Research

Beta uncertainty creates unavoidable risk in exploiting anomalies, suggesting an unexplored barrier to arbitrage. We measure beta uncertainty from parameter dynamics and estimation risk, decoupling it from idiosyncratic risk in a Bayesian market model accommodating separate processes for beta and idiosyncratic volatility. Anomalies with higher beta uncertainty generate substantially higher returns. For individual stocks, beta […]

This study examines the impact of firms’ corporate social responsibility (CSR) on state crime rates in the U.S. from 2004 to 2020. Our research bolsters the expanding work under the Law and Political Economy Project out of Yale University and Economics of Crime Working Group of National Bureau of Economic Research (NBER). Our empirical results […]

We uncover the temporal patterns of the prices of risk through industry portfolios with varying sensitivities to the economic and financial cycles. Conditioning on the highs and lows of the cycles is key for statistical significance of the intertemporal component. Unlike market risk, its price decreases during an economic downturn but increases under tight funding […]

Using a comprehensive dataset of employee-employer-firm owner immigration records in 2001-2017, we examine the impact of immigrant owners’ national culture on within-firm pay inequality. Firms owned by immigrants from more individualistic countries exhibit higher pay dispersion among employees. This result is robust across various empirical methods, including difference-in-differences analysis of ownership changes. Owners’ individualism is […]

We address whether financial reports include information supporting investor valuations. We view analyst reports (AR) as reflecting this information and employ topic modeling to compare the contents of AR and Form 10-K. Our main findings follow. (i) Form 10-K focuses heavily on financial reporting, whereas AR focuses most on performance, followed by analysis, and business. […]

Social capital refers to “networks, norms, and trust that facilitate action and cooperation for mutual benefit” (Putnam, 1995). We propose a novel firm-level time-varying social capital measure based on firms’ 10-K filings that captures the firm’s operational exposure to social capital and examine its impact on equity prices. This measure is positively and significantly correlated […]

[Abstract only. Full text available from the authors] This study explores the complex process of how audiences perceive a novel technology by focusing on small modular reactors (SMRs), a promising nuclear energy technology. Contrary to the idea that acceptance is merely based on technical attributes, this research emphasizes the role of legitimacy perceptions in technology […]

[Abstract only. Full version available from the authors] Research is scant on how multiple venture attributes combine as “whole packages” of signals (or cognitive configurations) in resource holders’ eyes, shaping a venture’s ability to mobilize resources. Drawing on a Qualitative Comparative Analysis of 1,395 crowdfunding campaigns, we identified different configurations of signals for high and […]

Examining gender differences in business financing reveals important dimensions on which women- and men-owned businesses differ. Although considerable progress has been made in understanding gender differences in mobilizing resources, the role of time in business financing remains an underexplored topic, particularly among marginalized entrepreneurs, where decisions about and outcomes related to time play an important […]

When a firm collaborates with its suppliers, it expands its access to external know-how, and thus, can enhance its innovation outcomes. However, such partnerships also expose it to various transactional hazards including knowledge spillovers and opportunism appropriations. The trade-offs are also underscored by whether the collaboration complements the firm’s strategic resources and directions deployed to […]

We introduce a novel measure of weather risk implied from weather options’ contracts. IVOL captures risks of future temperature oscillations, increasing with climate uncertainty about physical events and regulatory policies. We find that shocks to weather volatility increase the likelihood of unexpected costs: a one-standard deviation change in WIVOL increases quarterly operating costs by 2%, […]

Drawing on agency theory and transaction cost analysis, this study investigates the impact of refranchising and buybacks of downstream retail units by franchising firms on shareholder value (i.e., stock returns). It further evaluates the contingency role of firm and industry factors in shaping this impact. An event study analysis over the years 2001-2020 confirms that […]

We find that firms report significantly higher cash holdings in the fourth fiscal quarter, followed by subsequent reversal. Such a phenomenon cannot be explained by traditional determinants of cash holdings, calendar year-end effect, or the choice of fiscal-year-end quarter. We identify real and timing apparatuses that firms employ to maneuver such a cash hike within […]

Globally-focused firms are the key drivers of foreign exchange rate (FX) risk. These firms have higher FX exposure to the risk from the currency of a closer country, in line with the gravity effect, and during the home currency depreciation. Furthermore, those in countries more dependent on the export sector and in the periphery of […]

This study investigates the effect of social distancing on the local bias of institutional investors. Using SafeGraph’s Social Distancing Metrics data and SEC’s EDGAR 13F filings, we find that stay-at-home duration ratio decreases institutional investors’ local holdings and firms’ institutional ownership in the U.S. We also exploit the lockdown orders across various states during the […]

Using the near universe of online job postings from 2007 to 2019, we construct a firm level metric of local labor market concentration. We find that firms hiring in more concentrated labor markets tend to have higher financial leverage. The positive relation between labor market concentration and financial leverage is more pronounced when the firm […]

We examine Estonia as a society transitioning from state socialism to market capitalism at the point of transition. We interviewed Chief Executive Officers, Vice Presidents, General Managers, Project Managers, and Functional Managers working in a variety of industries. We show that during transition, management practice has realigned itself toward capitalist values, adopted a modern management […]

Increasingly, corporations are expanding their green business portfolios by acquiring green technologies, brands, and firms to respond to sustainability trends. However, little is known regarding the financial impact of such a green strategy. This study uses the event study method to examine stock market reactions to green acquisition announcements. We find that the stock market […]

Globally focused firms are the drivers of foreign exchange rate (FX) risk. Among the risk of the G10 currencies, the comovements with the largest currencies are the most important of the postulated risk factors. Firms’ exposure to FX risk is time-varying, is larger with respect to the home currency, and responds to fluctuations in the […]

Pricing power is highly prized by investors, pursued by managers and almost totally ignored by marketing academics. One potential reason may be a lack of validated measures of pricing power. In this study, we examine two pricing power metrics: a new enterprise-level measure of price elasticity and the industry-adjusted Lerner Index. Both measures can be […]

We find that, when a firm is sued by non-practicing entities (NPEs), the likelihood of its technology peers being sued increases in the subsequent year. Defendants’ technology peers experience significant market value losses around the lawsuit filing date. Moreover, defendants’ technology peers respond to NPE litigation risk by increasing R&D investments to develop workaround technologies. […]

The relationship between brand equity and channel governance is recognized in practice and is of particular interest to senior managers. However, research in marketing on this topic is limited and practitioners and scholars seem divided on the nature of this relationship. To guide practice and enrich scholarship on this issue, we investigate the causal impact […]

The ultimate purpose is to promote evidence-based management. The immediate purpose is to capture, maintain, and deliver evidence that comes out of both management research and management practice. To do so, we offer an evidence management system design that is versatile to include humans and intelligent systems as its potential users. Our design theory proposes […]

This research takes a disruption-adaptation perspective to understand influence of marketing executives’ turnover (MET) on firm performance. The authors draw on marketing (and sales) executive exits at U.S. public firms between 2004 and 2016. MET measures presence (or absence) of annual turnover of one or more executives, accounting for changes (due to exits) to marketing […]

We study different notions of sale and regular prices, and their variability with store pricing-formats. We use data from three large stores with different pricing-formats (EDLP/Hi-Lo/Hybrid) that are located within 1-km radius. Importantly, the data contain both the actual transaction prices and the actual regular prices as displayed on the store shelves. We combine these […]

This paper investigates the effect of product market competition on a firm’s tax avoidance behavior. We develop a theoretical model showing that a greater product market competition could increase the managerial incentive of tax avoidance due to a “threat-of-punishment” effect but decrease shareholders’ incentive of tax avoidance due to a “value-of-tax-saving” effect, resulting in an […]

This paper analyzes the relation between ownership concentration and corporate bond volatility. We show that more concentrated mutual fund ownership is associated with higher volatility of corporate bonds. This relation is stronger among more illiquid bonds, during periods of heightened bond market illiquidity, and among bonds held by corporate bond funds that invest in more […]

In this study, we examine the relationship between financial literacy and bank financial reporting transparency for a sample of banks from the U.S. Following prior literature, we employ discretionary loan loss provisions (DLLP) as our primary measure of bank reporting transparency. We argue that the financial literacy of their customers can influence bank managers’ behaviors […]

We derive stock returns for firms producing nonrenewable commodities employing the investment-based asset pricing approach. By identifying the appropriate time-varying discount rate the investment-based approach allows an alternative test of the Hotelling Valuation Principle. The empirical results support the principle and enable predicting returns from sorting firms into quintiles by expected return, producing a 16-20 […]

Prior studies document that delayed loan loss provisions can worsen financial stability by triggering a capital inadequacy concern. We extend prior literature and investigate how the treatment of loan charge-offs (LCOs) in financial statements is tied to macro-level risk in the U.S. banking industry. We hypothesize and find that nondiscretionary LCOs are positively linked to […]

We examine whether and how non-traditional banking activities affect the quality of banks’ financial reporting. We find that a bank’s ratio of non-interest income (derived from nontraditional activities) to total operating income is positively and significantly associated with the magnitude of discretionary loan loss provisions, our proxy for financial reporting quality.

This paper is the first to investigate the impact of banks’ organizational memory of past history on the conservatism of accounting policy. Specifically, we investigate two types of bad time history: banks’ undercapitalization and the failures of other banks during financial crises. Using a large sample of U.S. banks over the period 1997-2013, we find […]

In this study, we explore the meanings of presenteeism and extend the literature on presenteeism to its full conceptual potential. In addition to the value loss usually associated with presenteeism, we explore potential value gain in terms of creativity and innovation. We offer a theoretical model of presenteeism that separates negative presenteeism from positive presenteeism […]

We highlight an important but overlooked characteristic of financial fragility: “fragile” stocks are more liquid because they are sensitive to non-fundamental liquidity shocks. This makes them less sensitive to corporate actions with price impact and therefore affects firms’ incentives to engage in those actions. We show that fragile firms have lower share repurchases but invest […]

Shocks transmitted from productivity leaders to lagging economies are systematic sources of risk. Global technology and knowledge diffusion leads to predictable patterns in productivity dynamics across countries and industries. Technology gaps determine the level of exposure to the systematic productivity shocks. Firms in a country-industry with larger technology gaps relative to the world leader are […]

This paper presents evidence that the exposure to automation technologies has a positive impact on a firm’s financial leverage. The effects are more pronounced in firms with greater labor costs, routine task intensity, firing costs, and union coverage. The results are robust when we instrument a firm’s exposure to automation technologies using the robotics adoption […]

Channel conflict is a critical business concern and has long been of great interest to researchers. In this paper, we report a comprehensive meta-analysis of the empirical literature spread over more than five decades between 1960 and 2020, with “channel conflict” as the focal construct and investigate the conflict- performance link. We find, in the […]

This paper studies the differential impacts of the 2008 financial crisis on the financing policies and real activities of firms with flexible labor contracts and those with binding labor contracts. We find that flexible-contract firms significantly reduced their labor costs during the crisis, while binding-contract firms lacked such flexibility. Compared to flexible-contract firms, binding-contract firms […]

Entrepreneurial business firms such as franchisors can enhance their network performance by attracting high-quality partners and preventing low-quality partners from joining the network. We draw on agency and transaction cost theories and the substantive literature on voluntary information disclosure to develop a theoretical framework that examines the consequences of using signaling and screening mechanisms for […]

This study investigates the determinants and consequences of intellectual capital efficiency in the U.S. banking industry. We find that banks’ individual institutional memory of bad times reduces their intellectual capital efficiency. We also find that intellectual capital efficiency restricts banks’ risk-taking behaviors and enhances their accounting conservatism. Finally, we find that intellectual capital efficiency helps […]

Destructive acts in distribution channels are actions by firms that have a significant adverse impact on the viability or functioning of channel members. Understanding an affected channel member’s locus of causality attributions for a destructive act can help the initiating firm determine when, where and how to proactively mitigate the adverse consequences of the act. […]

We examine the influence of face-based judgments of CFO/CEO honesty on earnings management for the largest publicly traded companies in America. After controlling for incentives and opportunities to manage earnings, CFOs and CEOs perceived to be less honest engage in higher levels of both accruals and real earnings management. The beneficial impact of perceived honesty […]

This paper examines how credit risk spillovers affect corporate financial flexibility. We construct separate empirical proxies to disentangle the two channels of credit risk spillovers — credit risk contagion (CRC), which increases industry peers’ distress likelihood; and product market rivalry (PMR), which strengthens rivals’ competitive position. We show that firms facing greater CRC hold more […]

Using minimum wage changes as an exogenous shock to the cost of low-skill labor, we show that corporate innovative output declines after the shock, especially in industries dependent on unskilled labor. The substitutability between technology and unskilled labor plays a key role in the response of innovative output to minimum wage shocks. We identify technology […]

We examine how gender and beauty affect the likelihood of being voted as an All-Star in the financial analyst profession in both the U.S. and China. We find that female analysts are more likely to be voted as All-Star analysts in the U.S., but good-looking female U.S. analysts are less likely to be voted as […]

We examine the impact of beauty on the academic career success of tenure-track accounting professors at top business schools in America, and show that beauty plays a significant role. Specifically, after controlling for gender, ethnicity, publication history, work experience, and quality of alma mater, more attractive professors obtain better first school placements post-PhD and are […]

Using a sample of U.S. public and private banks, we examine the implications of banks’ funding strategies for banks’ earnings quality. We find that the ratio of core deposits to total liabilities (CDL), our proxy for bank reliance on retail deposits over wholesale funds, is negatively and significantly associated with the magnitude of earnings management […]

This paper examines how credit risk spillovers affect corporate Financial Flexibility and bank loan contracting. We construct separate empirical proxies to disentangle the two channels of credit risk spillovers — credit risk contagion (CRC), which increases industry peers’ distress likelihood; and product market rivalry (PMR), which strengthens rivals’ competitive position. We show that firms facing […]

This paper finds significant predictability in stock returns across technology-linked firms. Using patent-holding information to identify firms’ technological linkage, we show that a long–short equity trading strategy sorted on lagged returns of technology-linked firms yields monthly alphas of around 105 basis points. The findings are robust to a number of specifications and are not driven […]

Our purpose is to contribute to the debate on how to close the gap between management research and practice and to offer a solution. We analyze the literature investigating the research-practice gap including evidence-based management, mode 1 and 2 knowledge generation, design science approaches, and action research. We argue that in order to narrow the […]

This instructional case presents the problems that began in the summer of 2015 when Home Capital Group (HCG) announced it had cut ties with 45 mortgage brokers for falsifying figures on mortgage applications regarding the earnings of prospective home purchasers in Canada. The case details the subsequent investigation by the Ontario Securities Commission in 2017 […]

The unprecedented availability of digitized human behavioral data offers new research opportunities for discovering hidden patterns in Big Data that may not be apparent in smaller samples. At the same time, there are potential pitfalls associated with Big Data analytics in the absence of also working to identify causal relationships among the constructs thought to […]

We examine the impact of beauty on the academic career success of tenure-track accounting professors at top business schools in America, and show that beauty plays a significant role. Specifically, after controlling for gender, ethnicity, publication history, work experience, and quality of alma mater, more attractive professors obtain better first school placements post-PhD and are […]

This paper studies the cross-country competitive effects of foreign listings on U.S. exchanges. We show that incumbent U.S. firms respond strongly negatively to foreign listings and weakly positively to foreign delistings. The performance decline of U.S. firms is related to the competitive advantages that foreign firms receive from placing their shares in the United States […]

The notion of a global currency is a debate set aside in the past decade as the abstraction saw little potential for realization in a world with heterogeneous governments unwilling to sacrifice seigniorage for optimal design. The technical capability of creating digital currencies, independent of governments, resurrects the discussion and begs the questions of practical […]

This study examines whether institutional investors’ voting for All-Star financial analysts is affected by analyst beauty. Using a sample of 1,135 U.S. analysts and controlling for analyst performance, we document that beauty, on average, does not affect the outcome of All-Star analyst voting. However, a beauty premium emerges in those sectors where there is high […]

Mechanisms and rationales for revenue sharing have been the subject of many theoretical and empirical studies on contracting. Franchisors typically derive economic profits (for the rights they grant to franchisees) through revenue sharing contracts. Franchising is a popular form of retailing in a wide range of product and service markets, plays a significant role in […]

The emergence of new technologies, shifting consumer needs and growth in competition have made the expansion of distribution a business imperative for many firms. In this chapter, we review the empirical marketing literature on the performance consequences of distribution expansion and offer an agenda for future research. In doing so, we consider two dimensions of […]

Using a sample of public and private banks, we study how social capital relates to bank stability. Social capital, which captures the level of cooperative norms in society, is likely to reduce opportunistic behavior (Jha and Chen 2015; Hasan et al. 2016) and, therefore, act as an informal monitoring mechanism. Consistent with our expectations, we […]

Despite the significant academic and corporate interest in sports sponsorships, and despite the significant financial stakes these present (sports sponsorship is almost a $15 billion business in North America alone), the literature is equivocal both on the impact as well as on the determinants of the effectiveness of these activities. While some papers report sports […]

This paper examines antecedents of ex-ante voluntary information disclosures for standardized contracts in entrepreneurial networks. Entrepreneurs (e.g., franchisors) may make such disclosures to prospective business partners in order to signal profitability of partnering, attract financial and managerial resources and develop their entrepreneurial networks. In practice, only a fraction of franchisors make financial performance representations (FPR), […]

In standard principal components estimation of the APT, the factors are obtained without employing the restrictions on mean returns implied by the APT. We modify the principal components methodology to allow mean returns to reflect the theoretical restrictions up to any level of accuracy and generate optimal constrained APT factors from the eigenvectors of a […]

A survey discussing fundamental conceptual issues in valuation. Topics include differences in fundamental valuation, comparative valuation, and replacement-value based valuation; accounting approaches to valuation such as residual income as contrasted with discounted cash flows; the use of valuation ratios based on earnings, dividends, and return on investment; the roles of different types of real capital […]

How does bankruptcy contagion propagate among industry peers? We study the fire-sale channel of industry contagion by examining whether the cost of debt of a company is affected by the observed recovery rates of its bankrupt industry peers. Our results show that lower industry recovery rates are associated with higher loan spreads but only when […]

We study whether bank managers’ use their discretion in estimating the allowance for loan losses (ALL) for efficiency or for opportunistic reasons. We do so by examining whether the use of this discretion relates to bank stability and bank risk taking, or whether it relates to earnings management to meet or beat earnings benchmarks. We […]

We examine two interrelated issues in risk-adjusted return on capital performance measurement: estimating hurdle rates and allocating capital to debt instruments in a portfolio. We consider a methodology to differentiate hurdle rates for individual debt instruments that incorporates obligor-specific information. These instrument-specific hurdle rates, which define the required compensation of the shareholders, enable a granular […]

Despite a long history in eastern and western culture of defining leadership in terms of virtues and character, their significance for guiding leader behavior has largely been confined to the ethics literature. As such, agreement concerning the defining elements of virtuous leadership and their measurement is lacking. Drawing on both Confucian and Aristotelian concepts, we […]

Using a sample of public and private banks and a county-level index for social capital, we study how social capital relates to accounting transparency. In a region with high social capital, individuals have a greater propensity to honor an obligation and there is greater mutual trust within a much denser network that deters opportunistic/self-serving actions […]

Financial market information can provide an objective assessment of losses anticipated from climate change. In a Merton-type asset pricing model, with asset prices affected by perceived changes in investment opportunities due to climate change, the risk premium is significantly negative, loadings for most assets are negative, and asset portfolios in more vulnerable industries have stronger […]

Using data from 1990-2013, we show 1) the serial correlation of analyst forecast errors increases in the extent of international diversification, 2) PEAD based on analyst forecast errors increases in the extent of international diversification, and 3) the impact of international diversification on the serial correlation of analyst forecast errors and the associated drift is […]

We conduct a comprehensive meta-analysis of the literature on the role of channel conflict in channel performance. In particular, we assess the existing empirical evidence to compare two rival views of conflict. In the first view, conflict is a residual outcome of business processes that reduces joint profit and is efficiency depleting. Reduction or elimination […]

Couched within a theory of business, this paper explores what makes business scholarship influential and probe into mechanisms that make a paper interesting to its audience. It presents a framework to combine several attributes of influential scholarship and presents a model for making research interesting. Examples of interesting scholarship are provided and speculations about why […]

This paper examines how bankruptcy by a firm leads to costs borne by its employees due to reallocation of the workforce. Using worker-firm matched data from the U.S. Census Bureau’s LEHD program, we demonstrate that annual wages deteriorate by about 10% upon corporate bankruptcy and remain below pre-bankruptcy wages for (at least) six years. In […]

In a production-based asset pricing model without adjustment costs and with decreasing returns to scale following Brock (1982), stock returns at the firm level are no longer identically equal to investment returns but are determined by profitability, the book-to-market ratio, and the change in future profitability prospects. Although firms with low book-to-market ratios are normally […]

Many firms recognize the appeal of going green and employ strategic partnerships to manage corporate environmental strategies. Yet the mechanisms in green collaborations that create value for a firm remains mostly unexplored. To address this gap, the authors examine the effects of announcements of green strategic partnerships on a firm’s stock market value. It was […]

This study examines the effect of technology spillovers on firms’ cash holdings. It finds that firms facing greater technology spillovers hold higher cash balances. This effect is more pronounced among financially constrained firms and for firms that are likely to benefit more from diffused technology, e.g., those have newer patents, are more profitable, face better […]

The study proposes a conceptual model of the phenomenon of a radical innovation partnership and examines particular partner attributes affecting its performance. Borrowing from the paradox perspective in organizational studies, the model argues that a radical innovation partnership features several paradoxes – the paradox of a partnership structure, the paradox of partnership resources, and the […]

We consider the pricing implications of screens imposed by Socially Responsible Investing funds. The model extends standard risk-based asset pricing models by deriving as an additional systematic risk factor a portfolio of stocks shunned by a subgroup of institutional investors. We reconcile the empirically observed risk-adjusted sin-stock abnormal return with a “boycott risk premium” which […]

We examine the effects of daily return compounding, financing costs, and management factors on the performance of leveraged exchange-traded funds (LETFs) over various holding periods. We propose a new method to measure LETFs’ tracking errors that allows us to disentangle these effects. Our results show that the compounding effect generally has more influence on tracking […]

Using the emerging technology of large-scale textual analysis, this study examines use of the term “customer satisfaction” and its variants in the principal annual financial reports issued by publicly-traded U.S. corporations and filed with the Securities and Exchange Commission as Form 10-K. We document the frequency of the term’s occurrence in 10-Ks over the 1995 […]

How do firms’ partnering strategies impact the size of their partner-based retail networks? We draw on agency theory to address this question in the context of franchising. Our econometric analyses (based on nine years of longitudinal balanced panel data) include assessment of data nonstationarity and estimation of a dynamic panel data model that accounts for […]