 34 countries, we find that people living in the regions with higher historical death rates are associated with a lower level of present-day
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The effects of labor choice on investment and output dynamics Journal of Corporate Finance (IF 5.107) Pub Date : 2023-10-10 Haejun Jeon, Xue Cui, Chuanqian Zhang
We incorporate both labor and capital as production inputs and discuss the effects of labor choice on a firm’s optimal investment decision and output dynamics based on real options framework. In particular, we introduce different levels of labor flexibility and examine how it affects the firm’s investment and employment strategy. We show that upward-only adjustable labor, which can arise from employment
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Board diversity and shareholder voting Journal of Corporate Finance (IF 5.107) Pub Date : 2023-10-04 Ian D. Gow, David F. Larcker, Edward M. Watts
The lack of diversity across gender and race of corporate boards has been one of the most significant issues in corporate board governance in recent years. Given the critical role that shareholders have in approving director appointments, we analyze voting patterns in director elections to investigate whether and how shareholders value board diversity. Using a broad sample of director elections from
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Credit default swaps and corporate debt structure Journal of Corporate Finance (IF 5.107) Pub Date : 2023-09-29 Yangyang Chen, Walid Saffar, Chenyu Shan, Sarah Qian Wang
Whether and how credit default swaps (CDSs) affect corporate debt structure remains an unanswered question. We find that firms use more public debt relative to bank debt when CDSs referencing their debt start trading. The results are robust to the endogeneity of CDS trading. Furthermore, the increase in public debt is concentrated in senior bonds and notes, which are the most common CDS reference assets
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Misallocation of debt and aggregate productivity Journal of Corporate Finance (IF 5.107) Pub Date : 2023-09-28 Hwagyun Kim, Vipul Mathur, Jong Kook Shin, Chetan Subramanian
We propose an accounting framework that maps the dispersion of borrowing costs along the debt maturity structure to the misallocation of productive resources. Specifically, we decompose the effects of credit misallocation into two distinct channels: limited access to debt finance (the scale effect) and distortion in the composition of debt across maturities (the composition effect). Our estimates suggest
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On the determinants of the dynamic choice between mergers and tender offers Journal of Corporate Finance (IF 5.107) Pub Date : 2023-09-25 Elmar Lukas, Paulo J. Pereira, Artur Rodrigues
This paper builds on recent advances in the domain of dynamic M&A option games under uncertainty and looks closer at the determinants that drive the strategic choice between mergers and tender offers. In particular, our model sheds new light in understanding the effects of uncertainty and relative size of firms on the choice of the M&A strategy. We not only show that uncertainty and relative size do
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Firm-level media news, bank loans, and the role of institutional environments Journal of Corporate Finance (IF 5.107) Pub Date : 2023-09-23 Zhehao Jia, Donghui Li, Yukun Shi, Lu Xing
Employing an international sample of bank loans from 37 countries, we find that both borrowers' intensive media coverage and positive media sentiment reduce the interest rate spreads on bank loans. In syndicated lending, positive media sentiment increases the likelihood of a non-relationship bank leading or participating in a loan syndicate and decreases the loan share of the lead arranger. Furthermore
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The role of environmental, social, and governance rating on corporate debt structure Journal of Corporate Finance (IF 5.107) Pub Date : 2023-09-21 Panagiotis Asimakopoulos, Stylianos Asimakopoulos, Xinyu Li
This paper examines the impact of Environmental, Social, and Governance (ESG) rating on a firm’s debt structure. We find that optimal (market and book) leverage ratios and information asymmetry are reduced when firms become ESG rated. More importantly, ESG rated firms redistribute their financing sources from public debt (bonds issuing) to private debt (bank loans). These results are attributed to
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CEO reputation and shareholder voting Journal of Corporate Finance (IF 5.107) Pub Date : 2023-09-19 Thomas David, Alberta Di Giuli, Arthur Romec
This paper examines the influence of CEO reputation on corporate proxy voting. Relying on prestigious business awards (through which the CEO is elevated to superstar status) as salient shocks to CEO reputation, we find that shareholders in aggregate, and mutual funds in particular, are more likely to vote with management (i.e., against shareholder proposals) when the CEO is a superstar. We use a battery
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Shades of grey: Risk-related agency conflicts and corporate innovation Journal of Corporate Finance (IF 5.107) Pub Date : 2023-09-16 Emdad Islam, Lubna Rahman
We investigate how risk-related agency conflicts affect valuable risky investments. Using an exogenous negative shock to shareholders' litigation rights from an unanticipated court ruling that exacerbates risk-related agency conflicts by shielding managers from shareholders' governance through litigation, we show that innovation inputs and quality decline significantly for treated firms. Small firms
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Do corporate lawyers matter? Evidence from patents Journal of Corporate Finance (IF 5.107) Pub Date : 2023-09-01 Dimitris Andriosopoulos, Pawel Czarnowski, Andrew Marshall
Patent attorneys are responsible for obtaining patents that bring the highest expected profits for their corporate clients. We investigate the role of patent attorney capability in determining the value of corporate patents. We find that a one standard deviation increase in legal expertise leads to a 0.04% rise in patents' market valuation and a 3% increase in citations. This finding holds irrespective
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Is your surname remunerative? Surname favorability and CEO compensation Journal of Corporate Finance (IF 5.107) Pub Date : 2023-09-06 Jay Heon Jung, Sonya S. Lim, Jongwon Park
We find that CEOs with more favorable surnames receive significantly higher compensation. The estimated effect of surname favorability is unique and incremental to the documented effects of various firm, board, and CEO characteristics. CEOs with French or German surnames receive significantly lower compensation after the French and German governments' opposition to the Iraq war. Surname favorability
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Do bank shocks affect physical or R&D investments more? Evidence from Japan Journal of Corporate Finance (IF 5.107) Pub Date : 2023-08-28 Hirokazu Mizobata
This study focuses on physical and R&D investments to examine the effect of bank shocks on corporate investment behavior at the firm and economy levels. I use matched bank-firm lending data for listed Japanese companies from 1990 to 2013 to distinguish bank loan supply shocks from firms’ borrowing shocks. Notably, bank concentration increased in Japan during this period, thereby enhancing the granularity
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Trade secret protection and product market dynamics Journal of Corporate Finance (IF 5.107) Pub Date : 2023-08-23 Daniel Bradley, Dan Hu, Xiaojing Yuan, Chi Zhang
We exploit the staggered state-level enactment of the Uniform Trade Secret Act (UTSA) to examine the impact of intellectual property (IP) protection on product market dynamics. We find that UTSA-impacted firms shift their IP strategy to rely more on trade secrets and less on patents. Less IP disclosure increases information asymmetry and rival firms must adapt their competitive strategies as espionage