Department of Finance

My first study proposes that stock price manipulation erodes trust, damages corporate reputation, reorients management towards short-termism, harms entrepreneurial innovation culture, and increases the cost of capital. I tested these ideas by linking stock manipulation data to corporate venture capital data for firms listed on NASDAQ and NYSE. The data indicate CVC investments in entrepreneurial firms are followed by a rise in market manipulation in the short run [-3 months, +3 months], but a decline thereafter. The data further indicates that stock manipulation harms the ability of CVCs to form investment syndicates and reduces the likelihood of successful IPO and acquisition exits. The hazard rate to IPO is 0.54 for CVC-backed firms that face market manipulation. Overall, the theory and evidence provide insights into how firm's manipulation can damage the effectiveness of their venture capital endeavors, ultimately contributing to sustainable growth and innovation.

Local social capital, defined as the level of community interaction and social participation of a region, has been theorized to positively affect economic outcomes and discourage opportunistic behaviors in various settings. I examine whether local social capital is related to positive outcomes for entrepreneurs and their financial backers in the settings of reward crowdfunding and small business lending.
In my first study, I look at how local social capital influences the creators of successful reward crowdfunding campaigns. These creators, in turn, may influence the sentiment of their investors, or backers, towards their projects through missed delivery deadlines and poor communication. With comments collected from successful Kickstarter crowdfunding pages, I use textual analysis to construct a measure of the sentiment of project backers following the fundraising deadline.

The purpose of this study is to look at the effects that industry concentration has on the growth of local areas. People will go where the jobs are so by evaluating employment data one can also evaluate the growth of an area. Common economic basis calculations and indices were used to provide useful information about characteristics of growth, competitiveness, and concentrations of local industries compared to the national level. The key results show the complex nature of urban and regional development exemplified by changes in employment and that access to more and complex data will be necessary to gain a greater understanding of urban growth.

This study utilized environmental, social, and governance (ESG) data to analyze how institutional investors' strategies relate to the approaches of the private equity (PE) funds they invest in. Using limited partner (LP) investor and general partner (GP) PE fund data from Preqin, I created ESG scores for both LP and PE funds. Ordinary least-squares regression showed a significant, positive relationship between LP/GP ESG strategies. However, the relationship became negative and significant when firm-, fund-, and country-level controls were added. This misalignment between statements and action, often called greenwashing, suggests that firms are driven to ESG reporting due to external factors and do not feel accountable for investment decisions that follow strategic disclosures. Investor environmental (E), social (S), and governance (G) strategies had different relationships with GP ESG approaches. Public institutional investors, fund size, and the presence of a civil law system were positive contributing factors to the LP/GP ESG relationship. Fund performance was negatively associated with the relationship. There was also a significant difference in the LP/GP ESG approach between European PE funds versus those in North America. These findings show that E, S, and G factors may be more accurately analyzed separately than as one combined cluster. The findings also show that local conditions influence ESG strategic alignment between LPs and GPs. They suggest policymakers consider unique country-level attributes and differences in fund-level characteristics when attempting to influence ESG disclosure. ESG rating services could consider including factors that measure alignment between investors’ strategic statements and their investment decisions. The results provide valuable information on corporate social responsibility (CSR) in private markets, which has yet to be broadly studied compared to the extensive CSR literature available on public companies.

In Essay 1, I investigate the Equity Duration Hypothesis, which adapts Macaulay’s fixed income analysis to equity securities, finding evidence that dividend payers are less volatile than nonpayers and that dividend yield is negatively associated with volatility for the all-firms sample. Within the payer sample, however, I find unexpected evidence of a positive association when yield includes all dividends but a conflicting negative association when yield includes only quarterly dividends. This ambiguous evidence is corroborated by a one-year portfolio approach, as a previously strengthening negative relationship has transitioned to a strengthening positive one, with results demonstrably trending against the EDH in recent decades. I further find that high-yield stocks that have experienced negative price shocks are highly volatile and strong support for the EDH using firm-level earnings and cash flows as a proxy for dividends, allowing extension of the analysis to nonpaying firms. Unfortunately, I find abundant evidence supporting the assertions of many researchers who suggest that ED is not a unique asset pricing factor, but rather represents a composite of a firm’s characteristics and is redundant with other factors known to be associated with volatility.

The recent increase in common ownership makes it imperative to study the impact of common ownership on corporate policies. In this two-essay study, I examine how common owners interact with firms to make decisions and how they moderate the impact of market manipulation on corporate culture.
In the first essay, I examine whether firms in the same industry make similar investment and financial policies when their large institutional owners overlap. This relationship is important given the tremendous rise of common institutional owners and their significance on their portfolio firms’ policies. I hypothesize that common institutional owners cause their portfolio firms in the same industry to make similar policies by creating anti-competitive incentives, reducing information asymmetry, and influencing governance.

This study examines the association between corporate social responsibility (CSR) and director compensation arrangements. I develop two competing hypotheses— based on the optimal contracting and rent extraction frameworks—arguing that CSR could shape director reputation or bargaining power, and consequently director pay structure. I further propose that monitoring or advising needs of the company as well as diversity of the board could moderate the proposed association. Finally, I argue that CSR-induced director compensation changes could have implications for firm performance. I document a positive and significant effect of CSR initiatives on director compensation. I also show that the effect is stronger for boards with greater advising but not monitoring needs. Boardroom gender diversity somewhat diminishes the effect of CSR. Finally, CSR-induced director compensation has mixed implications for firm performance. Overall, my results are more consistent with the rent extraction view of director pay arrangements.

Researching the determinants of bank failure is an important task, yet the extant literature on bank failure early warning models fail to identify which model technique, sampling methodology, or set of coefficients provides the most accurate model when predicting failure on out-of-sample data. In this two-essay study, I examine previously published studies on bank failure prediction to determine with statistical significance which among the chosen set is most accurate. I also examine the effects of bias-adjusting models from the Machine Learning literature to determine if bias-correcting sampling algorithms improve accuracy.
In the first essay, I replicate three bank failure models (Martin (1977), Cole and White (2012), and DeYoung and Torna (2013) and use them to demonstrate the importance of out-of-sample predictive accuracy using bias-adjusting metrics and the use of McNemar’s Test to show, with statistical significance, that one set of predictive variables is better than the rest. Future researchers may use this framework to demonstrate significant contributions to the field, and regulators may apply these strategies to choose between candidate early warning models. I also test whether including savings banks (in addition to commercial banks) affects out-of-sample predictive accuracy.

This dissertation investigates the consequences of stock repurchase programs on long-term shareholders and bondholders. In the first essay, I present evidence that stock buybacks reduce investment inefficiencies associated with short-term ownership. For a sample of U.S. firms from 1988 to 2018, I first document that stock buybacks are associated with lower and short-term investors with higher corporate investment and net hiring. However, contrary to the conventional view, I find that buybacks reduce overinvestment related to short-term owners rather than increasing underinvestment. I conclude that firms have been using buybacks as an efficient mechanism to align the interest of short-term and long-term investors. Results are robust to alternative measures of stock repurchase and ownership investment horizon and to endogeneity concern
In the second essay, I test the signaling and wealth transfer hypotheses for share repurchase announcements using daily bond and stock returns. I distinguish between governance mechanisms protecting shareholders or bondholders and between internal and external shareholder governance strength. I find that stock and bond returns react positively to buyback announcements only at companies with strong internal shareholder governance mechanisms. Moreover, I reveal the positive impact of internal governance on the relation between stock and bond return is more pronounced in the firms where managerial compensation is more tied to stock performance and where the wealth transfer is expected. I found no evidence that high short-term oriented ownership increases the wealth transfer in repurchase announcements. Finally, I show that bonds with distribution covenants are negatively impacted by repurchase announcements, which supports the view that the market punishes these bonds when firms are likely to use repurchase stocks
to bypass their covenants.

In Essay 1, I investigate the association between CEOs’ social capital and stock price informativeness in a sample of US firms. After accounting for the fact that larger networks attract more analysts following, I find that firms with larger CEO social capital exhibit higher private information incorporation and hence more informative stock prices. Results are consistent for five different proxies for stock price informativeness. Furthermore, the positive association between social capital and informativeness is driven by more diverse networks, as measured by gender, nationality, education, or professional diversity. Overall, results suggest that private information existing in networks may result in markets that are more informationally efficient.
In Essay 2, I show that CEOs’ social capital has a positive impact on stock price informativeness in an international sample. Different robustness and endogeneity tests confirm those results. Moreover, I find that factors present at the country level can mitigate or reinforce social capital’s impact on informativeness. I consider characteristics not observable within one country that can influence such relation around the world including legal, cultural, and developmental. I uncover that for more developed countries and those with a higher quality of institutions a positive impact of social connectedness is more pronounced. In addition, I show the importance of CEOs’ connections characteristics for their impact on stock price informativeness. I find that if CEOs’ connections come from developed countries or countries that have better formal and informal institutions which affect information transparency, CEOs’ social capital becomes more important for informativeness.