Scott Guernsey (UTK)
Title: Monitoring Secretive Startups
Abstract:
This article examines the mechanisms used by venture capitalists (VCs) to monitor their investments in startups that use trade secrets to protect their intellectual property (IP). First, we confirm that, after startups are afforded stronger trade secrets protection by the adoption of the Uniform Trade Secrets Act (UTSA), they reduce their reliance on patents. Next, we investigate how VCs respond, finding that they decrease both the duration of financing rounds and the overall amount invested per round, especially for startups located the furthest distance away. Finally, we consider how these collective changes affect the exiting process, finding that the likelihood of a successful exit through either an initial public offering (IPO) or merger or acquisition (M&A) is unchanged, but that, within successful M&A exits, the likelihood that the acquirer is private increases. Overall, our findings suggest that VCs work harder to monitor startups that use trade secrets and that this increased effort is necessary to maintain similar likelihoods of successful exiting.
Date: Thursday 27th January, 13:00 - 14:00
Event location: Online
Erkan Yönder (Concordia University)
Title: Strategic Default and Renegotiation: Evidence from Commercial Real Estate Loans
Written in collaboration with I. Serdar Dinc.
Abstract:
We study strategic default in commercial real estate loans in a setting where the borrowers hold multiple such loans and the borrower cash flow is disclosed. We find that the majority of delinquent loans are held by borrowers that continue to meet their debt obligations in their other mortgages and that also have cash flow to meet their delinquent obligations. The pervasiveness of strategic defaults is robust to alternative ways to identify them. Loans in their final year, interest-only loans, and loans with high Current Loan-to-Value are more likely to be subject to strategic default. Our IV analysis reflects that strategically defaulted borrowers are also more likely to have their loans restructured.
Date: Thursday 10th February, 13:00 - 14:00
Event location: Online
Dunhong Jin (Hong Kong University Business School)
Title: Board Diversity and Rare Disasters Risk Insurance
Abstract:
About 37% of Chinese listed firms have medical expertise, as measured by the existence of senior executives with a medical degree or medical-industry experience. Using the COVID-19 outbreak in China as a natural experiment, we find that stock returns of firms with medical expertise, excluding those within the healthcare and pharmaceutical industry, are significantly higher than firms without. This effect has a similar effect that financial variables such as leverage, short-term debt, and cash have on the stock price. The positive impact is more pronounced if a CEO or Chairman has medical expertise and if the firm is not state-owned, or when the firm is located in a place with higher infection rates or with fewer public health resources. To shed light on the underlying mechanisms, we also show that senior executives with medical backgrounds enable their firms to react strategically. They have a more conservative attitude toward the pandemic and advise their firms to hoard more cash. Overall, through disentangling macro shocks, this study underlines the importance of diversified executive human capital on firm performance. Even though this diversity does not seem to increase firm value in normal times, it has the potential to insure the firm against rare disaster risks.
Date: Thursday 24th February, 13:00 - 14:00
Event Location: Online
Enrichetta Ravina (Chicago Fed)
This seminar was due to take place on Thursday 10th March at 13:00 but did not end up going ahead. If you would like the information on what this seminar was going to be on, see below.
Title: Stability and Evolution in Investor Ideology
Abstract:
We track the temporal pattern of institutional investors’ ideologies as revealed by their proxy votes from 2005 to 2018. Despite the financial crisis, the regulatory changes on proxy voting and transformation of the asset management industry it has spawned, and despite the rise of the socially responsible investment movement, we find that the ideology of the largest investors has remained highly stable. The ideologies of institutional investors are revealed by a dynamic, spatial scaling analysis of all proxy votes of 561mutual fund families. We characterize voting as driven by single-peaked preferences in a two-dimensional Euclidean space. One dimension reflects the familiar left-right ideological leanings, with more socially responsible investors on the left, and the other dimension differences in attitudes towards management, with management-friendly investors at one end and management-disciplinarians at the other. Although the ideology of the largest investors remains solidly stable on average, we find that the ideologies of a substantial fraction of other investors evolve substantially over time.
Mehrshad Motahari (Bayes Business School, City University of London)
Title: Do Short Sellers Care about ESG?
Abstract: Abstract Unavailable.
Date: Thursday 5th May, 13:00 - 14:00
Event location: Judge Business School, Unknown Room.
Lira Mota (Princeton)
Title: The Corporate Supply of (Quasi) Safe Assets
Abstract:
Investors value safety services in financial assets, such as the ability to serve as a store of value, to serve as collateral, or to meet mandatory capital and liquidity requirements. I present a model in which investors value safety services not only in traditional safe assets such as US Treasuries, but also in corporate debt. Shareholders thus maximize the value of the firm by complementing standard business operations with safe asset creation. Based on this theoretical framework, I use the CDS-bond basis to derive a measurement of the safety premium of corporate bonds. I document substantial cross sectional variation in the safety premium of corporate bonds, which allows me to test the model's predictions. I show that a high safety premium leads to a marked increase in debt issuance by relatively safer firms. These debt proceeds have a small impact on real investment and are largely used instead for equity payouts. This mechanism can explain why, in the aftermath of the financial crisis, non-financial investment grade companies significantly increased their debt issuance and equity payout while investment remained weak.
Date: Thursday 19th May, 13:00 - 14:00
Event Location: Online
Jawad M. Addoum (Cornell)
Title: Temperature Shocks and Industry Earnings News
Abstract:
Climate scientists project a rise in both average temperatures and the frequency of temperature extremes. We study how extreme temperatures affect companies' earnings across different industries and whether sell-side analysts understand these relationships. We combine granular daily data on temperatures across the continental U.S. with locations of public companies' establishments and build a panel of quarterly firm-level temperature exposures. Extreme temperatures significantly impact earnings in over 40% of industries, with bi-directional effects that harm some industries while others benefit. Analysts and investors do not immediately react to observable intra-quarter temperature shocks, but earnings forecasts account for temperature effects by quarter-end in many, though not all, industries.
Date: Thursday 9th June, 3:00 - 14:00
Event Location: Online
Constantine Yannelis (University of Chicago Booth School of Business)
Title: Data and Welfare in Credit Markets
Abstract:
We show how to measure the welfare effects arising from increased data availability. When lenders have more data on prospective borrower costs, they can charge prices that are more aligned with these costs. This increases total social welfare, and transfers surplus from borrowers to lenders. We show that the magnitudes of the welfare changes can be estimated using only quantity data and variation in prices. We apply the methodology on bankruptcy flag removals, and find that removing prior bankruptcy information increases the surplus of previously bankrupt consumers substantially, at the cost of decreasing total social welfare modestly, suggesting that flag removals are a reasonably efficient tool for redistributing surplus to previously bankrupt borrowers.
Date: Thursday 16th June, 13:00 - 14:00
Event Location: Online
Seok Young Hong (Lancaster University Management School)
Title: Comparing factor models with conditioning information
Abstract:
We develop a framework to conduct asymptotically valid tests for comparing factor models with conditioning information. The tests are based on a metric analogous to the squared Sharpe ratio improvement measure that is used to gauge the extent of model mispricing in an unconditional setting. We propose an estimator for the metric and study its limiting properties in detail, establishing the asymptotic normality. An advantage of our framework is that it can be applied without an a priori knowledge of the persistence nature of the conditioning variables. We accommodate a range of dependence classes, including stationary, near stationarity, integrated, and local-to-unity. An application of our methodology to major models shows that the conditional versions of the Stambaugh and Yuan (2017) four-factor model and the Daniel, Hirshleifer, and Sun (2020) three-factor model are the best performers.
Date: Thursday 13th October, 13:00 - 14:00
Avanidhar (Subra) Subrahmanyam (UCLA Anderson School of Management)
Title: Momentum and Short-Term Reversals: Theory and Evidence
Abstract:
How might short-term reversals and longer-term momentum coexist within markets? To address this question, we develop a dynamic model with liquidity demands and informationprocessing constraints. Specifically, we consider noise traders, and investors who underestimate the quality of information they do not themselves produce. Markets transition from reversals to momentum as lag horizons lengthen. Reversals weaken following earnings announcements. Skipping a month between formation and holding periods increases momentum profits. Larger order flows from retail traders imply stronger reversals. These predictions are supported empirically. If noise demands are positively autocorrelated, price buildups and collapses occur as in recent “meme” stock episodes.
Date: Thursday 27th October, 13:00 - 14:00
Usha Rodrigues (University of Georgia)
Title: Why SPACs: An Apologia
Abstract:
Special purpose acquisition companies (SPACs) dominated the initial public offering (IPO) market in recent years, but the Securities and Exchange Commission (SEC) has proposed rules that have chilled the SPAC market and, if made final, will likely strangle it completely. It is time to examine what, if anything, SPA Cs offer the capital markets.
Most commentators and regulators view SPA Cs as a mere regulatory sleight of hand. This Article focuses on SPA Cs’ fundamental—but overlooked—innovation. Traditional securities law views average investors as prone to hysteria, and therefore relegates them to investment in public companies, reserving investment in private firms for the wealthy. The traditional securities law regime thus has the effect of preventing the general public from investing in private companies until after more wealthy investors have had their turn. But SPA Cs allow the public to trade based on information about a still-private company. Allowing free trading of this information is a radical departure from the basic structure and original purposes of U.S. securities law.
SPA Cs thus challenge securities law at its core. We use an original empirical dataset to argue that their success—or, to be precise, the success of some of them—is evidence that securities law may be overly paternalistic in its attitude toward the general public. Our data provide evidence that, as long as the SEC implements reforms that realign shareholders’ interests with those of SPAC managers, SPA Cs can offer a valuable new opportunity in the markets.
Date: Thursday, 10 November, 13:00 - 14:00