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Published Papers:

The Effect of Issuer Leverage on Issuer Bid and Ask Quotes for Structured Retail Product

European Journal of Finance, forthcoming

Abstract: The financial institution that issues a structured retail product (SRP) becomes the dealer for that security. Issuer–dealer funding constraints can directly impact price quotes for SRPs. The 2007–2009 financial crisis diminished issuer funding liquidity, and both bid and ask quotes declined, with the decrease in bids being significantly greater than that for the asks. A reduction in the bid (ask) discourages (encourages) investor selling (buying) and helps preserve dealer capital. The SRP’s intrinsic value places a bound on how far the ask needs to be reduced to induce investor buying. High-leverage (low-leverage) issuers are the most (least) financially constrained and decrease their bids by a significant 167% (nonsignificant 41%) compared to the pre-crisis average. The decrease in asks is nonsignificant for both groups.

Mandatory Worker Representation on the Board and Its Effect on Shareholder Wealth

Financial Management, Spring 2018, 25-54.

Abstract: Several countries legally mandate representation of workers on boards of directors. The evidence on the shareholder wealth effects of such a corporate governance design is mixed. I examine abnormal announcement returns around major milestones leading to the passing of the German Codetermination Act in 1976. I find that news about the act causes an average decline in the equity value of firms that are certain to have been affected by the new law of up to 1.5% relative to the control firms. Firms close to the regulatory threshold of 2,000 employees remain unaffected implying an expectation of avoiding compliance.

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.

Working Papers:

Risk Factors and the Prediction of Uncertainty (with Bruce Grundy)

Abstract: We use machine-learning to determine the information content of the Item 1A Risk Factors section of S&P 1500 10-Ks. We identify and quantify 30 risk-factors and show a strong positive relation between levels of and contemporaneous changes in risk-factors and proxies for the associated risks. Typically, 28% of cross-firm variation in a risk-proxy is explained by cross-firm variation in the associated risk-factor. Risk disclosure is not found to be forward-looking. Item 1A’s informativeness has not declined through time despite previously documented increases in boilerplate content, stickiness and redundancy. Indices of operating and financing risk help explain asset and equity volatility.

Private Equity Monitoring in Public Firms

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.

Work in Progress:

"Corporate Finance during Hyperinflation" (with Lyndon Moore).