Forthcoming Articles

Alan Kwan, Chen Lin, Vesa Pursiainen, and Mingzhu Tai

Banks’ IT capabilities affect their ability to serve customers during the COVID-19 pandemic, which generates an unexpected and unprecedented shock that shifts banking services from in-person to digital. Amid mobility restrictions, banks with better IT experience larger reductions in physical branch visits and larger increases in website traffic, implying a larger shift to digital banking. Stronger-IT banks are able to originate more PPP loans to small business borrowers, especially in areas with more severe COVID-19 outbreaks, higher internet use, and higher bank competition. Those banks also attract more deposit flows and receive better mobile customer reviews during the pandemic.

Tania Babina, Diego Garcia, and Geoffrey Tate

Using a novel data set of over 3,500 public and private firms, we construct the network of executive and director connections prior to the 1929 financial market crash. We find that more connected firms have 17% higher 10-year survival rates. Consistent with a working capital channel, the results are strongest for small, private, cash-poor firms and firms located in counties with high bank suspension rates. Moreover, connections to cash-rich firms that increase accounts receivable matter the most. Our results suggest that network connections can play a stabilizing role during a financial crisis by easing the flow of capital to constrained firms.

Matthew Linn and Daniel Weagley

We use a random forest model to classify firms’ financial constraints using only financial variables. Our methodology expands the range of classified firms compared to text-based measures while maintaining similar levels of informativeness. We construct two versions of our constraint measures, one using many firm characteristics and the other using a small set of more primitive characteristics. Using our measures, we find that institutional investors hold a lower percentage of shares in equity-focused constrained firms, while retail investors show a preference for them. Equity issuance and investment of constrained firms also increases during periods of high investor sentiment.

Hans Gersbach and Stylianos Papageorgiou

In a general equilibrium framework, we show that banks may “buy”‘ political influence at a discount: They offer disproportionately small campaign contributions compared to the influence they exert, thus generating abnormal returns. We distinguish between the direct effect of contributions which, as a cost, reduce bank returns, and the indirect effect of contributions which boost returns via inducing bank-favoring policies. Therefore, abnormal returns may or may not increase with the amount of contributions, depending on which effect dominates: Stricter capital requirements decrease contributions and abnormal returns. When politicians attach more weight to households’ welfare, contributions increase and abnormal returns decrease.

Shiyang Huang, Yang Song, and Hong Xiang

We document and explain the sharp performance deterioration of smart beta indexes after the corresponding ETFs are launched for investment. While smart beta is purported to deliver excess returns through factor exposures, the market-adjusted return of smart beta indexes drops from about 3% “on paper” before ETF listings to about −0.50% to −1% after ETF listings. This performance decline cannot be explained by variation in factor premia, strategic timing, or diminishing returns to scale. Instead, we find strong evidence of data mining in the construction of smart beta indexes, which helps ETFs attract flows, as investors respond positively to backtests.

Tri Vi Dang, Wei Li, and Yongqin Wang

We use the 2015 Chinese stock market crash to study the effects of government stock purchases. The Chinese government purchased stocks to stabilize the markets through state-owned financial institutions known as the “National Team.” We find that the intervention led to reduced volatility and price informativeness. These impacts are driven by the disclosure of government portfolios. Consistent with investors having a stronger incentive to acquire government intervention information instead of fundamental news, we find reduced information production and information asymmetry following intervention disclosure. The paper suggests that government stock purchases involve a trade-off between stability and informational efficiency.

Kee-Hong Bae, Sadok El Ghoul, Zhaoran (Jason) Gong, and Omrane Guedhami

In this study, we investigate whether and how trust between board members and the CEO (board–CEO trust) affects the performance of mergers and acquisitions. Contrary to conventional wisdom, we find that firms with higher levels of board–CEO trust exhibit poor M&A performance: High trust is associated with low acquisition announcement returns, long-term stock return performance, and post-deal operating performance. This negative effect of board–CEO trust is more pronounced among acquiring companies prone to agency problems. Our results suggest that, in the institutional setting of a board of directors, high trust can be too much of a good thing.

Peter Haslag and Daniel Weagley

We examine how broad changes in work arrangements and lifestyles brought on by the COVID-19 pandemic have affected households’ location decisions. Using data on over 360,000 residential, interstate moves over the last 5 years, we find more than 12% of moves were directly influenced by the pandemic. Among pandemic-influenced movers, over 15% of households cite that remote work influenced their move. Lifestyle-related (job-related) migration increased (decreased) significantly, particularly for the set of households who are likely to have access to remote work. We further find these changes in migration patterns are positively related to post-pandemic economic growth.