Does Rating Analyst Subjectivity Affect Corporate Debt Pricing? (with Cesare Fracassi and Geoffrey Tate)
Journal of Financial Economics, 2016, 514-538.
Abstract: We find evidence of systematic optimism and pessimism among credit analysts, comparing contemporaneous ratings of the same firm across rating agencies. These differences in perspectives carry through to debt prices and negatively predict future changes in credit spreads, consistent with mispricing. Moreover, the pricing effects are the largest among firms that are the most opaque, likely exacerbating financing constraints. We find that MBAs provide higher quality ratings; however, optimism increases and accuracy decreases with tenure covering the firm. Our analysis demonstrates the role analysts play in shaping investor expectations and its effect on corporate debt markets.
Workers on the board and shareholder wealth: Evidence from a natural experiment, Revise & Resubmit
Abstract: Several countries legally mandate the representation of workers on the board. The evidence on the shareholder wealth effects of such a corporate governance design is mixed. This paper examines the abnormal returns around major milestones leading to the passage of the German Codetermination Act in 1976. I find that the regulatory increase in the proportion of workers on the board leads to a 1.8% decline in shareholder wealth in firms certainly affected by the new law. Firms close to the regulatory threshold remain unaffected, implying an expectation to avoid compliance. Family firms and firms in several industries also remain unaffected.
Determinants of Secondary Market Prices for Structured Products During the 2007--2009 Financial Crisis, Revise & Resubmit
Abstract: I test several hypotheses that may explain the asymmetric widening of the bid-ask spread driven by lower bid quotes of index structured retail products (SRPs) during the 2007-2009 financial crisis. In addition to index volatility, I identify issuer capitalization as the most important price determinant. Bid quotes from issuers with low equity ratios declined by 65% more than those of the remaining issuers. This drop is even greater in SRPs that do not face competition and that replicate riskier indices because of higher net selling pressure. The results suggest that capitalization of the issuer can influence SRP pricing.
Private Equity Monitoring in Public Firms, Revise & Resubmit
Abstract: This paper finds private equity (PE) firms to have an active monitoring role in stock market-listed companies. Little is known about the governance role of PE investors in publicly listed firms. Using a novel dataset of the ownership structures of firms listed on the German stock market, I find a higher likelihood of forced CEO replacements after poor past firm performance in companies with higher PE ownership. The PE monitoring effect only exists if representatives of the PE firm sit on the board of the portfolio firm. PE ownership is generally associated with higher firm value.