Management’s personal ideology and financial reporting quality

Review of Quantitative Finance and Accounting - We investigate the relation between managers’ personal ideologies and financial reporting quality. We use Federal Elections Commission data to...     

Financial flexibility: Do firms prepare for recession?

We analyze how firms manage their financial flexibility conditional on the expected probability of recession. Using an ex ante measure of future recession, we find that, in the aggregate, firms do not appear to prepare. However, a closer analysis reveals a more nuanced relation. The lack of preparation in aggregate is driven by firms that may be unable to prepare: financially constrained and cash poor firms. We find some evidence that firms able to prepare, unconstrained and cash rich firms, may prepare for future recessions.     

Idiosyncratic Volatility and Firm‐Specific News: Beyond Limited Arbitrage

We examine the relation between idiosyncratic volatility and returns around news announcements. Mispricing is most likely to occur during news announcements. If idiosyncratic volatility generates a limit to arbitrage, then the negative relation between returns and news volatility should be stronger than the relation to nonnews volatility. Instead, we find nonnews volatility has a robust negative relation to returns and lacks key features expected if volatility were a reflection of limits to arbitrage. Pricing of nonnews volatility is related to lottery‐like features of a stock's return. Our results suggest that volatility has a price effect beyond a limit to arbitrage.     

Idiosyncratic Volatility Covariance and Expected Stock Returns

Given that the idiosyncratic volatility (IDVOL) of individual stocks co‐varies, we develop a model to determine how aggregate idiosyncratic volatility (AIV) may affect the volatility of a portfolio with a finite number of stocks. In portfolio and cross‐sectional tests, we find that stocks whose returns are more correlated with AIV innovations have lower returns than those that are less correlated with AIV innovations. These results are robust to controlling for the stock's own IDVOL and market volatility. We conclude that risk‐averse investors pay a premium for stocks that pay well when AIV is high, consistent with our model.     

Political ideology and CEO performance under crisis

Review of Quantitative Finance and Accounting - Management quality is known to influence depository institution performance, but less understood are the characteristics of managers that influence...