research
research
Research Paper
M. Kalimipalli, O. Morohunfolu, V. Marisetty, and L. L. Shankar, "Do Government Infusions Help Financial Stability? Evidence from an Emerging Market," Journal of Financial Stability, vol. 75, 2024, 101334. (Link)
Best Paper Award in Finance- Research Symposium on Finance and Economics (RSFE 2023)
Textbook Chapter
M. Halek, and O. Morohunfolu (2024). Risk treatment: risk financing for speculative risks in A.E., Kleffner, M. Kelly and M. Halek. Fundamentals of Risk Management and Insurance in Canada. Kendall Hunt Publishing, Co. Dubuque, Iowa. p 275-306. (Link)
This paper examines the relation between Passive Institutional Ownership (IO) and debt covenants. Using Russell 1000/2000 annual index reconstitution as a source of exogenous variation in passive IO, I find that passive IO leads to reduced covenants in the bonds market. Specifically, I find that passive IO is associated with reduced levels of (a) Investment, (b) Dividend, and (c) Subsequent financing restrictions. However, I observe weaker results for loan covenants, implying that loans, usually collateralized, are less sensitive to changes in passive ownership. The overall effect of passive ownership on bond covenants supports the argument that passive investors are effective monitors, and their interests are closely aligned with creditors’, thereby leading to lowering monitoring costs for creditors and reduced dependence on tighter bond covenant restrictions.
Presented at: 2024 FMA , 2024 NFA , 2023 Wilfrid Laurier University
with Madhu Kalimipalli, Si Li, and Buvaneshwaran Venugopal
This paper examines how labor union strength may influence private and public debt covenants. We employ Regression Discontinuity Design (RDD) and use plant-level union election outcome data for firms as quasi-exogenous shock to examine the effect of labor unions on bond and loan market covenants. We find that unionization leads to significantly lower covenants in public bond covenants, and in particular, reduced levels of (a) Investment, (b) Subsequent financing, and (c) Event-related restrictions. However, In the loan markets, we observe less evidence of covenant reduction (evident from reduction in Performance covenants only). This overall result implies that bank lending, typically collateralized, is less sensitive to labor market frictions. In cross-sectional analyses relating to public bond covenants. We show that firms currently with other forms of monitoring mechanisms in place (specifically firms with higher institutional ownership, credit rating, and corporate governance quality, and firms in highly competitive product markets) experience a stronger negative effect of union on debt covenants.
Presented at: 2023 FMA, 2023 Wilfrid Laurier University, 2022 Atlantic Canada Economics Association (ACEA) 48th Annual Conference, 2021 International Centre for Economic Analysis Conference, Lazaridis School for Business and Economics Research.
Best Paper Award in Finance- Research Symposium on Finance and Economics (RSFE 2024)
with Jin Wang, and Li Yao
This paper investigates whether peer firms’ R&D activities increase the focal firm’s tendency to engage in discretionary R&D spending by building upon network concepts. Using Panel Data on US innovative public firms, we show that peer firms’ R&D activities indeed increase the focal firm’s tendency to engage in discretionary R&D spending. Further analyses show that this effect is weaker for firms with high incentive to engage in earnings management. Such firms include (a) firms suspected to manipulate their earnings, (b) firms engaging in SEO in the following year, (c) firms with low institutional holding, and (d) firms with low profitability. Our subsample analyses suggest that potential benefit from enhanced innovation productivity (due to reduced earnings management through R&D) is of second-order importance compared to firms’ incentive to engage in earnings management.
Passive Institutional Ownership and Climate Risk
with Kai Chen, Madhu Kalimipalli, and Seyed E. Sadeghi
This paper examines the relation between Passive Institutional Ownership (IO) and climate change exposure. We use Russell 1000/2000 annual index reconstitution as a source of exogenous variation in passive IO and test for the effect of these changes on various climate risk measures and actual carbon emission. Our result shows that there is a positive relationship between passive IO and awareness and discussion about climate Risk. However, we do not find evidence for reduced actual carbon emission.