Ru Xie (University of Bath)
Title: Research Unbundling and Market Liquidity: Evidence from MiFID II
Abstract:
The second Markets in Financial Instruments Directive (MiFID II) mandated the unbundling of payments for research and trading. This research explores whether the impact of MiFID II differs between large and small firms in terms of analyst coverage and stock liquidity. I n p articular, we focus on the London Stock Exchange with its more regulated Official List (Main Market) and less regulated Alternative Investment Market (AIM). We find a significant drop in analyst coverage on the Main Market, which leads to a deterioration in market liquidity. In contrast, the requirement of AIM firms to retain a Nominated Adviser (NOMAD), who often provides research coverage, has mitigated the impact of MiFID II. AIM firms have experienced marginally higher research coverage and liquidity, consistent with NOMA Ds facilitating the dissemination of firm-specific information.
Date: Thursday 26th January, 13:00 - 14:00
Matt Elliot (Cambridge Economics)
Title: Market Segmentation Through Information
Abstract:
An information designer has information about consumers’ preferences over products sold by oligopolists and chooses what information to reveal to firms who, then, compete on price by making personalized offers. We study the market out- comes the designer can achieve. The information designer is a metaphor for an internet platform which uses data on consumers to target advertisements that include discounts and promotions. Our analysis demonstrates the power that users’ data can endow internet platforms with, and speaks directly to current regulatory debates.
For the full paper click here.
Date: Thursday 9th February, 13:00 - 14:00
Ofer Eldar (Duke University)
Title: The Rise of Anti-Activist Poison Pills
Abstract:
We provide the first systematic evidence of contractual innovation in the terms of poison pill plans. In response to the increase in hedge fund activism, pills have changed to include anti-activist provisions, such as low trigger thresholds and acting-in-concert provisions. Using unique data on hedge fund views of SEC filings as a proxy for the threat of activists’ interventions, we show that hedge fund interest predicts pill adoptions. Moreover, the likelihood of a 13D filing declines after firms adopt “anti-activist” pills, suggesting that pills are effective in deterring activists. The results are particularly strong for “NOL” pills that, due to tax laws, have a five percent trigger. Our analysis has implications for understanding the modern dynamics of market discipline of managers in public corporations and evaluating policies that regulate defensive tactics.
Date: Thursday 23th February, 13:00 - 14:00
Arna Olafsson (Copenhagen Business School)
Title: Misfortune and Mistake: The Financial Conditions and Decision-Making Ability of High-Cost Loan Borrowers
Abstract:
The appropriateness of many high-cost loan regulations depends on whether demand is driven by financial conditions (“misfortunes”) or imperfect decisions (“mistakes”). Bank records from Iceland show borrowers have especially low liquidity just before getting a loan. Borrowers exhibit lower decision-making ability (DMA) in linked choice experiments: 45% of loan dollars go to the bottom 20% of the DMA distribution. Standard determinants of demand do not explain this relationship, which is also mirrored by the relationship between DMA and an unambiguous “mistake.” Both “misfortune” and “mistake” thus appear to drive demand.
Date: Thursday 9th March, 13:00 - 14:00
Ron Giammarino (University of British Columbia)
Title: Taxes and Equity Risk and Return: The case of Tax-Loss Carry Forwards
Abstract:
How do taxes affect equity risk and return? In this paper, we examine the relationship between corporate taxes and equity risk and return with a focus on tax-loss carry forwards. Tax-loss carry forward (TLCF), the accumulated corporate losses that can be applied to future taxable income, forms an important and risky corporate asset. We first show theoretically that a firm’s TLCF is a complex contingent claim that has a non-monotonic effect on equity risk: at a high level of TLCF , equity risk is increasing in TLCF because firms are more likely to see their TLCF left deferred or unused after negative cash flow shocks. On the other hand, if TLCF is so low that it will be used with near certainty, then equity risk is decreasing with TLCF since TLCF represents a safe cash flow. Empirically, TLCF positively and significantly forecasts various measures of equity risk, as well as future returns controlling for standard risk measures. The positive relationship indicates that TLCF is risky for the typical firm.
Date: Thursday 4th May, 13:00 - 14:00
Alex Gorbenko (UCL)
Title: Distressed Investment, Corporate Debt Liquidity, and Capital Structure
Abstract:
We examine liquidity of corporate debt and capital structure of the firm run by inefficient management in the presence of a distressed investor in the secondary debt market. In addition to having superior information about the firm’s future cash flows, the distressed investor can install a more efficient management and restructure the firm in bankruptcy. An unexpected arrival of the investor negatively impacts liquidity of existing debt claims. However, liquidity is more nuanced when firms choose their capital structure in expectation of the distressed investor. In particular, if value added from restructuring is sufficiently high in deep default states, liquidity of senior claims optimally issued by the firm can still be low. We derive testable implications and examine the impact of various Bankruptcy Code provisions on liquidity and capital structure of the firm.
Date: Thursday 18th May, 12:45 - 13:45
Enrichetta Ravina (Chicago Fed)
Title: Proxy Voting and the Rise of ESG
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.
Date: Thursday 15th June, 13:00 - 14:00
Kai Liu (University of Cambridge)
Title: Returns to Education with Earnings Uncertainty and Employment Risk over the Life Cycle
Abstract:
The trade-off between risk and return plays a central role in empirical work on investment in physical capital. In contrast, this trade-off has received little attention in the empirical literature on investment in human capital. To date, there is little causal evidence on how education affects life-cycle earnings profiles, earnings uncertainty, and unemployment risk. Yet theory suggests these factors could be important both to accurately measure the returns to education, to explain the decision to invest or not in education, and to understand the observed earnings dynamics and inequality over the life-cycle. The primary contribution of our paper is to incorporate earnings uncertainty and employment risk in the empirical measurement of the returns to education. To do so, we first characterize the causal relationship between schooling and earnings over the life-cycle, following the same individuals across their working lifespan. This relationship allows us to draw conclusions about how additional schooling affects the level and dispersion of earnings over the life cycle. To try to disentangle uncertainty from heterogeneity, we next model the underlying earnings process, targeting the estimated causal relationship between schooling and earnings over the life-cycle. We then fit a life-cycle model with precautionary saving motive to the estimated earnings process and observed consumption profiles. The estimated model allows us to quantify how earnings uncertainty and employment risk affect the incentives to invest in education, and to examine the extent to which the progressive tax-transfer system distorts these incentives.
Date: Thursday 12th October, 13:00 - 14:00
Event Location: Castle Teaching Room, Cambridge Judge Business School