REVISION: No News is News: Do Markets Underreact to Nothing?
Date Posted: Apr 03, 2013
As illustrated in the tale of “the dog that did not bark,” the absence of news and the passage of time often contain information. We test whether markets fully incorporate this information using the empirical context of mergers. During the year after merger announcement, the passage of time is informative about the probability that the merger will ultimately complete. We show that the variation in hazard rates of completion after announcement strongly predicts returns. This pattern is consis
REVISION: Swinging for the Fences: Executive Reactions to Quasi-Random Option Grants
Date Posted: Feb 17, 2013
The financial crisis renewed interest in the relation between compensation incentives and risk taking. We examine whether paying top executives with options induces them to take more risk. To identify the causal effect of options, we exploit two distinct sources of variation in option compensation that arise from institutional features of multi-year grant cycles. We find that a 10 percent increase in the value of new options granted leads to a 6 percent increase in firm equity volatility. This i
REVISION: Do Managers Do Good with Other Peoples' Money?
Date Posted: Feb 05, 2013
We test the hypothesis that corporate social responsibility is due to managerial agency problems using two identification strategies. First, we use the 2003 Dividend Tax Cut, which increased the after-tax effective firm ownership for managers. Consistent with the agency view, we find that the tax cut led to a decline in corporate goodness. We then use a difference-in-differences approach to test a prediction of the agency model that firms with intermediate managerial ownership stakes should reac
REVISION: Executive Networks and Firm Policies: Evidence from the Random Assignment of MBA Peers
Date Posted: Jan 30, 2013
Using the historical random assignment of MBA students to sections at Harvard Business School, I explore how executive peer networks can affect managerial decision-making and firm policies. Within an HBS class, firm outcomes are significantly more similar among graduates from the same section than among graduates from different sections, with the strongest effects in executive compensation and acquisitions strategy. Both compensation and acquisitions propensities have elasticities of 10-20% with
New: Screening in New Credit Markets:
Can Individual Lenders Infer Borrower Creditworthiness in Peer-to-P
Date Posted: Mar 15, 2010
The current banking crisis highlights the challenges faced in the traditional lending model, particularly in terms of screening smaller borrowers. The recent growth in online peer-to-peer lending marketplaces offers opportunities to examine different lending models that rely on screening by multiple peers. While these market-based, non-hierarchical structures potentially offer screening advantages, especially in utilizing soft information, individual lenders likely lack financial expertise and l
New: Screening in New Credit Markets: Can Individual Lenders Infer Borrower Creditworthiness in Peer-to-P...
Date Posted: Sep 24, 2009
The current banking crisis highlights the challenges faced in the traditional lending model, particularly in terms of screening smaller borrowers. The recent growth in online peer-to-peer lending marketplaces offers opportunities to examine different lending models that rely on screening by multiple peers. While these market-based, non-hierarchical structures potentially offer screening advantages, especially in utilizing soft information, individual lenders likely lack financial expertise and l
New: Who Misvotes? The Effect of Differential Cognition Costs on Election Outcomes
Date Posted: Apr 06, 2007
If voters are fully rational and have negligible cognition costs, ballot layout should not affect election outcomes. In this paper, we explore deviations from rational voting using quasi-random variation in candidate name placement on ballots from the 2003 California Recall Election. We find that the voteshares of minor candidates almost double when their names are adjacent to the names of major candidates on a ballot. Voteshare gains are largest in precincts with high percentages of Democratic,
New: Who Misvotes? The Effect of Differential Cognition Costs on Election Outcomes
Date Posted: Nov 17, 2006
If voters are fully rational and have negligible cognition costs, ballot layout should not affect election outcomes. In this paper, we explore deviations from rational voting using quasi-random variation in candidate name placement on ballots from the 2003 California Recall Election. We find that the voteshares of minor candidates almost double when their names are adjacent to the names of major candidates on a ballot. Voteshare gains are largest in precincts with high percentages of Democratic,