CORPORATE CULTURE IMAGE AND NATIONAL POLITICS, forthcoming, Journal of Financial and Quantitative Analysis
(with Esther Im)
Changes in U.S. political leadership and polarization influence corporate culture messaging. Executives adjust messaging in earnings calls by increasing emphasis under political alignment (due to pride) and decreasing it—especially for innovation, quality, and respect—under misalignment (due to lower growth expectations). These shifts are primarily strategic, not fundamental, highlighting the sensitivity of cultural messaging to political context..
(with Ederington L., Fernando, C., Linn, S., and T. Lee)
We find cash-and-carry arbitrage affects crude oil inventories only at the NYMEX delivery point; elsewhere, operational factors dominate. Inventories react to current and lagged futures spreads, and storage limits can block arbitrage, leaving some opportunities. Overall, arbitrage-driven inventory shifts help stabilize prices.
I analyze how different government investor types affect shareholder wealth. State investments boost shareholder wealth by over $50 billion, but investments from political arms cause shareholder losses of over $14 billion, unlike financial or industrial arms. Evidence from performance, institutions, and credit access confirms private investors consider government's intent.
(with Borisova, G., Fotak V., and W. Megginson),
Government ownership usually raises firms’ cost of debt, but during financial crises or for distressed firms, it lowers it thanks to implicit government guarantees. These effects are strongest for domestic government ownership and hold even after accounting for endogeneity.
THE GRADUAL REVEAL: UNDERSTANDING SHAREHOLDER MEETINGS THROUGH OPTIONS, with Chan Lim and Irene Yi, under review
We investigate how investor uncertainty resolves around U.S. annual shareholder meetings using option-implied volatility. Implied volatility gradually declines by 0.9 percentage points from the record date to the meeting date. This gradual resolution helps explain the often-insignificant abnormal stock returns reported by prior event studies. The timing and magnitude of this resolution vary with the presence of shareholder proposals, close votes, and voting premiums and contrast with sharper volatility dynamics around special meetings or proxy contests. Our findings highlight how meetings shape market expectations in economically meaningful ways by resolving firm-specific uncertainty: insights often missed by event-day stock return analyses.
CORPORATE CASH FLOW OUTCOMES ACROSS PRESIDENCIES: STILL A PRESIDENTIAL PUZZLE , with Esther Im
This paper offers new economic insights into the well-known “presidential puzzle,” where stock returns are lower during Republican presidencies. We examine the underlying mechanism and find that all fundamental building blocks of the free cash flows — sales growth, profit margins, and investment—are lower, while cash holdings increase, employment decreases, and payout remains unchanged during Republican presidencies. Results are significantly lower for firms in Democrat-voting areas, which explains two-thirds of our findings. We consider other cross-sectional explanations, including Congressional alignment, presidency years, exposure to government contracts, exports, and polarization. This paper documents additional real effects of the “presidential puzzle” in public firms consistent with a rational explanation for lower returns. (previous title "Presidential Puzzle at the Firm Level.")
THE COST OF MURDER: SHAREHOLDER RESPONSE TO A SOCIAL REPUTATION SHOCK, with Veljko Fotak and Vishal Sharma
We employ the murder of Jamal Khashoggi, allegedly at the hands of agents of the Kingdom of Saudi Arabia (KSA), as an exogenous shock to the reputation of foreign publicly traded firms, from over 59 countries, with connections to the KSA. We find that these connected firms lose approximately two percent (circa USD 400 million) of market capitalization when the murder culprit is revealed. Shareholder decisions to divest stakes in these firms are mainly influenced by cultural factors – “individualism” and “femininity” – rather than institutional factors. Firms with a bigger proportion of “socially responsible” shareholders experience larger stock-price declines around the murder revelation..
ELECTRONIC TRADING AND PRICE DISCOVERY IN COMMODITY FUTURES: A TALE OF TWO MARKETS, with Scott Linn, Chitru Fernando and Huiming Zhang, revising for resubmission
We study the impact on price discovery when commodity futures move to electronic trading by comparing the behavior of the two major crude oil markets, West Texas Intermediate (WTI) and Brent. While the switch to electronic trading sharply increased trading volume in both markets, WTI futures became significantly more important for (indeed, the sole contributor to) price discovery, while Brent futures became significantly less important. This difference is attributable to the difference in implementation of electronic trading in the two markets. While electronic and floor trading of WTI futures occurred side by side for over eight years before floor trading was discontinued, Brent discontinued floor trading overnight when the market switched to electronic trading. Our findings show (a) that the benefits of electronic trading need to be assessed not only from the standpoint of improvements in liquidity but also price discovery; and (b) how futures markets transition from floor trading to electronic trading is a critical determinant of ensuring the realization of the potential benefits of electronification through improvements in both liquidity and price discovery.