This paper comprehensively examines whether the presence of interlocked directors on a board is a... more This paper comprehensively examines whether the presence of interlocked directors on a board is associated with weak governance. For a sample of 3,566 firm-years over the 2001-2003 time period, we find that firms with lower industry-adjusted firm performance are more likely to have interlocked directors. We also find a negative stock price reaction to the announcement of director appointments that create interlocked directors. Finally, we document that the presence of interlocked directors is associated with lower than optimal pay-performance sensitivity of CEO incentive compensation and reduced sensitivity of CEO turnover to firm performance. Collectively, our results suggest that the presence of interlocked directors is indicative of weak governance and entrenched managers.
International Review of Financial Analysis, Oct 1, 2021
Abstract We study how corporate name changes affect a firm's information environment and its ... more Abstract We study how corporate name changes affect a firm's information environment and its earnings management. We show that the stock market reacts negatively to name changes. This effect is specifically pronounced for firms that have lower visibility. We also find that firms that change their names tend to have a relatively worse information environment. Finally, we show that earnings management is positively related to firm name changes.
This study examines the determinants of firms' requests for Private Letter Rulings (PLRs) fro... more This study examines the determinants of firms' requests for Private Letter Rulings (PLRs) from the US Internal Revenue Service (IRS) and their impact on firms' cash holdings. Our results show that PLR requests tend to be made by firms with more active tax planning, more acquisitions, higher analyst following, higher leverage, and less in‐house tax expertise. We also show that firms with IRS audit red flags are less likely to request a PLR. We use a difference‐in‐difference approach to assess changes in cash holdings following PLR requests and report a decrease in cash holdings for PLR firms, consistent with the notion that PLRs act to reduce tax uncertainty. Our study provides the first empirical evidence about the determinants of PLR requests and complements prior work on tax uncertainty and cash holdings (Hanlon, Maydew and Saavedra, 2017).
... of Texas at El Paso - College of Business Administration - Department of Economics and Financ... more ... of Texas at El Paso - College of Business Administration - Department of Economics and Finance Andrew C. Spieler Hofstra University - Department of Finance Desmond Tsang McGill ... The goal of these rules was to provide temporary relief to REITs facing cash flow problems. ...
In the oversight of most funds, the portfolio manager holds the key decision-making power. Often ... more In the oversight of most funds, the portfolio manager holds the key decision-making power. Often regarded as foundational to the investment process, a few select managers can attract billions of dollars from investors, giving the managers increased prominence, credibility, and compensation. Despite their stature, portfolio managers are not immune to the behavioral biases that other investors exhibit, which can distort the portfolio management process. This chapter offers an overview of portfolio management and compares characteristics of the fund types that portfolio managers oversee. It also reviews several important behavioral biases that portfolio managers display, as well as the consequences that each has on portfolio construction: overconfidence, herd mentality, risk-taking behavior, and disposition effect. The chapter also contrasts the gender differences of portfolio managers and reviews the ramifications for their respective portfolios.
We study how corporate name changes affect a firm's information environment and its earnings ... more We study how corporate name changes affect a firm's information environment and its earnings management. We show that the stock market reacts negatively to name changes. This effect is specifically pronounced for firms that have lower visibility. We also find that firms that change their names tend to have a relatively worse information environment. Finally, we show that earnings management is positively related to firm name changes.
Extant REIT research largely overlooks operating leases as an alternative source of financing. In... more Extant REIT research largely overlooks operating leases as an alternative source of financing. In this study, we hand-collect lease information of 334 unique REITs over the period of 1993 to 2018, and we document that an increasing number of REITs have been including operating leases in their capital structure to finance income-generating investment properties. We examine the determinants of the operating lease decision and find that REITs which adopt operating leases tend to be larger and have more growth opportunities as measured by Tobin’s Q. But they also have higher leverage, report lower funds from operations, and higher risk. We further find that operating lease intensity for REITs is negatively affected by credit ratings, but not by growth opportunities. Lastly, we examine the market effect related to operating lease decision and find that REITs with operating leases are associated with lower shareholder returns. Overall, our findings imply that operating leases are employed as an alternative financing source by REITs that are highly levered and cannot rely much on their internal funding. As a result, the market does not view the use of operating leases in the REIT sector favorably.
Over time, the availability of investable bond products has expanded considerably to include bond... more Over time, the availability of investable bond products has expanded considerably to include bonds focused on social improvements (social impact bonds), life settlement securitization (death bonds), natural disaster risk transfer (catastrophe bonds), environmental improvements (green bonds), and collateralized bonds (covered bonds). Social impact bonds are geared toward positive social change to provide financing to programs that are otherwise ignored or underfunded. Death bonds are bonds backed by the cash flows from life insurance policies. Catastrophe bonds enable spreading the risk of natural disasters or human catastrophes to a broader investor base. Green bonds are issued to raise funds to revitalize brownfield sites or underdeveloped areas and geared toward energy efficiency and pollution control, sustainable agriculture, and clean transportation. Covered bonds are issued against a pool of assets but remain on the issuer’s balance sheet providing safety in the event of bankru...
There is little evidence in the literature on the relative importance of the underlying sources o... more There is little evidence in the literature on the relative importance of the underlying sources of merger gains. Prior literature suggests that synergies could arise due to taxes, market power, or efficiency improvements. Based on Value Line forecasts, we estimate the average synergy gains in a broad sample of 264 large mergers to be 10.03 % of the combined equity value of the merging firms. The detailed data in Value Line projections allows for the decomposition of these gains into underlying operating and financial synergies. We estimate that tax savings contribute only 1.64 % in additional value, while operating synergies account for the remaining 8.38%. Operating synergies are higher in focused mergers, while tax savings constitute a large fraction of the gains in diversifying mergers. The operating synergies are generated primarily by cutbacks in investment expenditures rather than increased operating profits. Overall, the evidence suggests that mergers generate gains by improv...
This paper comprehensively examines whether the presence of interlocked directors on a board is a... more This paper comprehensively examines whether the presence of interlocked directors on a board is associated with weak governance. For a sample of 3,566 firm-years over the 2001-2003 time period, we find that firms with lower industry-adjusted firm performance are more likely to have interlocked directors. We also find a negative stock price reaction to the announcement of director appointments that create interlocked directors. Finally, we document that the presence of interlocked directors is associated with lower than optimal pay-performance sensitivity of CEO incentive compensation and reduced sensitivity of CEO turnover to firm performance. Collectively, our results suggest that the presence of interlocked directors is indicative of weak governance and entrenched managers.
International Review of Financial Analysis, Oct 1, 2021
Abstract We study how corporate name changes affect a firm's information environment and its ... more Abstract We study how corporate name changes affect a firm's information environment and its earnings management. We show that the stock market reacts negatively to name changes. This effect is specifically pronounced for firms that have lower visibility. We also find that firms that change their names tend to have a relatively worse information environment. Finally, we show that earnings management is positively related to firm name changes.
This study examines the determinants of firms' requests for Private Letter Rulings (PLRs) fro... more This study examines the determinants of firms' requests for Private Letter Rulings (PLRs) from the US Internal Revenue Service (IRS) and their impact on firms' cash holdings. Our results show that PLR requests tend to be made by firms with more active tax planning, more acquisitions, higher analyst following, higher leverage, and less in‐house tax expertise. We also show that firms with IRS audit red flags are less likely to request a PLR. We use a difference‐in‐difference approach to assess changes in cash holdings following PLR requests and report a decrease in cash holdings for PLR firms, consistent with the notion that PLRs act to reduce tax uncertainty. Our study provides the first empirical evidence about the determinants of PLR requests and complements prior work on tax uncertainty and cash holdings (Hanlon, Maydew and Saavedra, 2017).
... of Texas at El Paso - College of Business Administration - Department of Economics and Financ... more ... of Texas at El Paso - College of Business Administration - Department of Economics and Finance Andrew C. Spieler Hofstra University - Department of Finance Desmond Tsang McGill ... The goal of these rules was to provide temporary relief to REITs facing cash flow problems. ...
In the oversight of most funds, the portfolio manager holds the key decision-making power. Often ... more In the oversight of most funds, the portfolio manager holds the key decision-making power. Often regarded as foundational to the investment process, a few select managers can attract billions of dollars from investors, giving the managers increased prominence, credibility, and compensation. Despite their stature, portfolio managers are not immune to the behavioral biases that other investors exhibit, which can distort the portfolio management process. This chapter offers an overview of portfolio management and compares characteristics of the fund types that portfolio managers oversee. It also reviews several important behavioral biases that portfolio managers display, as well as the consequences that each has on portfolio construction: overconfidence, herd mentality, risk-taking behavior, and disposition effect. The chapter also contrasts the gender differences of portfolio managers and reviews the ramifications for their respective portfolios.
We study how corporate name changes affect a firm's information environment and its earnings ... more We study how corporate name changes affect a firm's information environment and its earnings management. We show that the stock market reacts negatively to name changes. This effect is specifically pronounced for firms that have lower visibility. We also find that firms that change their names tend to have a relatively worse information environment. Finally, we show that earnings management is positively related to firm name changes.
Extant REIT research largely overlooks operating leases as an alternative source of financing. In... more Extant REIT research largely overlooks operating leases as an alternative source of financing. In this study, we hand-collect lease information of 334 unique REITs over the period of 1993 to 2018, and we document that an increasing number of REITs have been including operating leases in their capital structure to finance income-generating investment properties. We examine the determinants of the operating lease decision and find that REITs which adopt operating leases tend to be larger and have more growth opportunities as measured by Tobin’s Q. But they also have higher leverage, report lower funds from operations, and higher risk. We further find that operating lease intensity for REITs is negatively affected by credit ratings, but not by growth opportunities. Lastly, we examine the market effect related to operating lease decision and find that REITs with operating leases are associated with lower shareholder returns. Overall, our findings imply that operating leases are employed as an alternative financing source by REITs that are highly levered and cannot rely much on their internal funding. As a result, the market does not view the use of operating leases in the REIT sector favorably.
Over time, the availability of investable bond products has expanded considerably to include bond... more Over time, the availability of investable bond products has expanded considerably to include bonds focused on social improvements (social impact bonds), life settlement securitization (death bonds), natural disaster risk transfer (catastrophe bonds), environmental improvements (green bonds), and collateralized bonds (covered bonds). Social impact bonds are geared toward positive social change to provide financing to programs that are otherwise ignored or underfunded. Death bonds are bonds backed by the cash flows from life insurance policies. Catastrophe bonds enable spreading the risk of natural disasters or human catastrophes to a broader investor base. Green bonds are issued to raise funds to revitalize brownfield sites or underdeveloped areas and geared toward energy efficiency and pollution control, sustainable agriculture, and clean transportation. Covered bonds are issued against a pool of assets but remain on the issuer’s balance sheet providing safety in the event of bankru...
There is little evidence in the literature on the relative importance of the underlying sources o... more There is little evidence in the literature on the relative importance of the underlying sources of merger gains. Prior literature suggests that synergies could arise due to taxes, market power, or efficiency improvements. Based on Value Line forecasts, we estimate the average synergy gains in a broad sample of 264 large mergers to be 10.03 % of the combined equity value of the merging firms. The detailed data in Value Line projections allows for the decomposition of these gains into underlying operating and financial synergies. We estimate that tax savings contribute only 1.64 % in additional value, while operating synergies account for the remaining 8.38%. Operating synergies are higher in focused mergers, while tax savings constitute a large fraction of the gains in diversifying mergers. The operating synergies are generated primarily by cutbacks in investment expenditures rather than increased operating profits. Overall, the evidence suggests that mergers generate gains by improv...
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