Working Papers
Working Papers
We examine how expertise of institutional investors (aka deft investors), based on the product market similarity of their 13F holdings, is related to asset prices. We find that portfolio similarity of investors is associated with returns both at the extensive and intensive margins. A long-short strategy that buys (sells) stocks with increases (decreases) in deft ownership earns high risk-adjusted returns. Exploring mechanisms, we find stocks that are traded by deft investors, on average, receive lower investor attention and are relatively under-valued. Our findings suggest that investors specialize in industries and enjoy an information advantage, which when not fully exploited due to investor constraints, allow stock return predictability.
We investigate how idiosyncratic lender shocks impact corporate investment. Lenders with recent default experience write stricter loan contracts, leading to a reduction in real investment for borrowing firms. The decline in investment is not attributable to loan riskiness, borrowers agency costs, the lender-borrower relationship nexus, or to lender capitalization, but is less pronounced when non-bank lenders increase. The findings remain robust when controlling for lender fragility, macroeconomic conditions, aggregate defaults in the economy, and excluding defaulters from the same industry or geographic region. The evidence suggests that defaults inform lenders about investment opportunities and their screening ability, and adjustments to this information have real economic consequences.
This paper examines whether institutional investors' portfolio diversification strategies reveals their preferences for a constituent's corporate diversification policies. We estimate investor portfolio diversification using return characteristics of institution's 13F holdings relative to a benchmark asset pricing model and find a negative relationship between portfolio and corporate diversification. This relationship is robust to a quasi-natural experiment, and more pronounced when blockholders are fewer, managers are highly incentivized, and quasi-indexer ownership is higher. Further, diversified owners are associated with a reduced propensity of firms engaging in diversifying acquisitions and having product market similarities to rivals. Our findings illustrate how evolving ownership structures reshape the corporate landscape.
We find that Chinese regional state-owned City-Commercial Banks (CCBs) landlocked by their remit to operate within a city respond to natural disasters more effectively by aggressively expanding credit, especially to corporate borrowers. The credit expansion is more remarkable in CCBs with high state ownership and those that are private. However, the additional lending does not sacrifice asset quality. Moreover, using satellite-based city night lights, we find post-disaster cities that experience greater CCB credit expansion enjoy stronger economic recovery. Overall, our findings highlight the critical role played by regional state-owned lenders in economic recovery from increasingly frequent natural disasters.