Why do (or did?) banks securitize their loans? Evidence from Italy

This paper investigates the ex ante determinants of bank loan securitization by using different econometric methods on Italian individual bank data from 2000 to 2006. Our results show that bank loan securitization is a composite decision. Banks that are less capitalized, less profitable, less liquid and burdened with troubled loans are more likely to perform securitization, for a larger amount and earlier.     

Do controlling shareholders collude with their related large shareholders? Evidence of equity pledges and shareholding increases from China

The key for controlling shareholders to prevent the risk of equity pledge is to increase the stock price, and the large shareholders' shareholding increases have the effect of increasing the stock price. Using the data of Chinese A-share firms from 2007 to 2019, this paper examines the relationship between the controlling shareholders' equity pledges and their related large shareholders' shareholding increases. We find that when the controlling shareholders pledge equity, their related large shareholders are more likely to increase their shareholdings. By analyzing the necessity, ability and motivation of related large shareholders to provide help, we find that shareholding increases of related large shareholders are behaviors of helping controlling shareholders to mitigate the risk of equity pledge. Based on the analysis of external acquisition threats, stability heterogeneity of control rights and exogenous impact of Vanke Equity Competition, it is shown that the controlling shareholders pledging equity promote their related large shareholders to increase their shareholdings for the purpose of preventing the risk of control transfer. In further analysis, we find that the shareholding increases of related large shareholders have the practical effect of improving the stock price and preventing pledge risks. This paper proves that the controlling shareholders pledging equity collude with their related large shareholders, which is reflected in the fact that the shareholding increases of the related large shareholders have become a means for controlling shareholders to prevent the risk of equity pledge.     

How well-targeted are payroll tax cuts as a response to COVID-19? evidence from China

Numerous countries cut payroll taxes in response to COVID-19, including China, which reduced employer contributions by up to 21 percentage points. We use administrative data on more than 800,000 Chinese firms to evaluate payroll tax cuts as a business relief measure. We estimate that the tax cuts cover 31.5% of the decline in business cash flow, but labor informality causes 53% of registered firms-24% of aggregate economic activity-to receive no benefits at all. We quantify the targeting of the policy in terms of how much benefits flow to small firms less able to access external finance and to sectors worse hit by COVID-19. We find that (1) small firms and vulnerable industries are comparatively more labor intensive, which leads to desirable targeting; (2) labor informality worsens, but does not eliminate, targeting by firm size; and (3) labor informality is uncorrelated with the COVID-19 shock, and therefore does not affect targeting by sector.

     

Why are some mutual funds closed to new investors?

Fund families typically claim that closing a fund protects the fund's superior performance by preventing it from growing too large to be managed efficiently. Even though funds with better performance and larger size are more likely to be closed, there is no evidence that closing a fund can indeed protect its performance. Instead, fund closing decisions are more likely to be motivated by spillover effects – by closing a star fund, the fund family signals its superior performance and also brings investors' attention and investments to other funds in the family. Some evidence exists to suggest that the closing strategy is effective in generating higher inflows into the rest of the family, at least in the short run.     

Why are recommendations optimistic? Evidence from analysts’ coverage initiations

We examine the long-term stock performance of analyst recommendations and the properties of accompanied earnings forecasts for initiations and non-initiations to evaluate the reporting, selection, and processing explanations for analyst optimism. We find that Strong Buy and, to a lesser degree, Buy initiation recommendations underperform their non-initiation counterparts after controlling for analyst, brokerage, and firm characteristics associated with the initiation decision and expected long-term stock returns. Yet, earnings forecasts accompanying Strong Buy and Buy initiation recommendations are less optimistic and more accurate than those accompanying non-initiation recommendations. Our findings suggest that conflicts of interest (that is, the reporting explanation) are the dominant source for favorable recommendations.     

Why are older investors less willing to take financial risks?

We investigate the link between age and tolerance of financial risks in the context of attitude to risk questionnaires completed by clients when meeting their financial advisors. Using a unique database comprising the responses to over half a million such questionnaires, we show that risk tolerance declines at an increasing, albeit slow, rate with age. We investigate the explanatory power of the ability to bear losses, declining investment horizon and retirement effects, finding that these variables have considerably greater explanatory power for the cross-section of risk aversion than age, and that they are only able to partially mediate the link between age and risk tolerance. We are unable to uncover any evidence that declining cognitive abilities among older investors are able to explain their lower willingness to take financial risks. Overall, our results are indicative of a modest age effect in risk tolerance that cannot be attributed to changes in other observable characteristics that differ between younger and older investors.     

How aware are employees of their benefits? Findings from two companies

This study examines benefit awareness of employees in two companies. Contrary to previous research, the results show that employees are generally accurate in their perceptions of the benefits available to them. However, the results also show a lack of awareness of unemployment insurance and disability insurance as benefits. In addition, employees were somewhat uncertain regarding costs of benefits to employers. These findings suggest that employers should monitor employee awareness of benefits and target communications to specific problem areas.     

How important are small banks to small business lending?: New evidence from a survey of small firms

Typically, small banks lend a larger proportion of their assets to small businesses than do large banks. The recent wave of bank mergers has thinned the ranks of small banks, raising the concern that small firms may find it difficult to access bank credit. However, bank consolidation will reduce small business credit only if small banks enjoy an advantage in lending to small businesses. We test the existence of a small bank cost advantage in small business lending by conducting the following simple test: If such advantages exist, then we should observe small businesses in areas with few small banks to have less bank credit. Using data on small business borrowers from the 1993 National Survey of Small Business Finance, we find that the probability of a small firm having a line of credit from a bank does not decrease in the long run when there are fewer small banks in the area, although short-run disruptions may occur. Nor do we find that firms in areas with few small banks are any more likely to repay trade credit late, suggesting that such firms are no more credit constrained than firms in areas with many small banks.     

Market discipline of banks: Why are yield spreads on bank-issued subordinated notes and debentures not sensitive to bank risks?

The default risk sensitivity of yield spreads on bank-issued subordinated notes and debentures (SNDs) decreased after banks started issuing trust-preferred securities (TPS). The too-big-to-fail (TBTF) discount on yield spreads is absent prior to the LTCM bailout, but the size discount doubles after the LTCM bailout. Prior to TPS issuance and the LTCM bailout, SND yield spreads are sensitive to conventional firm-specific default risk measures, but not after the bailout. We find paradigm shift in determinants of yield spreads after the LTCM bailout. Yield spreads on TPS are sensitive to default risks and can provide an additional source of market discipline.     

The demise of community banks? Local economic shocks are not to blame

The number of US community banks is falling rapidly. Is this reduction being driven in part by banks’ desire to geographically diversify to reduce their vulnerability to local economic shocks? A comparison of the performance of banks in counties that suffered economic shocks in the 1990s with similar banks in counties that did not suffer economic shocks shows that banks withstand local economic shocks quite well. This result suggests that the geographic concentration risk that community banks must bear to focus on relationship lending is small and is not an important factor contributing to the decline of community banks.     

Who says they are satisfied with their job? Evidence from the BHPS Introduction

<正>Nowadays,many people are not satisfied with their work and the dissatisfaction may bring employees the sense of insecurity and instability.In the current modern society,people are suffering fierce competition and fast changing,so job satisfaction becomes a common problem for employees.     

Did investors outsource their risk analysis to rating agencies? Evidence from ABS-CDOs

Based on a sample of 3254 floating rate tranches from 617 ABS-CDOs (collateralized debt obligations backed by asset-backed securities), this paper tests the “rating overdependence” hypothesis – i.e., that ratings of structured products are a sufficient statistic (in terms of predicting future credit performance) for yield spreads at origination. The paper’s findings are fourfold. First, yield spreads at issuance predict future performance of ABS-CDO tranches even after controlling for the information contained in ratings. Second, the ability of yield spreads to predict future performance, however, is driven exclusively by ratings below AAA (and, to a lesser extent, also by the lowest priority AAA tranches), whereas spreads of super senior AAA tranches show no information content. Third, the predictive ability of yield spreads is lower for tranches from later vintages and for tranches from deals with more complex collateral pools. Fourth, the conditional correlation between ratings and spreads, in turn, is increasing in time and higher for tranches from complex deals. In sum, the evidence indicates that investors in (especially AAA) tranches from later and more complex deals have avoided performing costly due diligence on the securities they bought.     

Why Do Stock Prices Drop by Less Than the Amount of the Dividend? Evidence from a Unique Environment

Abstract:

This paper investigates the effect of a lack of an automated limit order adjustment mechanism on ex-dividend day stock price behavior in a unique environment in which there are no taxes on dividends and capital gains. It finds that the overnight drop in the ask price is smaller than the overnight drop in the bid price. In addition, the study finds that average price drops are smaller than the dividend amount for all dividend sizes. I also find no evidence of a sawtooth-shaped relationship between the dividend amount and the ex-day price drop. These results are generally consistent with the lack of an automated limit order adjustment mechanism.     

Do VCs use inside rounds to dilute founders? Some evidence from Silicon Valley

In the bank-borrower setting, a firm's existing lender may exploit its positional advantage to extract rents from the firm in subsequent financings. Analogously, a startup's existing venture capital investors (VCs) may dilute the founder through a follow-on financing from these same VCs (an “inside” round) at an artificially low valuation. Using a hand-collected dataset of Silicon Valley startup firms, we find little evidence that VCs use inside rounds to dilute founders. Instead, our findings suggest that inside rounds are generally used as “backstop financing” for startups that cannot attract new money, and these rounds are conducted at relatively high valuations (perhaps to reduce litigation risk).     

Does it add up? Early evidence on the data quality of XBRL filings to the SEC

In 2009, the Securities and Exchange Commission rolled out the first stage of a multi-year program to transition its EDGAR disclosure repository to the XBRL format. The quality of the XBRL data in the repository is vital for the success of the Commission’s interactive data program. A key aspect of the data quality of these filings is the correctness of the mathematical relationships implied by the taxonomy and implemented in the instance document. One quarter of the filings by the initial 400 large corporations in the first round of submissions had errors, with differences reported monetary facts and the sum of other monetary facts that were bound together in a computation relationship. The primary cause of these errors was inappropriate treatment in the instance documents of underlying debit/credit assumptions in the taxonomy. The results of the research have a number of implications for filers, the SEC, XBRL US, software vendors and the global XBRL community.     

Why do pro forma and Street earnings not reflect changes in GAAP? Evidence from SFAS 123R

This study examines how key market participants??managers and analysts??responded to SFAS 123R??s controversial requirement that firms recognize stock-based compensation expense. Despite mandated recognition of the expense, some firms?? managers exclude it from pro forma earnings and some firms?? analysts exclude it from Street earnings. We find evidence consistent with managers opportunistically excluding the expense to increase earnings, smooth earnings, and meet earnings benchmarks but no evidence that these exclusions result in an earnings measure that better predicts future firm performance. In contrast, we find that analysts exclude the expense from earnings forecasts when exclusion increases earnings?? predictive ability for future performance and that opportunism generally does not explain exclusion by analysts incremental to exclusion by managers. Thus our findings indicate that opportunism is the primary explanation for exclusion of the expense from pro forma earnings and predictive ability is the primary explanation for exclusion from Street earnings. Our findings suggest the controversy surrounding the recognition of stock-based compensation expense may be attributable to cross-sectional variation in the relevance of the expense for equity valuation, as well as to differing incentives of market participants.     

How are political connections valued in China? Evidence from market reaction to CEO succession

Using a sample of listed Chinese firms between 2000 and 2010, the paper analyzes the stock market reaction to CEO succession. We document significantly positive cumulative abnormal returns when CEO succession is accompanied with increased political connections. We also show that the market reaction to political connections is significantly stronger for external successors and for poorly performing firms, while it is significantly weaker for firms in high-tech industries and firms located in more developed regions. Finally we find that political connections are valued significantly less in state owned enterprises than in privately controlled firms. Our findings suggest that Chinese investors do value political connections, and such valuation is conditioned by successor origin, prior firm performance, industry, region, and ownership structure.     

Why do employees take more initiatives to improve their performance after co-developing performance measures? A field study

Performance measurements may stimulate employee initiatives to improve operational performance, especially when employees themselves participate in the development of their own departmental performance measures. Using the theory of planned behavior, we examine why this occurs in a beverage manufacturing company where we helped bottling line maintenance technicians develop measures about the results of their own work. Our analyses are based on qualitative data gathered at 156 meetings, 34 semi-structured interviews, quantitative performance data from the company's information systems, and quantitative questionnaire data. We found that the participatory development process increased employees’ attitude, perceived social pressure and perceived capability to take initiative. Moreover, the departmental performance improved when the jointly developed performance measures were put to use.     

Do firms that wish to be acquired manage their earnings? Evidence from major European countries

In this paper, we examine whether findings on downward accrual-based earnings management for firms publicly ‘seeking a buyer’ from the US can be extrapolated outside of the US context, given that past research has indicated that the function of the Merger and Acquisition (M&A) markets is highly dependent on the degree of competition in a country. We test for the existence of earnings management (EM) around such events for firms listed in the largest European stock exchanges between 2000 and 2009, and get evidence that downward earnings management around ‘seeking buyer’ announcements more strongly holds for the country with the most competitive market for corporate control in our sample, that is the UK. We consider this finding indicative of the fact that a competitive M&A environment may induce earnings management-prone behavior. We further testify significantly positive abnormal returns around ‘seeking buyer’ announcements for firms from the UK, but limited such evidence for the other countries, a finding we also attribute to differences in competition and uneven split of benefits among bidders and targets in M&A markets. Finally, we find that EM positively affects abnormal returns around ‘seeking buyer’ announcements, indicating that market participants tend to compensate for upward EM, regardless of the degree of competition of the M&A market of a country.