Goizueta Business School
1300 Clifton Rd
Atlanta, GA 30322
Winner of Society of Quantitative Analysts Award, Best Paper in Quantitative Investments, Western Finance Association 2007
Winner of Barclays Global Investors Best Paper Prize, Asset Allocation Symposium, European Finance Association 2006
We explore a new channel for attracting inflows using a unique dataset of corporate 401(k) retirement plans and their mutual fund family trustees. Families secure substantial inflows by being named the trustee of a 401(k) plan. We find that family trustees significantly overweight their 401(k) client firm's stock. Trustee overweighting is more pronounced when the relationship is more valuable to the trustee family, and it is concentrated in those funds that receive the greatest benefit from the inflows. When other mutual funds are selling the client firm's stock, the trustee does the opposite and significantly increases its holdings of the client. This overweighting is not explained by superior information. We also quantify the flow benefit to the trustee mutual funds of being included in the client firm's 401(k) plan and find that this inclusion has an economically and statistically large, positive effect on inflows.
We show that acquisitions initiated during periods of high merger activity ("merger waves") are accompanied by poorer quality of analysts' forecasts, greater uncertainty, and weaker CEO turnover-performance sensitivity. These conditions imply reduced monitoring and lower penalties for initiating inefficient mergers. Therefore, merger waves may foster agency-driven behavior, which, along with managerial herding, could lead to worse mergers. Consistent with this hypothesis, we find that the average long-term performance of acquisitions initiated during merger waves is significantly worse. We also find that corporate governance of in-wave acquirers is weaker, suggesting that agency problems may be present in merger wave acquisitions.
Winner of the Michael J. Barclay Award for the best Ph.D. student paper, Financial Research Association 2008
Although recent regulations call for greater board independence, finance theory predicts that independence is not always in the shareholders' interest. In situations where it is more important for the board to provide advice than to monitor the CEO, more independent directors can decrease firm value because the CEO is not willing to share inside information with independent directors. I test this prediction by examining the connection between takeover returns and board "friendliness" using social ties between the CEO and board members as a proxy for less independent, more ``friendly'' boards. I find that social ties are associated with higher bidder announcement returns when the value of board advice is likely to be high, whereas lower returns are observed when monitoring needs are high. These effects intensify as the proportion of the board socially connected to the CEO increases and are not observed when outside representation is used to measure independence. The evidence suggests that friendly boards can have both costs and benefits depending on the specific needs of the company. It also highlights the potential discrepancy between actual board independence and its regulatory definition.
Winner of the 2010 Teva Award in the name of Dan Suesskind for research in corporate finance and financial markets.
This paper studies the interaction between corporate hedging and liquidity policies. To motivate our empirical investigation, we present a theoretical model that shows how corporate hedging facilitates greater reliance on cost-effective, externally-provided liquidity in lieu of internal resources. We then test the predictions of the model by employing a new empirical approach that separates cash flow hedging from non-cash flow hedging. Using detailed, hand-collected data, we construct hedging instruments to address endogeneity, and find that cash flow hedging reduces the firm's precautionary demand for cash and allows it to rely more on bank lines of credit. Furthermore, we find a significant positive effect of cash flow hedging on firm value. Overall, our results identify a new mechanism through which hedging affects corporate financial policies and firm value.
Winner of the Best Paper Award (Runner-Up) at the 2012 Auckland Finance Meeting
Media Mention: Financial Times (Dec 9, 2012), "Backroom Dealing Exposed," by Steve Johnson
Media Mention: Financial Times (Dec 16, 2012), "No Surprise At Backroom Dealing Charge," by Steve Johnson
We show that asset fire sales by distressed funds are systematically offset by purchases of other funds in the same family. Our results suggest that these off-exchange trades are mainly the outcome of coordinated strategies at the fund manager level. This type of co-insurance is more likely when (i) there is reciprocity in repeated interactions, (ii) the same manager oversees the funds on both sides of the transaction, and (iii) the distressed fund holds more illiquid assets. As a result, co-insurance diminishes the price impact of widespread selling by distressed funds, helps illiquid funds pay a lower cost of distress, and results in higher returns.
We find that CEOs are significantly more likely to purchase cross-state targets from their birth state, consistent with either informational advantages or familiarity bias. Evidence from bidder announcement returns supports the latter view. Acquirer returns are significantly lower for CEO home state acquisitions, and the relation is robust to controls for firm and industry characteristics. The negative announcement effect is stronger for poorly-governed firms, when the target is located further away, and when the CEO has a deeper birth-state connection. CEOs' post-acquisition trading behavior also supports a familiarity bias interpretation. Our findings suggest CEO home bias influences firm investment.