Green Investing, Information Asymmetry, and Capital Structure
Shasha Li, Biao Yang
IWH Discussion Papers,
No. 20,
2023
Abstract
We investigate how optimal attention allocation of green-motivated investors changes information asymmetry in financial markets and thus affects firms‘ financing costs. To guide our empirical analysis, we propose a model where investors with heterogeneous green preferences endogenously allocate limited attention to learn market-level or firm-specific fundamental shocks. We find that a higher fraction of green investors in the market leads to higher aggregate attention to green firms. This reduces the information asymmetry of green firms, leading to higher price informativeness and lower leverage. Moreover, the information asymmetry of brown firms and the market increases with the share of green investors. Therefore, greater green attention is associated with less market efficiency. We provide empirical evidence to support our model predictions using U.S. data. Our paper shows how the growing demand for sustainable investing shifts investors‘ attention and benefits eco-friendly firms.
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Regulation and Information Costs of Sovereign Distress: Evidence from Corporate Lending Markets
Iftekhar Hasan, Suk-Joong Kim, Panagiotis Politsidis, Eliza Wu
Journal of Corporate Finance,
October
2023
Abstract
We examine the effect of sovereign credit impairments on the pricing of syndicated loans following rating downgrades in the borrowing firms' countries of domicile. We find that the sovereign ceiling policies used by credit rating agencies create a disproportionately adverse impact on the bounded firms' borrowing costs relative to other domestic firms following their sovereign's rating downgrade. Rating-based regulatory frictions partially explain our results. On the supply-side, loans carry a higher spread when granted from low-capital banks, non-bank lenders, and banks with high market power. We further document an operating demand-side channel, contingent on borrowers' size, financial constraints, and global diversification. Our results can be attributed to the relative bargaining power between lenders and borrowers: relationship borrowers and non-bank dependent borrowers with alternative financing sources are much less affected.
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"Let Me Get Back to You" — A Machine Learning Approach to Measuring NonAnswers
Andreas Barth, Sasan Mansouri, Fabian Wöbbeking
Management Science,
No. 10,
2023
Abstract
Using a supervised machine learning framework on a large training set of questions and answers, we identify 1,364 trigrams that signal nonanswers in earnings call questions and answers (Q&A). We show that this glossary has economic relevance by applying it to contemporaneous stock market reactions after earnings calls. Our findings suggest that obstructing the flow of information leads to significantly lower cumulative abnormal stock returns and higher implied volatility. As both our method and glossary are free of financial context, we believe that the measure is applicable to other fields with a Q&A setup outside the contextual domain of financial earnings conference calls.
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Ownership Structure and the Cost of Debt: Evidence From the Chinese Corporate Bond Market
Sris Chatterjee, Xian Gu, Iftekhar Hasan, Haitian Lu
Journal of Empirical Finance,
September
2023
Abstract
Drawing upon evidence from the Chinese corporate bond market, we study how ownership structure affects the cost of debt for firms. Our results show that state, institutional and foreign ownership formats reduce the cost of debt for firms. The benefits of state ownership are accentuated when the issuer is headquartered in a province with highly developed market institutions, operates in an industry less dominated by the state or during the period after the 2012 anti-corruption reforms. Institutional ownership provides the most benefits in environments with lower levels of marketization, especially for firms with low credit quality. Our evidence sheds light on the nexus of ownership and debt cost in a political economy where state-owned enterprises (SOEs) and non-SOEs face productivity and credit frictions. It is also illustrative of how the market environment interacts with corporate ownership in affecting the cost of bond issuance.
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Markt, Umwelt Und Wirtschaftswachstum – Ein Trilemma?
Oliver Holtemöller
Wirtschaftsdienst,
No. 7,
2023
Abstract
Funktioniert Marktwirtschaft ohne Wirtschaftswachstum?Ist langfristiges Wirtschaftswachstum mit endlichen Ressourcen und Umweltschutz vereinbar? Passen Marktwirtschaft und Umweltschutz zusammen? Die Beantwortung dieser Fragen hängt stark davon ab, was man unter den einzelnen Schlagwörtern Markt, Umwelt und Wirtschafts-wachstum versteht.
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Market-implied Ratings and Their Divergence from Credit Ratings
Iftekhar Hasan, Winnie P. H. Poon, Jianfu Shen, Gaiyan Zhang
Journal of Financial Research,
No. 2,
2023
Abstract
In this article, we investigate the divergence between credit ratings (CRs) and Moody's market-implied ratings (MIRs). Our evidence shows that rating gaps provide incremental information to the market regarding issuers' default risk over CRs alone in the short horizon and outperform CRs over extended horizons. The predictive ability of rating gaps is greater for more opaque and volatile issuers. Such predictability was more pronounced during the 2008 financial crisis but weakened in the post-Dodd-Frank Act period. This finding is consistent with credit rating agencies' efforts to improve their performance when facing regulatory pressure. Moreover, our analysis identifies rating-gap signals that do (do not) lead to subsequent Moody's actions to place issuers on negative outlook and watchlists. We find that negative signals from MIR gaps have a real economic impact on issuers' fundamentals such as profitability, leverage, investment, and default risk, thus supporting the recovery-efforts hypothesis.
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Poison Bonds
Shuo Xia, Rex Wang Renji
SSRN Discussion Paper,
2023
Abstract
This paper documents the rise of "poison bonds", which are corporate bonds that allow bondholders to demand immediate repayment in a change-of-control event. The share of poison bonds among new issues has grown substantially in recent years, from below 20% in the 90s to over 60% after 2005. This increase is predominantly driven by investment-grade issues. We provide causal evidence that the pressure to eliminate poison pills has led firms to issue poison bonds as an alternative. Further analyses suggest that this practice entrenches incumbent managers, coincidentally benefits bondholders, but destroys shareholder value. Holding a portfolio of firms that remove poison pills but promptly issue poison bonds results in negative abnormal returns of -7.3% per year. Our findings have important implications for understanding the agency benefits and costs of debt: (1) more debt does not necessarily discipline the management; and (2) even without financial distress, managerial entrenchment can lead to conflicts between shareholders and creditors.
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Hollywood, Wall Street, and Mistrusting Individual Investors
Guido Lenz, Maximilian Mayer
Journal of Economic Behavior and Organization,
June
2023
Abstract
Individual investors reduce their trading activity in financial markets after the release of negatively biased Hollywood movies related to financial markets. These movies regularly depict financial markets and professionals active in them as marked by greed and corruption (Lichter et al. 1997). This decline in trading activity at the extensive margin comes together with depressed investor sentiment marked by higher likelihoods and volumes of selling than of buying transactions by those investors still active. Their avoidance of investing in and tendency to trade out of stocks related to companies in the financial industry, as well as their shift from actively managed mutual funds to passive vehicles (ETFs), provide evidence for the deterioration of investors’ trust in the financial industry and its managers. This channel is in line with existing literature on subjective beliefs in investment decisions and the impact of biased media coverage, such as the negative depiction of financial markets, shareholders, and managers in Hollywood movies.
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Gender Pay Gap in American CFOs: Theory and Evidence
Bill Francis, Iftekhar Hasan, Gayane Hovakimian, Zenu Sharma
Journal of Corporate Finance,
June
2023
Abstract
Studies document persistent unexplained gender-based wage gap in labor markets. At the executive level, where skill and education are similar, career interruptions and differences in risk preferences primarily explain the extant gender-based pay gap. This study focuses on CFO compensation contracts of Execucomp firms (1992–2020) and finds no gender-based pay gap. This paper offers several explanations for this phenomenon, such as novel evidence on the risk preferences of females with financial expertise and changes in the social and regulatory climate.
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23.05.2023 • 14/2023
Analysis of earnings calls: Blathering managers harm their company
If a senior executive refuses to give information to professional investors, the company's stock market value drops afterwards. This is shown in a study by the Halle Institute for Economic Research (IWH) after evaluating
1.2 million answers from tele-phone conferences.
Fabian Wöbbeking
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