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.
Abstract: This paper examines whether issuer funding constraints are price determinants of structured retail products (SRPs). In the SRP market, the financial institutions that issue SRPs are the dealers for their own products so that measures of dealer funding constraints can be constructed using publicly available data. Dealer funding constraints will primarily be observed through lower bid-quotes in an effort by the dealer to preserve capital. I use the 2007--2009 financial crisis as a shock to issuers' funding liquidity. My findings suggest that during this period, funding constraints are indeed statistically significantly negatively related to SRP bid quotes. This negative relation persists throughout all of 2009, suggesting that this is not only a short-term dealer reaction to inventory management, and instead a measure to discourage investor selling and to preserve capital. The results are robust to either using monthly or quarterly data and obtain by using either leverage or a short-term funding measure as a proxy for funding constraints. The findings highlight that the funding conditions of SRP issuers through their dealer function has direct implications for the pricing of SRPs..
"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.
"Risk Factors and the Prediction of Uncertainty" (with Bruce Grundy), (available soon)
In this paper, we employ a machine learning algorithm that allows us to identify and quantify the most important risk factors.
Work in Progress:
"Corporate Finance during Hyperinflation" (with Lyndon Moore).