Forthcoming Articles

Global Board Reforms and the Pricing of IPOs

Yangyang Chen, Abhinav Goyal, and Leon Zolotoy

We document that global board reforms are associated with a significant reduction in IPO underpricing. The effect is amplified for IPOs with greater agency problems and mitigated for IPOs certified by reputable intermediaries, IPOs with greater disclosure specificity, and IPOs in countries with better shareholder protection and stringent financial reporting regulations. Furthermore, global board reforms have led to an improvement in the long-term market performance, proceeds, and subscription level of IPOs, and have enhanced board independence in the issuing firms. Our findings suggest that global board reforms have strengthened board oversight in the issuing firms, leading to less underpriced IPOs.

Speculation Sentiment

Shaun William Davies

I exploit the leveraged exchange-traded funds’ (ETFs’) primary market to measure aggregate, uninformed, gambling-like demand, that is, speculation sentiment. The leveraged ETFs’ primary market is a novel setting that provides observable arbitrage activity attributed to correcting mispricing between ETFs’ shares and their underlying assets. The arbitrage activity proxies for the magnitude and direction of speculative demand shocks and I use it to form the Speculation Sentiment Index. The measure negatively relates to contemporaneous market returns (e.g., it is bullish in down markets) and negatively predicts returns. The results are consistent with speculation sentiment causing market-wide price distortions that later reverse.

Cultivating Self-Control in FinTech: Evidence from a Field Experiment on Online Consumer Borrowing

Di Bu, Tobin Hanspal, Yin Liao, and Yong Liu

We report the results of a longitudinal intervention with students across five universities in China designed to reduce online consumer debt. Our research design allocates individuals to a self-control training program, a placebo financial literacy treatment, or a zero-touch control group. The self-control program features detailed tracking of spending and borrowing, budgeting, and introspection about consumption choices. These sessions reduce online borrowing and delinquency charges, mainly driven by a reduction in entertainment-related spending. Financial literacy interventions improve test scores but only marginally affect borrowing. Our results suggest that cultivating self-regulation can largely improve borrowing behavior on e-commerce platforms.

Corporate R&D and Stock Returns: International Evidence

Kewei Hou, Po-Hsuan Hsu, Shiheng Wang, Akiko Watanabe, and Yan Xu

Firms with higher R&D intensity subsequently experience higher stock returns in international stock markets, highlighting the role of intangible investments in international asset pricing. The R&D effect is stronger in countries where growth option risk is more likely priced, but is unrelated to country characteristics representing market sentiments and limits-of-arbitrage. Moreover, we find that R&D intensity is associated with higher future operating performance, return volatility, and default likelihood. Our evidence suggests that the cross-sectional relation between R&D intensity and stock returns is more likely attributable to risk premium than to mispricing.

Do Large Gains Make Willing Sellers?

Dong Hong, Roger K. Loh, and Mitch Warachka

Using unique real estate data that allow for accurately-measured gains, we examine whether sell propensities depend on the magnitude of a seller’s gain. We find that sell propensities are flat over losses and increasing in gains. Consistent with their higher sell propensities, selling prices are lower for properties with larger gains. Large-sized stock investments also have sell propensities that are flat over losses and increasing in gains, although the sell propensities of typical stock investments are V-shaped (Ben-David and Hirshleifer (2012)). Our findings support the realization utility theories of Barberis and Xiong (2012) as well as Ingersoll and Jin (2013).

Managerial Trustworthiness and Buybacks

Sterling Huang, Kaisa Snellman, and Theo Vermaelen

CEO trustworthiness is positively related to long-term excess returns after buyback announcements. CEO trustworthiness is initially measured by the extent to which people in the county where the company headquarters is located trust each other. Further, the positive impact of trustworthiness on excess returns is higher when the CEO has been a long term resident of a high trust county, and correspondingly, trustworthy CEOs are less likely to be accused of financial misreporting. Our conclusions are confirmed when we use alternative measures of trustworthiness such as employee trust and CEO integrity.

Social Capital, Trusting, and Trustworthiness: Evidence from Peer-to-Peer Lending

Iftekhar Hasan, Qing He, and Haitian Lu

How does social capital affect trust? Evidence from a Chinese peer-to-peer lending platform shows regional social capital affects the trustee’s trustworthiness and the trustor’s trust propensity. Ceteris paribus, borrowers from higher social capital regions receive larger bid from individual lenders, have higher funding success, larger loan size, and lower default rates, especially for low-quality borrowers. Lenders from higher social capital regions take higher risks and have higher default rates, especially for inexperienced lenders. Cross-regional transactions are most (least) likely to be realized between parties from high (low) social capital regions.

Dividend Smoothing and Firm Valuation

Paul Brockman, Jan Hanousek, Jiri Tresl, and Emre Unlu

We examine the relationship between dividend smoothing and firm valuation across 21 countries using several empirical methods and smoothing measures. Our main results show that dividends are capitalized at significantly larger values for high-smoothing firms than for low-smoothing firms. We also find that dividend-smoothing premiums are higher in countries with weak shareholder protection, suggesting that smoothing serves as a substitute mechanism to reduce agency costs. Overall, our findings support the view that managers use dividend smoothing as a bonding mechanism to reduce agency costs (Leary and Michaely (2011)), and not as a rent extraction mechanism (Lambrecht and Myers (2012)).