6th Annual Corporate Finance Conference (Exeter 2017)
FINAL PROGRAMME
6 July 2017
All the sessions, breaks, and lunch are to be held at University of Exeter Business School, Streatham Court, Rennes Drive, Exeter EX4 4PU
9:00-9:15 Coffee and registration
9:15-9:20 Opening and welcome
9:20-11:00 Session 1
- Stock Price Crashes along the Supply Chain
Buhui Qiu, Fangming Xu, Cheng Zeng
Discussant: NihatAktas
Abstract
This paper examines whether stock price crashes are contagious across firms via customer-supplier relationships. We find evidence that stock price crashes transmit from major customers to suppliers with a delay of up to two weeks. Moreover, this effect occurs only when investor attention is limited and cannot be explained by information opacity of the affected suppliers. Further analysis shows that a long-short trading strategy based on this effect generates significantly positive abnormal returns. In addition, major customers’ crash risk can significantly predict the supplier firm being delisted or merged in the future. Our results are robust to a battery of sensitivity tests.
- Penalty-free prepayment and upfront fees in bank loans
EspenEckbo, Xunhua Su,Karin Thorburn
Discussant: Swarnava (Sonny) Biswas
Abstract
Unlike public bonds, commercial and industrial (C&I) bank loans permit penalty-free prepayment. We present a theoretical and empirical analysis of how upfront fees may be used to compensate lenders for prepayment risk. In the model, C&I loans fund investment projects and borrowers learn about project risk only after loan origination, at which point ex-post low-risk borrowers strategically prepay the loan. We show that, while the credit spread at origination cannot be used to compensate for this prepayment risk, upfront fees and/or performance-sensitive loan provisions permit the bank to lower the equilibrium credit spread, which in turn reduces prepayment risk. The model implies that upfront fees are greater for loans with higher credit risk and for loans without performance-sensitive pricing, and that greater upfront fees are associated with lower propensities for prepayment and loan renegotiation. Large-sample empirical evidence supports these predictions.
11:00-11:20 Coffee break
11:20-13:00 Session 2
- Innovative CEO-directors
Ning Gao, Ian Garrett, Yan Xu
Disussant: Alexander Ljungqvist
Abstract
The leadership to cultivate and promote technological innovation is one of the most important aspects of a CEO’s human capital. We investigate how this leadership affects a CEO’s attractiveness on the outside directorship market. We find a robust positive relation between innovation performance of a CEO’s own firm and the number of outside directorships held by this CEO, which is primarily determined by appointing firms that are also innovative. We also find that the presence of innovative CEO-directors on a firm’s board significantly improves its innovation and operating performance in post-appointment years. Our results demonstrate that a CEO’s leadership in cultivating and promoting innovation is highly valued in the market for outside directorship. These results also suggest that innovative CEO-directors constitute an important mechanism to propagate knowledge on innovation across firms.
- Uncertainty Shocks, Creditor Rights, and Firm Precautionary Behavior
Mariassunta Giannetti
Discussant: Grzegorz Pawlina
Abstract
This paper shows that better protection of creditor rights makes firms more resilient to uncertainty shocks. We use the staggered introduction of anti-recharacterization laws as an experiment. We show that firms exposed to uncertainty shocks hoard less cash and easy-to-collateralize assets, such as real estate, after secured creditors’ rights are strengthened. Furthermore, firms exposed to uncertainty shocks increase investment in intangible assets and employment to a larger extent.
13:00-14:00 Lunch
14:00-15:00 Keynote address
- The Changing Face of Corporate Governance (TBC)
Anil Shivdasani
15:00-15:20 Tea break
15:20-17:00 Session 3
- Short Selling Before Initial Public Offerings
Linquan Chen, Alok Kumar, Chendi Zhang
Discussant: Andrew Ellul
Abstract
This paper shows that the presence of security lending supply before an initial public offering (IPO) reduces the initial stock return following IPO and improves subsequent long-run performance. We use a sample of British firms that go public via a two-stage IPO procedure where a firm becomes publicly traded on the London Stock Exchange in the first stage, and offers new shares to the public in the second stage. Stocks are lendable before the new equity issuance which relaxes the short-sale constraints that investors typically face in a conventional IPO. We find that two-stage offerings with higher security lending supply before offering are associated with lower IPO underpricing and better long-run performance. Our results are consistent with the conjecture that short selling improves the pricing efficiency of the IPO market.
- Busy Directors, Strategic Interaction, and Monitoring Synergies
Alexander Ljungqvist, Konrad Raff
Discussant: Sudipto Dasgupta
Abstract
We derive conditions for when having a "busy" director on the board is harmful to shareholders and when it is beneficial. Our model allows directors to condition their monitoring choices on their co-directors' choices and to experience positive or negative monitoring synergies across firms. Whether busyness benefits or harms shareholders depends on whether directors' effort choices are strategic substitutes or complements and on the sign of the cross-firm synergies. Our empirical analysis exploits plausibly exogenous shocks that make directors busier on one board and examines how this spills over to other boards. Our results suggest that monitoring efforts typically are strategic complements, except when a firm finds itself facing a crisis. Consistent with the model, we find that busy directors increase monitoring at spillover firms when synergies are positive (which we show increases expected firm value) and reduce monitoring at spillover firms when synergies are negative (which we show reduces expected firm value).
19:00-Conference Dinner(Mercure Exeter Rougemont Hotel, Queen Street, Exeter EX4 3SP)
7 July 2017
All the sessions, breaks, and lunch are to be held at University of Exeter Business School, Streatham Court, Rennes Drive, Exeter EX4 4PU
9:00-9:20 Coffee
9:20-11:00 Session 4
- Institutional Investors’ Horizons and Corporate Employment Decisions
Mohamed Ghaly, Viet Anh Dang, Konstantinos Stathopoulos
Discussant: Anil Shivdasani
Abstract
Monitoring by long-term investors should reduce agency conflicts in firms’ labor investment choices. Consistent with this argument, we find that abnormal net hiring, measured as the absolute deviation from net hiring predicted by economic fundamentals, decreases in the presence of institutional investors with longer investment horizons. Firms dominated by long-term shareholders reduce both over-investment (over-hiring and under-firing) and under-investment (over-firing and under-hiring) in labor. The monitoring role of long-term investors is more pronounced for firms facing higher labor adjustment costs. We address endogeneity concerns by exploiting exogenous changes to long-term institutional ownership resulting from the Russell indexes annual reconstitutions.
- Board Quotas and Firm-Director Matching
Daniel Ferreira, Edith Ginglinger, Marie-Aude Laguna, Yasmine Skalli
Discussant: Grzegorz Trojanowski
Abstract
We study the impact of board gender quotas on the labor market for corporate directors. We find that the annual rate of turnover of female directors falls by about a third following the introduction of a quota in France in 2011. This decline in turnover is more pronounced for new appointments induced by the quota, and for appointments made by firms that regularly hire directors who are members of the French business elite. By contrast, the quota has no effect on male director turnover. The evidence suggests that, by changing the director search technology used by firms, the French quota has improved the stability of director-firm matches.
11:00-11:20 Coffee break
11:20-13:00 Session 5
- What Explains the Declining Time-Series Pattern of Investment-Cash Flow Sensitivity?
Shushu Liao, Ingmar Nolte, Grzegorz Pawlina
Discussant: Daniel Ferreira
Abstract
It is well documented that since at least 1960s the investment-cash ow (I-CF) sensitivity had been decreasing over time to disappear almost completely by late 2000s. We demonstrate that this pattern is consistent with the observed evolution of the adjustment cost parameter in a neoclassical investment model augmented with convex adjustment costs and costly external financing. In particular, we show that the decreasing pattern of the I-CF sensitivity can be explained by the gradually increasing cost of capital adjustment. At the same time, financial frictions cannot account for the time-series pattern. Furthermore, measurement error in q, the effect of which depends on the covariance between q and cash ow, contributes to the declining I-CF sensitivity as well. The presence of measurement error leads to overestimating the I-CF sensitivity in early periods, that is, when q and cash ow are positively correlated and leads to a lower estimated sensitivity otherwise. Finally, we demonstrate that the level of interest rate has an impact on the observed pattern of the I-CF sensitivity through its effect on the predicted magnitude of the measurement error.
- Corporate Leverage and Employees’ Rights in Bankruptcy
Andrew Ellul, Marco Pagano
Discussant: Neslihan Ozkan
Abstract
Corporate leverage responds differently to employees’ legal protection in bankruptcy depending on whether leverage is chosen to curtail workers’ bargaining power or is driven by credit constraints. Using newly collected cross-country data on employees’ rights in corporate bankruptcy, we estimate the impact of such rights on firms’ capital structure, applying triple-diff strategies that exploit time-series, cross-country and firm-level variation. The estimates show that leverage increases more substantially in response to rises in corporate property values or in profitability at firms where employees have strong seniority in liquidation and weak rights in restructuring, consistently with the strategic use of leverage.
13:00-14:00 Lunch
14:00-16:30 Session 6
- Bankers on Boards of Directors and CEO Inside Debt
Piotr Korczak, Trang Nguyen, Mariano P. Scapin
Discussant: Karin Thorburn
Abstract
Using the employment history of over 17,000 directors, we study how boards with directors who have executive banking experience affect CEOs’ inside debt. We find that firms with banking experience directors on boards are more likely to make CEOs incentives to align with debtholders by increasing CEOs’ inside debt holdings. Our results show that not only current banker-directors but also former banker-directors influence the CEOs’ inside debt. This evidence suggests that past experience as executives in banks will impact on directors’ current decisions when they are sitting on boards of non-financial firms, even though their behaviour could create a potential conflict of interests for current non-financial firms. Further, CEOs’ inside debt holdings are also more likely to increase when new banker-directors are appointed on boards of directors after covenant violation occurs.
- Cost of Bank Capital and Credit Supply in Distant Countries: Evidence from a Lender Country Tax Reform
Swarnava (Sonny) Biswas, Fabiana Gomez, Balint Horvath, Wei Zhai
Discussant: VassoIoannidou
Abstract
We study how a positive shock to the cost of bank capital affects cross-border lending. A tax legislation in Belgium in 2006 effectively reduced the cost of equity. We use this plausibly exogenous shock to the cost of bank capital to establish a causality effect. We include time-varying industry-country fixed effects in our regressions in order to control for credit demand. We find that post-treatment, Belgian banks increase their credit supply (number of loans but not volume) in the cross border syndicated loan market. Further, we find that Belgian banks increase the number of loans disproportionately more to industries in distant, unfamiliar countries. Finally, we document that post-treatment, the loans that Belgian banks make to distant countries are more expensive and contain more restrictive terms.
- 'She Is Mine': Determinants and Value Effects of Early Announcements in Takeovers
NihatAktas, Guosong Xu, B. BurcinYurtoglu
Discussant: Shantanu Banerjee
Abstract
Some bidders voluntarily announce a merger negotiation before the definitive agreement. We propose an “announce-to-signal” explanation to these early announcements: they allow bidders to signal to target shareholders high synergies so as to overcome negotiation frictions and improve success rates. We show that there exists a separating equilibrium where high-synergy bidders announce early, while low-synergy bidders remain in private negotiations. Consistent with signaling, we show that negotiation frictions predict earlier announcements. Early announced transactions are associated with higher expected synergies, offer premium, completion rates, and public competition. However, bidder announcement returns do not suggest overpayment in these transactions.
16:30Conference closes
Note:
During each academic presentation (except the keynote address) 50 minutes is assigned to each paper:
- 25 minutes for the presentation by the author
- 10 minutes for the discussant
- 15 minutes for Q&A