Wenyu Wang
Peterson Chair in Investment Banking
Associate Professor of Finance
Kelley School of Business, Indiana University
RESEARCH INTEREST
Theoretical and empirical corporate finance with focus on: corporate control, investment, and corporate governance; Macro Finance
PUBLICATIONS
Durable Goods, Inflation Risk and the Equilibrium Asset Prices, with Bjorn Eraker and Ivan Shaliastovich, Review of Financial Studies (2016), 29(1): 193-231.
High inflation predicts low real growth and the predictability is much more pronounced in durable sectors. Our estimates show that durable goods are key to explain the levels and volatilities of nominal bond and equity prices as well as the correlation between them.
Best Paper Award in Asset Pricing, Midwest Finance Association Meeting (MFA), 2012
Imperfect Accounting and Reporting Biases, with Vivian Fang and Allen Huang, Journal of Accounting Research (2017), 55 (4): 919-962.
Errors in firms' financial reports have two counteracting effects on managers' incentives of engaging in biases. They give rise to a hump-shaped relationship between the incidences of reporting biases and the precision of the reporting system.
Bid Anticipation, Information Revelation, and Merger Gains, (was titled "Are Takeovers Truly Bad Deals for Acquirers?"), Journal of Financial Economics (2018), 128(2): 320-343.
Mergers often arrive as mixed blessings for acquirers. I estimate different takeover motives and quantify the anticipation effect, revelation effect, and merger gains for both acquirers and targets. Acquirers gain much more than what announcement returns imply.
Semi-Finalist, Best Paper Award in Corporate Finance, Financial Management Association Meeting (2012)
Featured on the Harvard Law School Forum on Corporate Governance and Financial Regulation (link)
Inefficiencies and Externalities from Opportunistic Acquirers, with Di Li and Lucian Taylor, Journal of Financial Economics (2018), 130 (2): 265-290.
Opportunistic acquirers may crowd out synergistic acquirers in takeover contests, leading to efficiency losses and wealth redistribution. We quantify the inefficiencies and externalities caused by opportunistic acquirers in U.S. merger and acquisition market. Efficiency losses are modest on average, but they are quite large for certain deals and in periods with high misvaluation risk.
Featured on the Harvard Law School Forum on Corporate Governance and Financial Regulation (link)
Corporate Innovation along the Supply Chain, with Yongqiang Chu and Xuan Tian, Management Science (2019), 65(6): 2445-2466.
Timely feedback from customers enhances suppliers' innovation activities and outputs. The effects are stronger when the customers are more innovative and are within closer technology space with the suppliers.
Managerial Control Benefits and the Takeover Market Efficiency, with Yufeng Wu, Journal of Financial Economics (2020), 136(3): 857-878.
We quantify how managerial control benefits shape the takeover market efficiency. Our estimation captures both the dark-side and the bright-side effect of control benefits: On the dark side, managerial control benefits lead to asset misallocation; on the bright side, they enhance the disciplinary effect of the takeover market.
Featured on the Harvard Law School Forum on Corporate Governance and Financial Regulation (link)
Weak Governance by Informed Active Shareholders, with Eitan Goldman, Review of Financial Studies (2020), 34(2): 661-699.
Shareholders with superior information collecting ability may support corporate decisions that create significant short-term uncertainty and information asymmetry (e.g., mergers and acquisitions) even if such decisions destroy firm value on average.
Feature on the Columbia Law School's Blue Sky Blog on Corporations and the Capital Markets (link).
Hard Marriage with Heavy Burdens: Labor Unions as Takeover Deterrents, with Xuan Tian, Review of Corporate Finance Studies (2021), 10(2): 306-346.
Labor unions reduce firms' probability of receiving takeover bids. Unionized targets experience lower offer premiums, weaker announcement returns, and longer bid duration. The effects are stronger for horizontal mergers, for states with stronger union power, and for firms with large unions.
Dissecting Bankruptcy Frictions, with Winston Dou, Lucian Taylor, and Wei Wang, Journal of Financial Economics (2021), 142(3): 975-1000.
Asymmetric information and conflicts of interest among creditors can cause several inefficiencies in bankruptcy process: excess liquidation, excess continuation, and excess delay. Eliminating information asymmetries would increase average total payouts by 4%, and eliminating conflicts of interest would increase them by an additional 18%. Inefficiencies mainly arise from excess delay instead of excess liquidation or excess continuation.
Winner of Jacobs Levy Center Outstanding Research Paper Prize.
Editor's choice (Dec 2021), Journal of Financial Economics.
Acquiring Innovation Under Information Frictions, with Murat Celik and Xu Tian, Review of Financial Studies (2022), 35(10): 4474-4517.
Data on US public firms reveals that (1) there is an inverted U-shaped relation between firm innovation and takeover exposure; (2) equity usage increases with target innovation, and (3) deal completion rate drops for more innovative targets. Motivated by these findings, we estimate a model of acquiring innovation under information frictions. We find that acquirers' due diligence reveals only 30% of private information possessed by targets, and eliminating information frictions increases firms' expected merger gains by 59%. A more efficient M&A market stimulates innovation, boosts productivity, business dynamism, and social welfare.
Big Fish in Small Ponds: Human Capital Mobility and the Rise of Boutique Banks, with Janet Gao and Xiaoyun Yu, Management Science, forthcoming.
High-performing employees of bulge bracket M&A advisors are more likely to join or form boutique advisory firms. Human capital mobility leads to deteriorating (improving) performance in the losing (gaining) banks, which redraws firm boundary. Clients and colleagues tend to follow the relocating bankers, leading to a cascading effect. Boutique banks create more value for their clients and better cultivate their employees' development.
Human Capital Portability and Worker Career Choices: Evidence from M&A Bankers, with Janet Gao and Yufeng Wu, Review of Financial Studies, forthcoming.
We quantify the importance of firm-specific human capital in explaining workers' career choices. Our estimation suggests that, despite performing homogeneous tasks, M&A bankers accumulate substantial non-portable human capital, and they face different tradeoffs between human capital portability and production efficiency in different stages of their career path. Such tradeoffs influence human capital allocation and shape the whole industry structure.
Simultaneous Debt-Equity Holdings and the Resolution of Financial Distress, with Yongqiang Chu, Ha Diep Nguyen, Jun Wang, and Wei Wang, Review of Corporate Finance Studies, forthcoming.
Constructing one of the most comprehensive data set on out-of-court restructuring and debt-equity simultaneous holdings, we provide the first empirical evidence that simultaneous holdings of debt and equity lead to a significant increase in the likelihood of out-of-court restructuring. Results are more pronounced for dual holders with strong incentive and ability and for distressed firms that face high bankruptcy costs.
WORKING PAPERS
Ignorance Is Bliss: The Screening Effect of (Noisy) Information, with Felix Feng, Yufeng Wu, and Gaoqing Zhang, The Accounting Review, revise-and-resubmit.
While more precise information allows the firm to make ex-post more efficient investment decisions, noisier information has an ex-ante screening effect that allows the firm to attract on-average better managers. The tradeoff between more effective screening of managers and more informed investment implies a non-monotonic relationship between firm value and information quality.
Conferences: Summer Institute of Finance Conference (2021), MIT Asia Conference in Accounting (2021), Econometric Society NASM (2021), Stony Brook International Conference on Game Theory, Conference on Markets and Economies with Information Frictions, Financial Markets and Corporate Governance Conference, RSM Corporate Finance Day, CFAR, TJAR.
The Incentives of SPAC Sponsors, with Felix Feng, Tom Nohel, Xuan Tian, and Yufeng Wu, Journal of Financial Economics, reject-and-resubmit.
Bureau Van Dijk Prize, Best Paper in Corporate Finance, Australasian Finance and Banking Conference (AFBC) 2023.
We quantify agency costs and information frictions in the SPAC market by estimating a model featuring the strategic interactions between sponsors, targets, and investors. Agency costs appear pervasive: the inter-quintile range of returns to non-redeeming shareholders reaches 19% in deals sorted by their agency conflicts. Agency costs appear pervasive: the inter-quintile range of returns reaches 19% for deals sorted on the extent of agency conflict. Tying more of the sponsor’s promote to earnouts and improving information transparency each significantly improve investors’ welfare, while curtailing the issuance of warrants yields only modest improvement.
Seminars: Cheung Kong Graduate School of Business, Dartmouth College, Imperial College London, Indiana University, Swiss Finance Institute, EPFL, Peking University, Tsinghua PBC, University of Iowa, Iowa State University, Hong Kong University of Science and Technology.
Everlasting Fraud, with Vivian Fang, Nan Li, and Gaoqing Zhang.
We model the interdependent mechanisms of corporate fraud and regulation to provide two key insights: First, fraud is a never-ending game of cat and mouse because the strength of detection optimally matches the severity of fraud in equilibrium. Second, anti-fraud regulations can tamp down fraud pro tem, but concentration of regulatory resources on some firms allows others to be more aggressive. As such, regulations do not eradicate fraud but synchronize firms' otherwise idiosyncratic fraud decisions and lead to fraud waves. We provide supporting empirical evidence for these insights.
Seminars: Chinese University of Hong Kong, University of Maryland, University of Miami, University of Science and Technology of China.
Conferences: Accounting and Economics Society webinar (2022), CICF (2022), Columbia Burton Accounting Conference (2021), FARS meeting (2021), HKUST Accounting Research Symposium (2021), MFA (2022), SEC Conference on Financial Market Regulation (2022).
The Cost of Intermediary Market Power for Distressed Borrowers, with Winston Dou and Wei Wang.
Lending markets for distressed loans feature high concentration with an oligopolistic structure, in which a few specialist lenders finance a large fraction of loans, charge high risk-adjusted spreads, and form tight, repeated syndication. We estimate the tacit collusion among specialist lenders and quantify the cost of such intermediary market power for distressed borrowers. The estimated model provides a lens to evaluate the optimal policy of spread-cap that can be implemented by regulators to improve welfare.
Seminars: University of Pennsylvania (Wharton), Carnegie Mellon (Tepper), Indiana University (Kelley).
Conferences: BPI and Nova SBE conference in corporate bankruptcy and restructuring (2021), MFA (2022), WFA (2022), Summer Institute of Finance Conference (2022).
Steering Labor Mobility through Innovation, with Song Ma and Yufeng Wu.
Firms proactively use innovation decisions to influence the mobility and human capital accumulation of their workers. Pursuing more general innovation leads to increased knowledge redeployability for the firm at the cost of more difficult employee retention. We construct a dynamic model and estimate it using granular innovation production and mobility data of three million inventors. Our model closely matches the observed mobility and innovation specificity over inventors' life cycles. We find that 24% of observed innovation specificity among U.S. firms is driven by their labor market considerations, which enhances the firm value but lowers the inventors' surplus.
Seminars: American University, CKGSB, Ohio State University, University of Texas at Dallas, Vienna Graduate School of Finance.
Conferences: Virtual Corporate Finance Workshop, USC Macro-Finance Workshop, AFA (2024).
See the Gap: Firm Returns and Shareholder Incentives, with Eitan Goldman and Jinkyu Kim.
During the public negotiation period, institutional investors increase (decrease) their holdings of acquirers in deals that generate positive (negative) value. The resulting trading profits create a significant gap between the return to the acquiring firm and the return to these investors, and this gap renders firm return a misleading measure of investors’ incentives in pursuing mergers. Our study highlights that the group of investors who have influence over corporate actions do not necessarily bear the full consequences of such events, and therefore accounting for the dynamics of shareholder composition is critical in measuring investors’ incentives correctly.
Conferences: Drexel Academic Conference on Corporate Governance (2024), CICF (2024).
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