Summer Term 2016
September 12th, 2016, 12:00-13:00, D4.0.039
Felix Meschke (University of Kansas - School of Business)
"Internal CEO Approval and External Reporting Quality"
(joint with Minjie, Huang Adi Masli, James P. Guthrie )
Abstract: We propose a measure of CEO reputation that is distinct from media popularity. Using novel data on CEO approval by their employees, we link CEO internal reputation to financial reporting quality. Specifically, we document that higher internal CEO approval ratings are associated with less earnings management, lower pricing of audit services, less modified going concern opinions and lower likelihood of subsequent litigation related to accounting malpractices. While external, media-generated CEO recognition results in more earnings management, internal, employee- generated CEO approval seems to signal higher financial reporting quality.
September 9th, 2016, 12:00-13:00, D4.0.039
Eliezer Fich (Drexel University - LeBow College of Business)
"Advertising, Attention, and Acquisition Returns"
(joint with Laura T. Starks, Anh L. Tran)
Abstract: We show that targets with pre-takeover advertising obtain higher premiums while their acquirers experience lower merger announcement returns. These economically significant effects are consistent with the hypothesis that advertising allows target management to increase the firm’s profile and negotiating power. The effect is stronger where expected: for targets in business-to- consumer industries, with short-sale constraints, and with higher managerial ownership. Further, advertising targets are more likely to initiate their own sale, be pursued by multiple bidders, receive revised increased bids, capture more of the merger surplus and in the event of a failed acquisition, experience a permanent revaluation of about 1%.
August 30th, 2016, 12:00-13:00, D4.0.039
David Brown (University of Arizona - Eller, Department of Finance)
"The Price is Wrong: Mispricing and ETF Arbitrage"
Abstract: Many ﬁnance models assume the existence of noise traders who push asset prices away from funda-mental values. Yet empirically, these “animal spirits” are challenging to observe because fundamen-tal values are inherently unobservable. We examine a novel database of trades by ETF authorized participants who speciﬁcally trade to correct violations of the law of one price. These trades allow us to measure arbitrage activity and conﬁrm many theories of arbitrage. We show that noise traders do not cancel each other out and arbitrage activity is associated with predictable price distortions. Our analysis indicates that noise traders exert a non-fundamental impact on market outcomes even when arbitrageurs are active. Thus, noise traders are not simply noise, they impact prices.
April 20th, 2016, 12:00-13:30, D4.4.008
Christian Laux (WU)
"Procyclicality of US Bank Leverage" (joint with Thomas Rauter)
April 13th, 2016, 12:00-13:30, D4.4.008
Toni Whited (University of Michigan)
"Capital Structure Misallocation" (joint with Jake Zhao)
Abstract: We ask whether financial assets are well-allocated in the cross-section of firms. Extending the framework of Hsieh and Klenow (2009) to the liabilities side of the balance sheet, we estimate the real losses that accrue from the cross-sectional misallocation of financial liabilities across firms. Using U.S. and Chinese data on manufacturing firms, we find significant misallocation of debt and equity. Although financial liabilities appear well-allocated in the United States, they are not in China. If China's debt and equity markets were as developed as those in the United States, China would realize gains of 70-100% in real firm value. We also back out the cost of debt and equity for each firm with our model, taking into account allocation distortions. We find that larger firms and firms located in more developed cities face markedly lower costs.