I am an Associate Professor of Finance at the George Washington University School of Business. My research interests are in empirical corporate finance. Prior to joining GW, I was an Assistant Professor of Finance at the Lundquist College of Business, University of Oregon. I received my PhD in Finance from the Kellogg School of Business, Northwestern University in 2013 and my B.A. in Economics and B.S. in Mathematics from Stanford University in 2006.
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Associate Professor of Finance
George Washington University School of Business
Working Papers:
"Gender Bias and Crowd-Sourced Financial Information" (with Chukwuma Dim, Sara E. Shirley and Jeffrey R. Stark)
Revise and Resubmit, Management Science
Abstract: We investigate how investors react differently to the information provided by male and female non-professional analysts on investment social media and the financial market consequences. Although male and female contributors exhibit similar informativeness about future abnormal returns and publish content with comparable novelty, female-authored perspectives receive significantly lower engagement, lower trust, and higher disagreement from platform users. The less favorable engagement and lower attention result in lower retail trading following female-authored views than males’. Consequently, the incorporation of information into asset prices can be slower and information aggregation less efficient, given that female-authored views are informative and non-redundant.
"The Market's Mirror: Revealing Investor Disagreement with LLMs" (with J. Anthony Cookson, Chukwuma Dim, Marina Niessner)
Abstract: Surveying AI agents provides a scalable way to elicit realistic beliefs at high frequency. We leverage this idea to examine investor disagreement about news. We endow a local large language model (Llama 3) with 216 distinct, real-world investor personas, and elicit their sentiment toward a comprehensive sample of S&P500 news headlines. LLM investor personas disagree in economically meaningful ways: political disagreement spikes around Presidential elections, income-based disagreement rises around tax cuts, and race-based disagreement increases around the George Floyd protests. Turning to market outcomes, LLM-derived disagreement correlates strongly with abnormal trading volume, and this relationship is not explained by existing high-frequency disagreement measures. LLM-based disagreement also predicts returns: a long-short strategy based on three-month trailing disagreement earns an average excess return of 20 bps per month.
"Taxes and Merger Activity: Evidence from a Quasi-Natural Experiment" (with Julian Atanassov and Xiaoding Liu)
Abstract: Using staggered changes in state corporate income tax rates, we document that firms are more likely to undertake an acquisition and pay cash for it when taxes increase. The likelihood is greater for financially constrained firms. We find no change in the CAR and takeover premia after tax increases, suggesting that mergers are only used to undo the negative effect of higher taxes on firm value. Finally, we demonstrate that a target is more likely to be acquired if its state corporate income tax rate decreases. The acquisition of targets in lower tax states is followed by a shift in operations by the acquiring firm to the state of the target to reduce its tax burden.
Publications:
9. Genin, A., Ma, W., Bhagwat, V., and Bernile, G. (2024). "Board experiential diversity and corporate radical innovation". Strategic Management Journal, 44(11): 2634-2657.
Abstract: How does board experiential diversity affect corporate radical innovation? We find that the combined diversity of directors’ educational, industrial, and organizational experiences spurs the quantity and quality of path-breaking patents developed at a firm. Instrumental variable analysis leveraging exogenous variation in firm access to the non-local supply of directors with diverse experiences indicates causality, which is corroborated by difference-in-differences tests. Firm heterogeneity suggests experientially diverse directors spur radical innovation by better serving the firm’s advisory needs rather than via improved governance. Our findings enrich theoretical insights into how corporate board leadership may affect innovation and long-term value creation at the firm.
8. Bhagwat, V., Shirley, S., and Stark, J. (2024). "Task-oriented speech and information processing". Journal of Banking & Finance, Volume 161, April 2024, 107095.
Abstract: We examine the impact of task-oriented speech (TOS) on market participants’ ability to process new information, where TOS quantifies a more direct method of communication. Focusing on a widely publicized information event, conference calls, we show that greater TOS is associated with lower ex-post total and idiosyncratic volatility and abnormal trading volume, even after controlling for linguistic characteristics, hard versus soft information, industry effects, and ex-ante implied volatility. TOS also impacts financial analysts: forecast error, forecast dispersion and disagreement are lower during the subsequent quarter. Overall, greater use of TOS increases the ability of financial markets to efficiently evaluate new information.
7. Bhagwat, V., Shirley, S., and Stark, J. (2023). "Gender, Learning, and Earnings Estimate Accuracy ". Journal of Financial Markets. Volume 62, January 2023, 100756.
Abstract: We analyze the underlying source of gender differences in earnings estimates on a crowdsourcing platform, Estimize, to understand the mechanisms driving analyst ability. Estimates made by females are more accurate than those made by males. This outperformance is not consistent with explanations based on females’ innate ability to process information, females utilizing more up-to-date information, superior stock selection among females, copycat estimates, gender bias, or survivorship bias. Instead, our evidence is consistent with females learning more quickly through making estimates, leading to their outperformance.
6. Bhagwat, V., Brogaard, J., and Julio, B. (2021). "A BIT Goes a Long Way: Bilateral Investment Treaties and Cross-border Mergers". Journal of Financial Economics, 140(2): 514-538
Abstract: We examine whether Bilateral Investment Treaties (BITs) remove impediments to foreign investment by helping enforce contracts and property rights. We find that BITs have a large, positive effect on cross-border mergers: the probability and dollar volume of mergers between two given countries more than doubles after the signing of a BIT. Most of this increase is driven by capital flowing from developed economies to developing economies, answering the long-standing Lucas Paradox as to why most cross-border capital still flows to developed countries. Additionally, most of our results are driven by target countries with “medium” levels of political risk, consistent with popular views that BITs are ineffective for countries with very high risk and not necessary for countries with low political risk.
5. Bernile, G., Bhagwat, V., Kecskes, A., and Ngugen, P.A. (2021). "Are the Risk Attitudes of Professional Investors Affected by Personal Catastrophic Experiences?". Financial Management, 50(2): 455-486.
Runner-Up, Best Paper Award, Financial Management Summer 2021 Issue (2021)
Semifinalist, Best Paper Award, Financial Management Association Conference 2019
Abstract: We adopt a novel empirical approach to show that the risk attitudes of professional investors are affected by their catastrophic experiences – even for catastrophes with no economic impact on these investors or their portfolio firms. We study the portfolio risk of U.S.-based mutual funds that invest outside the U.S. before and after fund managers personally experience severe natural disasters. Using differences-in-differences, we compare managers in disaster versus non-disaster counties matched on prior disaster probability and fund characteristics. We find that monthly fund return volatility decreases by roughly 60 bps in year 1 and the effect disappears by year 3. Systematic risk drives the results. Additional analyses rule out wealth effects (using disasters with no damages) and managerial agency, skill, and catering explanations.
4. Bhagwat, V., and Liu, X. (2020). "The Role of Trust in Information Processing: Evidence from Security Analysts". The Accounting Review, 95(3): 59-83.
Abstract: Does an equity analyst’s trust in others impact the processing of information from outside sources? We investigate this question using a measure of trust based on surveys conducted in analysts’ countries of origin. We find that more trusting analysts not only react faster to management guidance and earnings announcement, they also weight information from management and other analysts more heavily than less trusting analysts. This results in a non-linear inverted-U relationship with forecast accuracy. Analysts with low trust place too little weight on outside information while analysts with high trust place too much weight, and are thus both less accurate than “medium” trust analysts. This effect on accuracy is weaker for those with more on-the-job experience, indicating that analysts rely less on their cultural trust beliefs as they learn more about the quality of information sources.
3. Bernile, G., Bhagwat, V., and Yonker, S. (2018), "Board Diversity, Firm Risk, and Corporate Policies". Journal of Financial Economics, 127(3): 588-612.
Abstract: We examine the effects of diversity in the board of directors on corporate policies and risk. Using a multi-dimensional measure, we find that greater board diversity leads to lower volatility and better performance. Lower risk levels are largely due to diverse boards adopting less risky financial policies. However, consistent with diversity fostering more efficient (real) risk-taking, firms with greater board diversity invest more in R&D and have more efficient innovation processes. Instrumental variable tests that exploit exogenous variation in firm access to the supply of diverse nonlocal directors indicate that these relations are causal.
2. Bernile, G., Bhagwat, V., and Rau, P.R. (2017), “What Doesn’t Kill You Only Makes You More Risk-Loving: Early Disasters and CEO behavior”. The Journal of Finance, 72: 167-206.
Best Paper Award, IFABS 2015 Meeting, Hangzhou
Abstract: The extant literature on managerial style posits a binary relation between a CEO’s exposure to risk and subsequent corporate policy. We show that there is a non-linear relation between CEO’s early-life exposure to natural disasters and risk-taking. Specifically, experiencing natural disasters without extremely negative consequences appears to desensitize CEOs to the negative consequences of risk. However, if a CEO was exposed to “extreme” levels of fatal disasters and experienced the downside potential of risky situations, he or she appears to be more cautious in their approach to risk when at the helm of a firm. Our results hold across various corporate policies and outcomes including leverage, stock volatility, cash holdings, acquisitiveness, and CEO compensation structure.
1. Bhagwat, V., Dam, R., Harford, J. (2016), “The Real Effects of Uncertainty on Merger Activity”. The Review of Financial Studies, 29(11): 3000-3034.
Abstract: Deals for public targets take significant time to complete. During the interim, firm values can change substantially, inducing one or more of the parties to demand renegotiation of the deal. We hypothesize that increases in interim risk attenuate deal activity, and find robust empirical evidence supporting this view. We find that increases in market volatility decrease subsequent deal activity, but only for public targets subject to an interim period. Consistent with option theory, the effect is strongest when volatility is highest, for deals taking longer to close, and for larger targets. While we find some evidence that firms adjust other deal terms to partially offset this value, interim uncertainty is an important factor in understanding the timing and intensity of merger waves.
Permanent Working Papers:
"Pump It Up? Tweeting to Manage Investor Attention to Earnings News" (with Tim Burch)
Abstract: We examine how firms' tweeting behavior affects earnings-news returns. Tweeting about earnings news increases the magnitude of announcement returns, particularly when the earning surprise is small and positive and when the firm is less visible as measured by firm size or analyst coverage. We also find evidence of strategic tweeting, particularly by firms that manage earnings: financial tweeting is more frequent around positive earnings surprises, especially those that are less visible. Overall, we conclude Twitter provides firms an effective and strategic way to mitigate investors' limited attention to news, especially when the news is otherwise less likely to attract notice.
“The ‘Seller’s Put’ and Deal Terms in Corporate Mergers and Acquisitions” (with Robert Dam)
Abstract: We provide novel evidence that a portion of the interim risk between a merger deal's announcement and completion is asymmetrically borne by the bidder. The “seller's put” refers to the target's ability to generally accept higher offers during the interim period -- presumably when its value increases -- while the legal literature argues that bidders are more constrained in their ability to withdraw. We find that the likelihood of deal renegotiation is higher only when the target's value increases relative to the offer value during the interim period. Furthermore, we find significant effects on the bid premium, break-up fee, and method of payment, all consistent with both parties responding to the implied costs of the “seller's put.”
“Manager Networks and Coordination of Effort: Evidence from Venture Capital Syndication”
2nd Place, 2011 Ph.D. Paper Prize, Coller Institute of Private Equity at London Business School
Abstract: I explore whether educational connections between managers of venture capital (VC) firms can alleviate coordination costs, and thereby enhance collaboration, when engaging in economic ties with other organizations. Two given VC firms are three times as likely to syndicate an investment together if their managers overlapped at an educational institution, and their subsequent investments are associated with better investment outcomes, as measured by IPO exit. The effects are stronger in early-stage investments, in larger syndicates and for those VC firm-pairs syndicating with each other for the first time, and do not appear to be driven by manager latent talent. The mechanism for increased performance in the network is through a reduction in coordination costs, enhancing collaboration between the two parties.
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