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Market-Based Solutions to Vital Economic Issues


Kenan Institute 2024 Grand Challenge: Business Resilience
Market-Based Solutions to Vital Economic Issues

corporate finance


Using firm-level administrative tax data, we document dramatic reductions in private leverage since the Global Financial Crisis, while leverage among public firms rose during this period. Our findings suggest that banks' credit supply plays a prominent role in explaining the leverage pattern of private firms.

Since 2001, the number of financial statement line items forecasted by analysts and managers that I/B/E/S and FactSet capture in their data feeds has soared. Using this new data, we find that 13 item surprises—11 income statement and 2 cash flow statement analyst and management guidance surprises—reliably explain firms’ signed earnings announcement returns.

software stock
May 22, 2019

Anomaly Time

We examine when anomaly returns occur. We use a powerful database that contains the precise date on which accounting information is first made public. Despite recent findings to the contrary, once timing is considered, anomalies exist in the data.

We find that although team structure has a significant impact on the performance of nonfounder‐led firms (consistent with past literature), it has little to no effect on the operating performance of founder‐led firms, suggesting that founder chief executive officers (CEOs) may exert too much control. Thus, the irony is that founders are retained to propel progress but their very retention may prevent progress.

On September 30, 2018, California became the first U.S. state to set quotas for women directors on corporate boards. The passage of this law resulted in a significant decline in shareholder value for firms headquartered in California. The decline in shareholder value is directly related to the number of female directors that firms are required to add under these quotas.

We investigate a novel determinant of financial distress, namely individuals' self-efficacy, or belief that their actions can influence the future. Individuals with high self-efficacy are more likely to take precautions that mitigate adverse financial shocks. They are subsequently less likely to default on their debt and bill payments, especially after experiencing negative shocks such as job loss or illness. Thus, non-cognitive abilities are an important determinant of financial fragility and subjective expectations are an important factor in household financial decisions.

Most retailers operate under the assumption that stabilizing employees’ schedules would hurt their financial performance because instability is an inevitable outcome of variable demand patterns in retail stores. We tested the validity of this commonly held belief. The goal of our experiment was to determine if it is possible to improve schedule stability without hurting financial performance.

Corporate restructurings accomplished through spinoffs have long been a key tool for management to unlock shareholder value. In 2016, global spinoff volume reached $117 billion, and spinoff activity continues to unfold at a similar pace in 2017, with Hilton, Xerox, Alcoa, Johnson Controls, and Danaher all recently completing major transactions.

We conduct what is, to our knowledge, the first systematic examination of Chinese-based firms that utilize a variable interest entity (VIE) structure to evade Chinese regulation on foreign ownership to list equity in the U.S. The use of the VIE structure is not only questionable under Chinese laws but also exacerbates the agency costs within the firm. We find that Chinese VIE firms have a Tobin’s Q as much as 35% lower than Chinese non-VIE firms, and this discount is concentrated in firms with higher risks of government intervention and managerial expropriation. To remediate these risks, VIE firms are more likely to have a politically connected director on the board, hire a Big N auditor and have higher levels of institutional ownership.

Performance measurement and event studies frequently assume a specific stochastic process for stock returns. The purpose of this paper is to validate the predictive accuracy of various stochastic processes on data different from those used in estimating the models. The main conclusion is that multi-factor models estimated with factor analytic techniques provide more accurate forecasts than the usual market model with either an equal- or value-weighted index, and Fama–French three-factor model.