Jean-Edouard Colliard (HEC Paris)
Title: Financial Restructuring and Resolution of Banks
Abstract:
How do resolution frameworks affect the private restructuring of distressed banks? We model a distressed bank’s shareholders and creditors negotiating a restructuring given asymmetric information about asset quality and externalities onto the government. This yields negotiation delays used to signal asset quality. We find that strict bail-in rules increase delays by worsening informational frictions and reducing bargaining surplus. We characterize optimal bail-in rules for the government. We then consider the government’s possible involvement in negotiations. We find this can lead to shorter or longer delays. Notably, the government may gin from committing not to partake in negotiations.
Date: Thursday 24th January, 13:00 - 14:00
Event Location: Room W4.05, Cambridge Judge Business School
Naomi R. Lamoreaux (Yale University)
Title: Patenting in an Entrepreneurial Region during the Great Depression: The Case of Cleveland, Ohio.
Written in collaboration with Margaret Levenstein (University of Michigan).
Abstract:
This paper investigates the effect of a major macroeconomic shock, the Great Depression, on patenting in an innovative region. Cleveland, Ohio, was a vibrant industrial city in the 1920s, a hotbed of inventive activity and small-scale startups in a range of important Second Industrial Revolution industries. One might expect a shock of the magnitude of the Great Depression to have taken a serious toll on inventive activity, especially in a region such as Cleveland’s, where there were so many small firms dependent on external finance. We explore this issue by comparing the career patenting records of two cohorts of Cleveland patentees who obtained a threshold number of inventions during the years 1910-12 and 1928-30 and find remarkably little effect of the Depression on patenting. We then look at the patenting careers of graduates from the Case School of Applied Science. Only when we focus on the students who graduated in the midst of the Depression do we find a significant effect. We conclude that an important negative consequence of the Depression was to prevent a new generation of inventors from forming to carry on the region’s innovative tradition.
Date: Thursday 7th February, 12:30 - 13:30
Event Location: Castle Teaching Room, Cambridge Judge Business School
Brad M Barber (UC Davis)
Title: Impact Investing
Written in collaboration with Adair Morse (University of California), Ayako Yasuda (University of California)
Abstract:
We document that investors derive nonpecuniary utility from investing in dual-objective VC funds, thus sacrificing returns. Impact funds earn 4.7 percentage points (ppts) lower IRRs ex post than traditional VC funds. In random utility/willingness-to-pay (WTP) models investors accept 2.5-3.7 ppts lower IRRs ex ante for impact funds. The positive WTP result is robust to fund access rationing and investor heterogeneity in fund expected returns. Development organizations, foundations, financial institutions, public pensions, Europeans, and UNPRI signatories have high WTP. Investors with mission objectives and/or facing political pressure exhibit high WTP; those subject to legal restrictions (e.g., ERISA) exhibit low WTP.
Date: Thursday 21st February, 13:00 - 14:00
Event Location: Room W4.05, Cambridge Judge Business School
Yuri Tserlukevich (Arizona State University)
Title: Competition, No-Arbitrage, and Systematic Risk
Abstract:
We study how strategic interaction among firms affects their systematic risk. Competition effectively imposes bounds on profitability within each economic sector because competing firms simultaneously scale production up or down in response to common demand shocks. We show that no arbitrage implies that exposure to systematic risk factors must be zero at these bounds, leading to an inverse U-shaped relation between systematic risk and sector profitability. In general, competition reduces systematic risk and attenuates size related asset pricing anomalies. Using trade flows between economic sectors, we construct a new measure of competition based on each sector's dependence on input factors and find broad empirical support for the theoretical predictions.
Date: Thursday 7th March, 13:00 - 14:00
Event Location: Castle Teaching Room, Cambridge Judge Business School
Alex Frino (University of Wollogong, Australia)
Title: Off-Market Block Trades, Transparency and Information Efficiency: New Evidence from Futures Markets
Abstract:
Off market trades are transactions in securities markets which are executed away from the main market and later reported to the market. Off market trades are a recent phenomenon in futures markets and while there is a rich body of literature analysing off market trading in equities markets, this is the first study to analyse off market trading in futures markets. This issue is particularly topical, as the Chicago Mercantile Exchange introduced off-market trading for commodity futures in January 2018 which generated significant debate about the impact of the lack of transparency they create (Parking, April 8 2018, Wall Street Journal). In this paper, we examine the price impact of off market trades at the time they are executed and the time they are later reported to market. We find a statistically significant price reaction both around the time they are executed and the time they are later reported. We conclude that the market learns from trading around the off-market trade and impounds some of the information conveyed by the trade at the time they are executed. Given that the market reacts significantly at the time the trades are reported, suggesting that the reporting of the trades conveys information to the market, we conclude that delaying reporting of trades has an impact on market price efficiency. These findings contrast to findings for equities markets which conclude that the withholding of trade information has no impact on the speed of adjustment of the market to the information conveyed by the off-market trade (Gemmill, 1997, Journal of Finance).
Date: Thursday 2nd May, 12:30 - 13:30
Event Location: Room W4.03, Cambridge Judge Business School
Ernst-Ludwig von Thadden (University of Manheim)
About Ernst-Ludwig von Thadden
Title: Corporate Governance and the CAPM: Some Theory and Evidence
Abstract:
The paper extends the classic risk-return tradeoff of the CAPM to a risk-effort tradeoff, by assuming that managerial effort is necessary to generate cash flows. Corporate governance standards influence the manager's return to effort, her exposure to corporate risk, and the dilution of shareholder value. In capital market equilibrium, this tradeoff has implications for the firm's cash flows and stock returns, and this in turn affects the endogenous choice of governance standards. Laxer governance standards decrease the stock's β, and in equilibrium systematic and idiosyncratic stock return risk are both negatively correlated with governance laxity. Various empirical tests with U.S. data using the corporate governance index of Gompers, Ishii, and Metrick (2003) are consistent with our predictions.
Date: Thursday 16th May, 12:30 - 13:30
Event Location: No 10 North (Lower Ground)
Mara Faccio (Purdue)
Title: Business Groups and the Incorporation of Firm-specific Shocks into Stock Prices
Abstract:
In lower income economies, stocks exhibit less idiosyncratic volatility and business groups are more prevalent. This study connects these two findings by showing that business group affiliated firms’ stock returns exhibit less idiosyncratic volatility than do the returns of otherwise similar unaffiliated firms. Global commodity price shocks are common shocks that contribute to firm level
idiosyncratic risk because they affect industries heterogeneously. Idiosyncratic components of commodity shocks are incorporated less into idiosyncratic returns of group affiliates than unaffiliated firms in the same industry and economy. Identification follows from difference-indifference tests exploiting successful and matched-exogenously-failed control block transactions.
Date: Thursday 30th May, 12:30 - 13:30
Event Location: Room W4.03 Cambridge Judge Business School
Rigas Oikonomou (Universite Catholique de Louvain)
Title: Union Debt Management
Authors: J. Equiza-Gonin, E. Faraglia and R. Oikonomou
Abstract:
We study the role of government debt maturity in currency unions to identify whether debt management can help governments hedge their budgets against spending shocks. We first use a novel and detailed dataset of debt portfolios of five Euro Area countries to run a battery of VARs, estimating the responses of holding period returns to fiscal shocks. We find that government portfolios, which in our sample comprise mainly of nominal assets, have not been effective in absorbing idiosyncratic fiscal risks, whereas they have been very effective in absorbing aggregate risks. To shed light on this finding, as well as to investigate what types of debt are optimal in a currency area in the presence of both aggregate and idiosyncratic shocks, we setup a formal model of optimal debt management with two countries, benevolent governments and distortionary taxes. Our key finding is that governments should focus on issuing inflation indexed long term debt since this allows them to take full advantage of fiscal hedging. When we look at the data we find a stark increase in the issuance of real long term debt since the beginning of the Euro in many of the countries in our sample, which our model explains as an optimal response of governments to the introduction of the common currency.
Date: Thursday 13th June, 12:30 - 13:30
Event Location: Room W4.03 Cambridge Judge Business School
Gerardo Ferrara, Ph.D., Economist | Bank of England
Title: Simulating liquidity stress in the derivatives market
Written in collaboration with Marco Bardoscia, Nicholas Vause and Michael Yoganayagam
Abstract:
We investigate whether margin calls between derivative counterparties could strain their ability to pay and thereby spread liquidity stress through the market. Using trade repository data on derivative portfolios, we simulate variation margin calls in a stress scenario and compare these with institutions' liquid-asset buffers. Where these buffers are insufficient to meet the margin calls we assume institutions borrow the shortfall, but only at the last moment when payment is due. We find that liquidity shortfalls are only a modest proportion of average daily cash borrowing in repo markets. Additionally, only a small part of those liquidity shortfalls could be avoided if payments were centrally coordinated, for example by a regulator that directed institutions in distress to make partial payments. That said, our methodology could be used regularly to investigate whether margin calls could generate systemic liquidity strains. If that were the case, additional liquidity requirements targeted at institutions that spread liquidity stress would reduce potential liquidity shortfalls most effectively.
Date: Thursday 17th October, 13:00 - 14:00
Event Location: Castle Teaching Room, CJBS
Adeplhe Ekponon (Cambridge Judge Business School)
Title: Agency Conflicts, Macroeconomic Risk, and Asset Prices
Abstract:
This paper develops a dynamic corporate finance model with macroeconomic risk to study the effect of conflicts between insiders and outside investors on the cost of equity. Agency conflicts, resulting from insiders’ willingness to favor their own interests at the expense of the firm are costly and reduce firms’ profit. They are also exposed to the business cycle, leading to time-varying agency costs. To test the model, I use top measures of agency conflicts and merge them with stock returns. The difference in the average value of these indexes in bad compared to good times is positively correlated to the cost of equity, even after controlling for preeminent market factors. Hence, firms with better governance in bad times have a lower cost of equity. Data are from 1990 to 2006.
Date: Thursday 31st October, 12:30 - 13:30
Event Location: W2.02, Cambridge Judge Business School
Johan Walden (Haas School of Business University of California at Berkeley)
Title: The Geography of Beliefs
Written in collaboration with Harjoat Bhamra (Imperial College Business School) and Raman Uppal (Edhec Business School).
Abstract:
Empirical evidence shows that beliefs of households deviate from rational expectations and instead may be influenced by characteristics such as place of residence, culture, and socioeconomic status, which can be modeled using network theory. We develop a model where a household's beliefs about stock returns are an \emph{endogenous} outcome of its location in a bipartite network of households and firms. We use this model to establish the relation between households' beliefs about stock returns, which are unobservable, and the portfolio weights allocated to these stocks by these households. We use Finnish data for 126 stocks and the portfolio holdings of 885,868 households to estimate our model and find that distance in the network has a statistically and economically significant effect on the beliefs of households. Our estimates show that agents are connected to firms within a radius of about 145 miles from where they live, and geography has a strong effect on beliefs: a one standard deviation decrease in an agent's distance to a firm's headquarters predicts an increase in portfolio holdings by 165%. Our work provides microfoundations for the bias toward local stocks documented empirically.
Date: Thursday 14th November, 13:00 - 14:00
Event Location: KH107, Keynes House, Judge Business School
Olga Kuzmina
Title: Gender diversity in corporate boards: Evidence from a natural experiment.
Written in collaboration with Valentina Melentyeva (University of Mannheim).
Abstract:
Using the data on the boards of directors of public companies across the world, we show that female representation in corporate boards does not affect the value of the company. To identify the causal effect of interest we use a novel instrument that exploits natural discontinuities in the gender composition of the board. We further explore if this zero result is due to the lack of power or due to the effect heterogeneity. By splitting the sample into groups of companies that could be expected to have different (or even opposite) effects, we find no heterogeneous effects. This holds even in specifications with reasonably high first-stage F-statistics, where power is likely not an issue. We further show that percentage of women may still affect certain board
characteristics (qualifications, independence, quality of governance, etc). However, as there is still no effect on performance, this may imply that the exact composition of the board does not matter in the end.
Date: Thursday 28th November, 13:00 - 14:00
Event Location: KH107, Keynes House, Cambridge Judge Business School