This paper investigates fire sales of downgraded corporate bonds induced by regulatory constraints imposed on insurance companies. As insurance companies hold over one-third of investment-grade corporate bonds, the collective need to divest downgraded issues may be limited by a scarcity of counterparties. Using insurance company transaction data, we find that insurance companies that are relatively more constrained by regulation are more likely to sell downgraded bonds. Bonds subject to a high probability of regulatory-induced selling exhibit price declines and subsequent reversals. These price effects appear larger during periods when the insurance industry is relatively distressed and other potential buyers' capital is scarce.
This paper examines the internal anatomy of regional social capital and develops a role for dealmakers – individuals who provide active regional stewardship. An empirical analysis of twelve US regions finds great variation in the presence of dealmakers. The strong local presence of dealmakers is correlated with high start-up rates. The empirical results suggest that the local presence of dealmakers is more important for successful entrepreneurship than aggregate measures of regional entrepreneurial and investors network. Moreover, it is found that the presence of dealmakers is a better predictor of the status of the regional entrepreneurial economy.
Financial openness is often associated with higher rates of economic growth. We show that the impact of openness on factor productivity growth is more important than the effect on capital growth. This explains why the growth effects of liberalization appear to be largely permanent, not temporary. We attribute these permanent liberalization effects to the role financial openness plays in stock market and banking sector development, and to changes in the quality of institutions.
Real estate private equity (REPE) funds are often differentiated by risk class: Core, Value-Added, or Opportunistic. Fund class is used by investors and managers to allocate funds and to describe investment policies. In this paper, we use REPE fund cash flow data from Burgiss that allow us to calculate a variety of performance metrics.
We investigate whether firms and their top executives bear reputational costs from engaging in aggressive tax avoidance activities. Prior literature has posited that reputational costs partially explain why so many firms apparently forgo the benefits of tax avoidance, the so-called “under-sheltering puzzle.” We employ a database of 118 firms that were subject to public scrutiny for having engaged in tax shelters, representing the largest sample of publicly identified corporate tax shelters analyzed to date.
There has been renewed advocacy for restrictions on international financial flows in the wake of the recent financial crisis. Motivated by this trend, we explore the extent to which cross-border flows affect real economic activity. Unlike previous research efforts that focus on aggregated capital flows, we exploit novel data on forced trading by global mutual funds as a plausible source of exogenous flow shocks. Such forced trading is known to generate large liquidity and price effects, but its real impacts have not been studied extensively. We find that both country- and firm-level investment growth rates are significantly affected by these exogenous capital shocks, and that their effect is more pronounced for firms whose marginal investment decisions are more equity-reliant.
Relative performance is central to investment management and yet relative performance securities do not trade directly. Complex trading strategies must be devised to capture relative gains. This paper introduces a suite of relative performance indexes and index derivatives that offer new and attractive payoff structures. We illustrate a variety of ways in which the products can provide a more efficient and cost-effective means of realizing investment objectives than can traditional futures and options markets.
Few papers in the literature on inequality measurement deal with uncertainty, particularly when the ranking of cohorts may not be fixed. We present a set of axioms implying such a class of inequality measures under uncertainty that is a one-parameter extension of the generalized Gini mean over the distribution of average allocations. The extension consists of a quadratic term accounting for inter-personal correlations. In particular, our measure can simultaneously accommodate a preference for “shared destiny”, a preference for probabilistic mixtures over unfair allocations, and a preference for fairness “for sure” over fairness in expectation.
While the literature highlights the benefits of internally redeploying resources, there is less empirical guidance on which resources are most likely to be redeployed. We examine the relationship between inventor characteristics and redeployment decisions, motivated by the tension between costs and benefits of keeping a resource at the source unit versus moving it to a new target unit.
We comment on the Securities and Exchange Commission’s proposed Reporting Threshold for Institutional Investment Managers (“Proposal”). We estimate the cost savings from the Proposal are economically small, and amount to 0.004% (0.008%) of assets under management for the average (median) affected filer, and 0.02% of assets for the smallest filer. This small cost savings needs to be weighed against the potentially large costs to investors and others created by eliminating a public disclosure that they heavily use.
We examine the trading behavior of particularly intensive traders, those who contribute the most to daily trading volume, and provide new evidence that is consistent with the presence of informational advantages. Using a unique Chinese data set of the most active daily market participants for each stock, we demonstrate that intensive traders’ buying (selling) predicts large positive (negative) abnormal returns, both unconditionally and, in particular, around key, value-relevant announcements.
We use panel data on ISO 9000 quality certification in 85 countries between 1993 and 1998 to better understand the cross-national diffusion of an organizational practice. Following neoinstitutional theory, we focus on the coercive, normative, and mimetic effects that result from the exposure of firms in a given country to a powerful source of critical resources, a common pool of relevant technical knowledge, and the experiences of firms located in other countries. We use social network theory to develop a systematic conceptual understanding of how firms located in different countries influence each other's rates of adoption as a result of cohesive and equivalent network relationships.
We construct a comprehensive panel of trading venue-level short sales and examine where short sellers exploit their information advantage. We examine the tradeoff that informed traders weigh between transaction costs and execution probability posited by Hendershott and Mendelson (2000), Ye (2011), and Zhu (2014), and find that short sales comprise a greater proportion of exchange trading than of dark pool trading. Furthermore, exchange short sales are more informative than dark pool short sales about future price moves. We find evidence of increased exchange short sales and exchange short sale informativeness prior to corporate news events. Finally, we examine the relationship between several market design characteristics and informed trade. The results provide direct evidence that dark pools attract less informed trade than exchanges do, particularly when information is short lived.
Feed supplements have recently been touted as an effective means to reducing methane emissions from livestock (e.g., cattle and sheep). In this paper, we examine the environmental implication of this innovation in a supply chain setting.
Prior evidence suggests that macroprudential policy has small and insignificant effects on the volume of portfolio flows. We show, however, that these minor effects mask very different relationships across the global financial cycle. A tighter ex-ante macroprudential stance amplifies the impact of global risk shocks on bond and equity flows—increasing outflows by significantly more during risk-off episodes and increasing inflows significantly more during risk-on episodes.
We characterize how wishful thinking affects the interpretation of information in economies with strategic and external effects. While players always choose to exhibit overconfidence in private information, their interpretation of public information depends on how non-fundamental volatility affects payoffs. When volatility increases payoffs, players may endogenously disagree: some under-react to public news, while others overreact.
The authors provide an overview of the main accomplishments of private equity since the emergence of leveraged buyouts in the 1980s, and of the challenges now facing the industry—challenges that have been encountered before during three major growth waves and two full boom-and-bust cycles.
We examine the impact of logistics performance metrics such as delivery time, and customer’s requested delivery speed on logistics service ratings and third-party sellers’ sales on an e-commerce platform.
Despite extensive empirical evidence of the economic and financial benefits of green buildings, energy retrofit investments in existing buildings have not reached widespread adoption.This paper empirically estimate returns to energy retrofit investments for multifamily and commercial buildings in New York City, using a novel database of actual audit report recommendations and permitted renovation work extracted using natural language processing.
The paper introduces structured machine learning regressions for heavy-tailed dependent panel data potentially sampled at different frequencies. We focus on the sparse-group LASSO regularization. This type of regularization can take advantage of the mixed frequency time series panel data structures and improve the quality of the estimates.