2018 / 2019

About Marcella Lucchetta

Title: Dynamic Bank Capital Regulation in Equilibrium

Written in collaboration with Andrea Gamba and Duglas Gale.

Abstract:

We study optimal bank regulation in an economy with aggregate uncertainty. Bank liabilities are used as “money” and hence earn lower returns than equity. In laissez faire equilibrium, banks maximize market value, trading off the funding advantage of debt against the risk of costly default. The capital structure is not socially optimal because external costs of distress are not internalized by the banks. The constrained efficient allocation is characterized as the solution to a planner’s problem. Efficient regulation is procyclical, but countercyclical relative to laissez faire. We show that simple leverage constraints can get the decentralized economy close to the constrained efficient outcome.

Date: Thursday 11th October, 13:00 - 14:00

Event Location: Room W4.05, Cambridge Judge Business School

About Ron Masulis

Title: CEO Option Compensation Can Be a Bad Option: Evidence from Product Market Relationships.

Abstract: Not Disclosed

Date: Thursday 25th October, 13:00 - 14:00

Event Location: Room W4.05, Cambridge Judge Business School

About Oğuzhan Karakaş 

Title: Competition and Voting Premium

Abstract:

We examine the impact of product market competition on the market value of shareholder voting rights (i.e., voting premium) for the US public firms. Voting premium reflects private benefits consumption and associated managerial inefficiencies. Exploiting exogenous shocks to competition from three quasi-natural experiments, we find that competition decreases the voting premium. Overall, our results suggest that product market competition can help in curbing private benefits of control and managerial slack.

Date: Thursday 8th November, 12:30 - 13:30

Event Location: North 10 Trumpington St (Lower Ground)

Title: Crisis, contagion and containment policies in financial networks : A dynamic approach

Abstract:

We study the dynamics of a connected banking sector where the financial links between banks are explicitly modelled, including the liquidation procedures in the case of the failure of an individual bank. We use network theory so as to study the propagation of a shock within the sector, with an arbitrary number of banks, explicit balance sheets evolving over time, depending on the failing of connected banks This model of banking network allows us to simulate the bankruptcy contagion process and quantify the extent of a banking crisis. It also allows us to assess various forms of prudential policies.

Date: Thursday 22nd November, 12:30 - 13:30

Event Location: Room W4.05, Cambridge Judge Business School

About Jean-Edouard Colliard

Title: Financial Restructuring and Resolution of Banks

Abstract:

How do resolution frameworks affect the private restructuring of distressed banks? We model a distressed bank’s shareholders and creditors negotiating a restructuring given asymmetric information about asset quality and externalities onto the government. This yields negotiation delays used to signal asset quality. We find that strict bail-in rules increase delays by worsening informational frictions and reducing bargaining surplus. We characterize optimal bail-in rules for the government. We then consider the government’s possible involvement in negotiations. We find this can lead to shorter or longer delays. Notably, the government may gin from committing not to partake in negotiations.

Date: Thursday 24th January, 13:00 - 14:00

Event Location: Room W4.05, Cambridge Judge Business School

About Naomi Lamoreaux

Title: Patenting in an Entrepreneurial Region during the Great Depression: The Case of Cleveland, Ohio.

Written in collaboration with Margaret Levenstein (University of Michigan).

Abstract:

This paper investigates the effect of a major macroeconomic shock, the Great Depression, on patenting in an innovative region. Cleveland, Ohio, was a vibrant industrial city in the 1920s, a hotbed of inventive activity and small-scale startups in a range of important Second Industrial Revolution industries.  One might expect a shock of the magnitude of the Great Depression to have taken a serious toll on inventive activity, especially in a region such as Cleveland’s, where there were so many small firms dependent on external finance.  We explore this issue by comparing the career patenting records of two cohorts of Cleveland patentees who obtained a threshold number of inventions during the years 1910-12 and 1928-30 and find remarkably little effect of the Depression on patenting.  We then look at the patenting careers of graduates from the Case School of Applied Science.  Only when we focus on the students who graduated in the midst of the Depression do we find a significant effect.  We conclude that an important negative consequence of the Depression was to prevent a new generation of inventors from forming to carry on the region’s innovative tradition.

Date: Thursday 7th February, 12:30 - 13:30 

Event Location: Castle Teaching Room, Cambridge Judge Business School

About Brad M Barber

Title: Impact Investing

Written in collaboration with Adair Morse (University of California), Ayako Yasuda (University of California)

Abstract:

We document that investors derive nonpecuniary utility from investing in dual-objective VC funds, thus sacrificing returns. Impact funds earn 4.7 percentage points (ppts) lower IRRs ex post than traditional VC funds. In random utility/willingness-to-pay (WTP) models investors accept 2.5-3.7 ppts lower IRRs ex ante for impact funds. The positive WTP result is robust to fund access rationing and investor heterogeneity in fund expected returns. Development organizations, foundations, financial institutions, public pensions, Europeans, and UNPRI signatories have high WTP. Investors with mission objectives and/or facing political pressure exhibit high WTP; those subject to legal restrictions (e.g., ERISA) exhibit low WTP.

Date: Thursday 21st February, 13:00 - 14:00

Event Location: Room W4.05, Cambridge Judge Business School

About Yuri Tserlukevich

Title: Competition, No-Arbitrage, and Systematic Risk

Abstract:

We study how strategic interaction among firms affects their systematic risk. Competition effectively imposes bounds on profitability within each economic sector because competing firms simultaneously scale production up or down in response to common demand shocks. We show that no arbitrage implies that exposure to systematic risk factors must be zero at these bounds, leading to an inverse U-shaped relation between systematic risk and sector profitability. In general, competition reduces systematic risk and attenuates size related asset pricing anomalies. Using trade flows between economic sectors, we construct a new measure of competition based on each sector's dependence on input factors and find broad empirical support for the theoretical predictions.

Date: Thursday 7th March, 13:00 - 14:00

Event Location: Castle Teaching Room, Cambridge Judge Business School

About Alex Frino

Title: Off-Market Block Trades, Transparency and Information Efficiency: New Evidence from Futures Markets

Abstract:

Off market trades are transactions in securities markets which are executed away from the main market and later reported to the market.  Off market trades are a recent phenomenon in futures markets and while there is a rich body of literature analysing off market trading in equities markets, this is the first study to analyse off market trading in futures markets.  This issue is particularly topical, as the Chicago Mercantile Exchange introduced off-market trading for commodity futures in January 2018 which generated significant debate about the impact of the lack of transparency they create (Parking, April 8 2018, Wall Street Journal).   In this paper, we examine the price impact of off market trades at the time they are executed and the time they are later reported to market.  We find a statistically significant price reaction both around the time they are executed and the time they are later reported.  We conclude that the market learns from trading around the off-market trade and impounds some of the information conveyed by the trade at the time they are executed.  Given that the market reacts significantly at the time the trades are reported, suggesting that the reporting of the trades conveys information to the market, we conclude that delaying reporting of trades has an impact on market price efficiency.  These findings contrast to findings for equities markets which conclude that the withholding of trade information has no impact on the speed of adjustment of the market to the information conveyed by the off-market trade (Gemmill, 1997, Journal of Finance).

Date: Thursday 2nd May, 12:30 - 13:30

Event Location: Room W4.03, Cambridge Judge Business School

About Ernst-Ludwig von Thadden

Title: Corporate Governance and the CAPM: Some Theory and Evidence

Abstract:

The paper extends the classic risk-return tradeoff of the CAPM to a risk-effort tradeoff, by assuming that managerial effort is necessary to generate cash flows. Corporate governance standards influence the manager's return to effort, her exposure to corporate risk, and the dilution of shareholder value. In capital market equilibrium, this tradeoff has implications for the firm's cash flows and stock returns, and this in turn affects the endogenous choice of governance standards. Laxer governance standards decrease the stock's β, and in equilibrium systematic and idiosyncratic stock return risk are both negatively correlated with governance laxity. Various empirical tests with U.S. data using the corporate governance index of Gompers, Ishii, and Metrick (2003) are consistent with our predictions.

Date: Thursday 16th May, 12:30 - 13:30

Event Location: No 10 Trumpington Street, North (Lower Ground), Cambridge UK

About Mara Faccio

Title:  Business Groups and the Incorporation of Firm-specific Shocks into Stock Prices

Abstract:

In lower income economies, stocks exhibit less idiosyncratic volatility and business groups are more prevalent. This study connects these two findings by showing that business group affiliated firms’ stock returns exhibit less idiosyncratic volatility than do the returns of otherwise similar unaffiliated firms. Global commodity price shocks are common shocks that contribute to firm level
idiosyncratic risk because they affect industries heterogeneously. Idiosyncratic components of commodity shocks are incorporated less into idiosyncratic returns of group affiliates than unaffiliated firms in the same industry and economy. Identification follows from difference-indifference tests exploiting successful and matched-exogenously-failed control block transactions.

Date: Thursday 30th May, 12:30 - 13:30 

Event Location: Room W4.03 Cambridge Judge Business School

About Rigas Oikonomou

Title: Union Debt Management

Authors: J. Equiza-Gonin, E. Faraglia  and R. Oikonomou

Abstract: 

We study the role of government debt maturity in currency unions to identify whether debt management can help governments hedge their budgets against spending shocks. We first use a novel and detailed dataset of debt portfolios of five Euro Area countries to run a battery of VARs, estimating the responses of holding period returns to fiscal shocks. We find that government portfolios, which in our sample comprise mainly of nominal assets, have not been effective in absorbing idiosyncratic fiscal risks, whereas they have been very effective in absorbing aggregate risks. To shed light on this finding, as well as to investigate what types of debt are optimal in a currency area in the presence of both aggregate and idiosyncratic shocks, we setup a formal model of optimal debt management with two countries, benevolent governments and distortionary taxes. Our key finding is that governments should focus on issuing inflation indexed long term debt since this allows them to take full advantage of fiscal hedging. When we look at the data we find a stark increase in the issuance of real long term debt since the beginning of the Euro in many of the countries in our sample, which our model explains as an optimal response of governments to the introduction of the common currency.

Date: Thursday 13th June, 12:30 - 13:30

Event Location: Room W4.03 Cambridge Judge Business School