Forthcoming Articles

ETF Ownership and Seasoned Equity Offerings

Kevin P. Evans, Woon Sau Leung, Junqiu Li, and Khelifa Mazouz

This paper investigates the impact of ETF ownership on seasoned equity offerings (SEOs). We find that changes to ETF ownership increase firms’ propensity to conduct an SEO. ETF ownership is associated with less severe SEO announcement returns, smaller discounts, and better long-run stock returns. Issuers with higher ETF ownership also show operating outperformance in the five years after the SEO, especially those that are financially constrained and equity dependent. Our evidence is not consistent with ETF ownership exacerbating information asymmetry or mispricing encouraging opportunistic market timing. Rather, it suggests equity issuance into demand driven by greater investor participation in ETFs.

Corporate Hiring Under COVID-19: Financial Constraints and the Nature of New Jobs

Murillo Campello, Gaurav Kankanhalli, and Pradeep Muthukrishnan

Big data on job postings reveal multiple facets of the impact of Covid-19 on corporate hiring. Firms disproportionately cut new hiring for high-skill positions, with financially constrained firms reducing skilled hiring the most. Applying machine learning methods to job-ad texts, we find that firms have skewed their hiring towards operationally-core functions. New positions display greater flexibility regarding schedules and tasks. While job posting levels show signs of recovery starting in late 2020, changes to job descriptions and skill profiles persist through early 2022. Financial constraints amplify these changes, with constrained firms’ new hires witnessing greater adjustments to job roles and employment arrangements.

Credit Default Swaps, Fire Sale Risk and the Liquidity Provision in the Bond Market

Massimo Massa and Lei Zhang

We study the effect of credit default swaps on the bond market. Using a comprehensive sample of U.S. corporate bonds, we document that the presence of CDSs significantly increases bond liquidity and reduces yield spreads for investment grade bonds. We show that CDSs influence the bond market by lowering the impact of fire sales of institutional bondholders and facilitating inventory management for bond dealers who absorb fire sale shocks. However, the liquidity provision role of CDSs gets weakened after the CDS Big Bang in 2009, potentially because of the requirement of large upfront payments.

Independent Director Tenure and Corporate Governance: Evidence from Insider Trading

Meng Gao and Sheng Huang

Executives trade more profitably and opportunistically over the course of the tenure of independent directors (IDs). IDs’ increased connections with and hence allegiance to executives are likely the channel through which ID tenure can affect executive trading. Executive opportunism is mitigated by disciplinary factors that include the presence of a firm’s internal trading policy, blockholders, and IDs with legal expertise as well as the risk of shareholder-initiated derivative lawsuits. These results point to an association between long-tenured IDs and weakened corporate governance.

Options Trading and Stock Price Informativeness

Jie Cao, Amit Goyal, Sai Ke, and Xintong Zhan

We document the causal effects of single-name options trading on the absolute level of information content of prices (stock price informativeness) by exploiting the Penny Pilot Program as an exogenous shock to options trading volume. We find that options trading increases underlying stock price informativeness and information acquisition by both option and stock investors, consistent with the framework of Goldstein and Yang (2015). The findings are driven by firms for which options are more important sources for information and firms with more efficiently priced options. Options market introduction in 25 other economies also leads to higher price informativeness.

Analyst Coverage and Corporate Environmental Policies

Chenxing Jing, Kevin Keasey, Ivan Lim, and Bin Xu

Exploiting two quasi-natural experiments, we find that firms increase emissions of toxic pollution following decreases in analyst coverage. The effects are stronger for firms with low initial analyst coverage, poor corporate governance and firms subject to less stringent monitoring by environmental regulators. Decreases in environmental-related questions raised in conference calls, an increased cost of monitoring to institutional shareholders, reductions in investment abatement technologies and the weakening of internal governance related to environmental performance are channels through which reduced analyst coverage contributes to increases in firm pollution. Our study highlights the monitoring role analysts play in shaping corporate environmental policies.

Holding Horizon: A New Measure of Active Investment Management

Chunhua Lan, Fabio Moneta, and Russell R. Wermers

This paper introduces a new holding horizon measure of active management and examines its relation to future risk-adjusted fund performance (alpha). Our measure reveals a wide cross-sectional dispersion in mutual fund investment horizons, and shows that long-horizon funds exhibit positive future long-term alphas by holding stocks with superior long-term fundamentals. Further, stocks largely held by long-horizon funds outperform stocks largely held by short-horizon funds by more than 3% annually, adjusted for risk, over the following five-year period. We also find a clientele effect: to reduce liquidity costs, long-horizon funds attract more long-term investors through share classes that carry load fees.

Informational Hold-Up by Venture Capital Syndicates

Suting Hong and Pierre Mella-Barral

We argue that VC syndicates associate VCs with uneven skill levels to lower their expected gains from threatening to stop financing: non-continued participation would send a milder negative signal to alternative financiers. Then (a) early round syndicates regularly associate VCs with different levels of experience and (b) follow-on syndicates often involve none of the early round VCs. Consistent with the theory, we find empirically that the heterogeneity of VC experience levels in a syndicate is negatively related to the extent to which firm founders are well connected and positively related to the likelihood of syndicate switching in a later round.