• Aretz, Kevin, Shantanu Banerjee, and Oksana Pryshchepa, In the Path of the Storm: Does Financial Distress Cause Industrial Firms to Risk-Shift?, forthcoming in the Review of Finance.
    • While recent studies have shown that exogenous distress risk increases can prompt industrial firms to take on more risk, they offer only limited evidence on whether this behavior hurts creditors, leaving it unclear whether the risk-taking translates into risk-shifting. In our paper, we show that moderately, but not highly, distressed firms increase the risks of their operating segment portfolios in response to exogenous distress risk increases induced through hurricane strikes. The higher risk is facilitated through closing down low-risk segments with high growth opportunities, boosting ex-post failure risk. We also show that creditor control facilitated through covenant violations keeps the most highly distressed firms from raising their risk. Our paper is first in showing that firms' risk-taking behavior in high distress risk situations can amount to risk-shifting.
  • Banerjee, Shantanu and Swarnodeep Homroy, 2018, Managerial incentives and strategic choices of firms with different ownership structures, Journal of Corporate Finance 48, p. 314-330.
    • We examine how ownership structure affects managerial incentive alignment mechanisms and strategic objectives. We compare large Indian firms with dispersed equity ownership with business-group affiliates operating within the same institutional frameworks. We find that the performance sensitivity of CEO pay and turnover differ significantly across group affiliates and stand-alone firms. The strategic choices of firms also differ in response to managerial incentives. However, we find that, regardless of those differences, firm performance is similar for both types of firms. Overall, this paper suggests that ownership structure and managerial incentives can adjust to optimize strategic choices and rm performance.
  • Banerjee, Shantanu, Ufuk Gucbilmez and Grzegorz Pawlina, 2016, Leaders and followers in hot IPO markets, Journal of Corporate Finance 37, p. 309-334.
    • We model the dynamics of going public within an IPO wave. The model predicts that firms with better growth opportunities can find it optimal to go public early and accept underpricing of their issues to signal quality. Data supports this prediction as, on average, early movers underprice their issues significantly more and we show that leaders (early movers with high underpricing) obtain much higher valuations when going public than other IPO firms. Furthermore, after going public, leaders invest significantly more, their sales grow faster, and their profitability remains higher compared to other IPO firms.
  • Martinez Ferrero, Jennifer, Shantanu Banerjee and Isabel María García Sanchez, 2016, Corporate social responsibility as a strategic shield against costs of earnings management practices, The Journal of Business Ethics 133 (2), p. 305-324.
    • We highlight how Corporate Social Responsibility (CSR) can be strategically used against the negative perception from earnings management (EM). Using international data, we analyse the effect of CSR and EM on the cost of capital and corporate reputation. Results confirm that CSR strategy is positively valued by investors and other stakeholders. Contrary to EM, CSR has a positive effect on corporate reputation and lowers the cost of capital. In addition, we also find that the favorable effect of CSR on cost of capital is consistently more intense in firms that show signs of EM indicating that the market does not identify when CSR practices are used as a strategy to mask EM. We also demonstrate how institutional factors influence the above relationship.
  • Banerjee, Shantanu, Ufuk Gucbilmez and Grzegorz Pawlina, 2014, Optimal exercise of jointly held real options: a Nash bargaining approach with value diversion, European Journal of Operational Research 239 (2), p. 565–578.
    • This paper provides a two-stage decision framework in which two or more parties exercise a jointly held real option. We show that a single party’s timing decision is always socially efficient if it precedes bargaining on the terms of sharing. However, if the sharing rule is agreed before the exercise timing decision is made, then socially optimal timing is attained only if there is a cash payment element in the division of surplus. If the party that chooses the exercise timing can divert value from the project, then the first-best outcome may not be possible at all and the second-best outcome may be implemented using a contract that is generally not optimal in the former cases. Our framework contributes to the understanding of a range of empirical regularities in corporate and entrepreneurial finance.
  • Pryshchepa, Oksana, Kevin Aretz and Shantanu Banerjee, 2013. Can investors restrict managerial behavior in distressed firms?, Journal of Corporate Finance 23, p. 222-239.
    • In this article, we show that only distressed firms not identified as distressed by creditors are able to transfer wealth from creditors to shareholders. Using the number of years to future bankruptcy as a proxy for genuine distress and measures based on observable firm characteristics as proxies for perceived distress, genuinely distressed firms incorrectly perceived as healthy cut payouts to shareholders more slowly and invest more aggressively as uncertainty increases than correctly identified distressed firms. Consistent with the idea that incorrectly identified distressed firms actively hide their troubles, we show that they tend to follow more aggressive accounting policies and often resort to earnings misstatements. We also show that they are often not restricted by covenants and can borrow further debt capital at affordable rates, suggesting that a lack of monitoring by creditors allows them to transfer wealth to shareholders.
  • Banerjee, Shantanu and Arijit Mukherjee, 2010, Joint venture instability in developing countries under entry, International Review of Economics and Finance 19, p. 603-614.
    • We explain the rationale for share adjustment in an international joint venture (JV) and opening up of a wholly owned subsidiary by the foreign JV partner. If the cost difference between the JV and other firms is small, the foreign firm opens a wholly owned subsidiary and completely sells-out its shares in its previously formed JV. If the cost difference is intermediate (large), the foreign firm adjusts (increases) its shareholding in the JV and opens (does not open) a competing subsidiary. JV instability may be the outcome of a friendly separation. There may also be situations with no share adjustment.
  • Banerjee , Shantanu, Sudipto Dasgupta and Yungsan Kim, 2008, Buyer-supplier relationships and the stakeholder theory of capital structure, Journal of Finance 63 (5), p. 2507-2552.
    • Firms in bilateral relationships are likely to produce or procure unique products—especially when they are in durable goods industries. Consistent with the arguments of Titman and Titman and Wessels, such firms are likely to maintain lower leverage. We compile a database of firms’ principal customers (those that account for at least10% of sales or are otherwise considered important for business) from the Business Information File of Compustat and find results consistent with the predictions of this theory.
  • Banerjee, Shantanu and Arijit Mukherjee, 2007, Knowledge spillover and information sharing: the case of uncertain R&D, The Indian Economic Journal 55 (1), p. 157-163.

Book Chapter:

  • Banerjee, Shantanu, Ufuk Gucbilmez and Grzegorz Pawlina, 2013, IPO waves and hot markets in the UK, Chapter in: Handbook of research on IPOs. Levis, M. & Vismara, S. (eds.). Cheltenham : Edward Elgar. P. 76-97.
    • This paper examines the cyclical nature of IPO activity in the UK. The results indicate a lead-lag relationship between IPO initial returns and volume. IPO volume is sensitive to recent changes in market conditions. There is evidence of industry concentration in hot markets, and firms raise more equity during these periods. Overall, IPO waves in the UK share similar characteristics with those in the US. The findings are consistent with rational explanations of IPO waves. However, explanations based on investor sentiment and market timing cannot be ruled out, since there is a strong positive relationship between IPO volume and the market's price-to-book ratio.