2021 / 2022

About Isabelle Roland

Title: The Aggregate Consequences of Forbearance Lending: Evidence from Japan

Abstract:

We study the impact of forbearance on aggregate economic performance in Japan over the period 2007-2017. Forbearance is a practice whereby banks accommodate bad borrowers instead of terminating their loans, with negative consequences for aggregate productivity. The Japanese policy response to the global financial crisis of 2007-2008 (SME Financing Facilitation Act) has revived this practice. Our novel theory-driven empirical approach enables us to perform a quantitative assessment of the aggregate impact of forbearance, including its positive effects, namely the avoidance of a large number of bankruptcies and increased unemployment. We develop a search-theoretic model of credit markets with severance costs that capture forbearance frictions and estimate those frictions using the Tokyo Shoko Research (TSR) dataset. Our estimates indicate a marked increase in forbearance frictions from 2010 onwards, suggesting that the SME Financing Facilitation Act of 2009 has revived the practice of forbearance in Japan. Our counterfactual exercises indicate that, in the absence of forbearance, the capital productivity of survivors would on average be 4.22% higher. On average, there would be 6.89% fewer jobs and 3.93% fewer firms. Finally, we provide regression-based evidence in support of our channel. First, we relate our estimates of forbearance frictions to the zombieness measure of Caballero, Hoshi and Kashyap (2008), and show that higher frictions are associated with a higher probability that a firm is classified as a zombie firm. Second, we exploit geographical variation in search frictions across Japanese prefectures to show that forbearance frictions are more significant when search frictions are more stringent. This shows that our model captures a unique margin in the data, which is not explained by models that are not based on search and matching.

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

Event Location: Online

About Cynthia Balloch

Title: Asset Allocation and Returns in the Portfolios of the Wealthy

Abstract:

Despite accounting for a large amount of total wealth, there is little direct empirical evidence of the investment behavior of wealthy households. Based on a proprietary database of investment portfolios and returns, we document three new facts about ultra-high net worth portfolios. First, asset allocations change strongly with total wealth, as super-wealthy households hold a much larger share of alternative investments, such as private equity and hedge funds, and a lower share of liquid assets, such as public equities. The data includes a significant number of portfolios large enough to explore allocations and returns within the top percentile of the wealth distribution, including the top 0.01 percent. Second, while realized returns are increasing with wealth, Sharpe ratios are broadly similar across the top of the wealth distribution. This suggests that investment skill does not differ among investors in upper portions of the wealth distribution, but that risk tolerance increases with total wealth. Third, we use the data to explore whether returns differ within narrow asset classes, and find that  returns on alternative assets in particular are increasing in wealth. This indicates that access and manager selection play a large part in determining returns and raises questions about the benefits of broadening access to delegated investing in private assets. Taken together, these findings substantially improve on existing empirical evidence on return heterogeneity in the U.S., which is increasingly understood to be critical in both macroeconomic dynamics and asset pricing.

Date: Thursday 28th October, 13:00 - 14:00

Event Location: Online

About Sebastian Ebert

Title: Pi-CAPM: The Classical CAPM with Probability Weighting and Skewed Assets by the above, Joost Driessen and Skewed Assets

Abstract:

We study asset prices in a generalized mean-variance framework that allows for probability weighting (the idea that investors overweight rare, high impact events). The resulting model – the Pi-CAPM – allows for a unique and homogeneous pricing equilibrium with skewed and correlated assets and a tractable analysis thereof. We find that even symmetric probability weighting has asymmetric pricing implications. For example, the price impact of volatility is skewness-dependent, negative for left-skewed assets but potentially positive for right-skewed assets. We further find that probability weighting translates into an exaggerated dependence between the assets. Finally, we make an empirical contribution and show that the option-implied premiums on variance and skewness depend on the underlying asset's skewness, in the very way that is predicted by the Pi-CAPM.

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

Event Location: Online

About Martin Szydlowski

Title: Harnessing the Overconfidence of the Crowd: A Theory if SPACs

Abstract:

We provide a theory of Special Purpose Acquisition Companies, or SPACs. A sponsor raises financing for a new opportunity from a group of investors with differing ability to process information. We show that when all investors are rational, the sponsor prefers to issue straight equity. However, when sufficiently many investors are overconfident about their ability to process information, the sponsor prefers to issue units with redeemable shares and rights. The model matches many empirical features, including the difference in returns for short-term and long-term investors and the overall underperformance of SPACs. We also evaluate the impact of policy interventions, such as greater mandatory disclosure and transparency, limiting investor access, and restricting the rights offered.

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

Event Location: Online

About Scott Guernsey

Title: Monitoring Secretive Startups

Abstract:
This article examines the mechanisms used by venture capitalists (VCs) to monitor their investments in startups that use trade secrets to protect their intellectual property (IP). First, we confirm that, after startups are afforded stronger trade secrets protection by the adoption of the Uniform Trade Secrets Act (UTSA), they reduce their reliance on patents. Next, we investigate how VCs respond, finding that they decrease both the duration of financing rounds and the overall amount invested per round, especially for startups located the furthest distance away. Finally, we consider how these collective changes affect the exiting process, finding that the likelihood of a successful exit through either an initial public offering (IPO) or merger or acquisition (M&A) is unchanged, but that, within successful M&A exits, the likelihood that the acquirer is private increases. Overall, our findings suggest that VCs work harder to monitor startups that use trade secrets and that this increased effort is necessary to maintain similar likelihoods of successful exiting.

Date: Thursday 27th January, 13:00 - 14:00

Event location: Online

About Erkan Yönder

Title: Strategic Default and Renegotiation: Evidence from Commercial Real Estate Loans

Written in collaboration with I. Serdar Dinc.

Abstract:

We study strategic default in commercial real estate loans in a setting where the borrowers hold multiple such loans and the borrower cash flow is disclosed. We find that the majority of delinquent loans are held by borrowers that continue to meet their debt obligations in their other mortgages and that also have cash flow to meet their delinquent obligations. The pervasiveness of strategic defaults is robust to alternative ways to identify them. Loans in their final year, interest-only loans, and loans with high Current Loan-to-Value are more likely to be subject to strategic default. Our IV analysis reflects that strategically defaulted borrowers are also more likely to have their loans restructured.

Date: Thursday 10th February, 13:00 - 14:00

Event location: Online

About Dunhong Jin

Title: Board Diversity and Rare Disasters Risk Insurance

Abstract:

About 37% of Chinese listed firms have medical expertise, as measured by the existence of senior executives with a medical degree or medical-industry experience. Using the COVID-19 outbreak in China as a natural experiment, we find that stock returns of firms with medical expertise, excluding those within the healthcare and pharmaceutical industry, are significantly higher than firms without. This effect has a similar effect that financial variables such as leverage, short-term debt, and cash have on the stock price. The positive impact is more pronounced if a CEO or Chairman has medical expertise and if the firm is not state-owned, or when the firm is located in a place with higher infection rates or with fewer public health resources. To shed light on the underlying mechanisms, we also show that senior executives with medical backgrounds enable their firms to react strategically. They have a more conservative attitude toward the pandemic and advise their firms to hoard more cash. Overall, through disentangling macro shocks, this study underlines the importance of diversified executive human capital on firm performance. Even though this diversity does not seem to increase firm value in normal times, it has the potential to insure the firm against rare disaster risks.

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

Event Location: Online

About Enrichetta Ravina

Please Note: This Event Was Cancelled due to Unforeseen Circumstances.

Title: Stability and Evolution in Investor Ideology

Abstract:

We track the temporal pattern of institutional investors’ ideologies as revealed by their proxy votes from 2005 to 2018. Despite the financial crisis, the regulatory changes on proxy voting and transformation of the asset management industry it has spawned, and despite the rise of the socially responsible investment movement, we find that the ideology of the largest investors has remained highly stable. The ideologies of institutional investors are revealed by a dynamic, spatial scaling analysis of all proxy votes of 561mutual fund families. We characterize voting as driven by single-peaked preferences in a two-dimensional Euclidean space. One dimension reflects the familiar left-right ideological leanings, with more socially responsible investors on the left, and the other dimension differences in attitudes towards management, with management-friendly investors at one end and management-disciplinarians at the other. Although the ideology of the largest investors remains solidly stable on average, we find that the ideologies of a substantial fraction of other investors evolve substantially over time.

Date: Thursday 10th March, 13:00 - 14:00

Event Location: Not Disclosed

About Mehrshad Motahari

Title: Do Short Sellers Care about ESG?

Abstract: Not Disclosed

Date: Thursday 5th May, 13:00 - 14:00

Event location: Cambridge Judge Business School

About Lira Mota

Title: The Corporate Supply of (Quasi) Safe Assets

Abstract:

Investors value safety services in financial assets, such as the ability to serve as a store of value, to serve as collateral, or to meet mandatory capital and liquidity requirements. I present a model in which investors value safety services not only in traditional safe assets such as US Treasuries, but also in corporate debt. Shareholders thus maximize the value of the firm by complementing standard business operations with safe asset creation. Based on this theoretical framework, I use the CDS-bond basis to derive a measurement of the safety premium of corporate bonds. I document substantial cross sectional variation in the safety premium of corporate bonds, which allows me to test the model's predictions. I show that a high safety premium leads to a marked increase in debt issuance by relatively safer firms. These debt proceeds have a small impact on real investment and are largely used instead for equity payouts. This mechanism can explain why, in the aftermath of the financial crisis, non-financial investment grade companies significantly increased their debt issuance and equity payout while investment remained weak.

Date: Thursday 19th May,  13:00 - 14:00

Event Location: Online

About Jawad M. Addoum

Title: Temperature Shocks and Industry Earnings News

Abstract:

Climate scientists project a rise in both average temperatures and the frequency of temperature extremes. We study how extreme temperatures affect companies' earnings across different industries and whether sell-side analysts understand these relationships. We combine granular daily data on temperatures across the continental U.S. with locations of public companies' establishments and build a panel of quarterly firm-level temperature exposures. Extreme temperatures significantly impact earnings in over 40% of industries, with bi-directional effects that harm some industries while others benefit. Analysts and investors do not immediately react to observable intra-quarter temperature shocks, but earnings forecasts account for temperature effects by quarter-end in many, though not all, industries.

Date: Thursday 9th June, 3:00 - 14:00

Event Location: Online

About Constantine Yannelis

Title: Data and Welfare in Credit Markets

Abstract:

We show how to measure the welfare effects arising from increased data availability. When lenders have more data on prospective borrower costs, they can charge prices that are more aligned with these costs. This increases total social welfare, and transfers surplus from borrowers to lenders. We show that the magnitudes of the welfare changes can be estimated using only quantity data and variation in prices. We apply the methodology on bankruptcy flag removals, and find that removing prior bankruptcy information increases the surplus of previously bankrupt consumers substantially, at the cost of decreasing total social welfare modestly, suggesting that flag removals are a reasonably efficient tool for redistributing surplus to previously bankrupt borrowers.

Date: Thursday 16th June, 13:00 - 14:00

Event Location:  Online