Information Propagation in Financial Markets

This dissertation consists of three essays which examine information flows through financial markets and across firms, and investigates the factors affecting the process of information dissemination. The first essay examines whether the announcement of a credit rating change for a given firm contains information pertinent to the valuations of intra-industry peer firms. I identify an information spillover effect on peer firms surrounding credit rating downgrades. Further, I find that the post-announcement spillover effects are indicative of an overreaction in the market’s response to the downgrade announcement. Peer firms exhibit predictability in their post-announcement returns as a function of their relative transparency. The second essay explores the relation between instances of credit rating initiations and stock market liquidity. Traditional finance literature holds the view that liquidity is impaired as a function of information asymmetry. Additionally, that credit ratings have been shown to reduce information asymmetry. This study uses instances of new credit ratings to examine the change in stock market liquidity surrounding the announcement of the new rating. My results suggest that rating initiations improve in the liquidity of the newly rated firm’s equity and that managers exploit this price support through seasoned equity offerings. The third essay investigates information flows through the Social networks of board members. I find that the degree to which a CEO and her directors overlap in Social communities affects the governance of the firm and that these effects are conditional upon the adverse reputation costs faced by the board. For firms whose boards face relatively lower (higher) potential adverse reputation costs to bad behavior, clustering is associated with poorer (better) governance and greater (lesser) expropriation by managers

Credit Ratings and the Cost of Issuing Seasoned Equity

I examine the effects of issuer credit ratings on the costs associated with seasoned equity offerings (SEOs). The evidence from a panel of SEOs from 1990 to 2014 shows that when firms issue seasoned equity, those with issuer credit ratings pay reduced investment banking fees. I confirm these results by conducting a propensity-score matched-sample comparison analysis of firms that obtain new, long-term issuer credit ratings with an unrated control group. Controlling for known determinants of SEO fees, I find that firms that obtain a new credit rating before issuing seasoned equity pay significantly reduced investment banking fees. In economic terms, underwriting fees for newly rated firms are 7.2% lower than those for similar, yet unrated firms. Finally, I examine the indirect costs of issuance and find evidence that credit-rated firms face reduced market-based costs to issue. Rated firms incur lower dilutionary costs to issue and have more positive abnormal returns surrounding the issue

ARISTOTLE'S TREATMENT OF THE SOCRATIC PARADOX IN THE NICOMACHEAN ETHICS

This dissertation seeks to understand one of the most perplexing statements uttered by the Platonic Socrates, the so-called Socratic Paradox that no one voluntarily does wrong. In such dialogues as the Gorgias and the Protagoras, Socrates famously, or infamously, declared that all wrongdoing is a result of ignorance and is therefore not culpable. While the beginning point for this investigation is Socrates, this dissertation turns for the most part to Aristotle as the first and foremost commentator on the Platonic dialogues, guided by the belief that Aristotle can aid in the discovery of what Socrates' outlandish assertion means. In Books III and VII of the Nicomachean Ethics, Aristotle takes up the questions on which the Socratic Paradox touches, submitting the so-called paradox to scrutiny in Book VII. While much research has focused on the Socratic Paradox, the contribution of this work is to exploit the intellectual genius Aristotle has brought to bear on this question. Turning to Aristotle will allow us to gain greater clarity into this central tenet of Socratic Political Philosophy

In the interest of small business’ cost of debt: A matter of CSR disclosure

Traditional understanding is that small firms pay more in debt related expenses than larger firms with a history of financial performance. In the current study, we examine the impact that corporate social responsibility (CSR) disclosure has on the cost of debt for small firms. Using data from Bloomberg 2014 on CSR disclosure, we find that the cost of debt for small businesses decreases as firms increase their CSR disclosure transparency. Specifically, firms who disclose more social responsibility information faced reduced costs to debt financing. We argue that disclosure of Environment, Social, and Governance (ESG) records provide value relevant information for lenders to use to mitigate the magnified information asymmetry inherent to lending to firms earlier in their lifecycle. Our results suggest that disclosure of ESG information corresponds with improved information transparency, which leads to less costly debt for small businesses

Consideration Sets as Resources for Business Model Generation

Business models as outcomes for entrepreneurship are increasing in prevalence in pedagogy and practice. Instructors and entrepreneurs are focusing efforts on iterating potential ideas through a process of trial and error in hopes to produce working business models. However, such practices need to be better underpinned by theory so we can develop an understanding of how to identify more valuable opportunity ideas and how to progress them towards working business models with fewer trials and errors. This conceptual paper focuses on integrating extant conceptualisations of business models as interdependent activities with research on identifying opportunities as problem-solution pairings. While integrating those literatures, the present framework also details how reliance on constrained, systematic search—with its resource-based view underpinnings—can help individuals with entrepreneurial aspirations identify more valuable opportunities and progress them faster and with fewer trials and errors into working business models

Corrupting the Youth: Xenophon and Plato on Socrates and Alcibiades

Socrates’ students, who are attracted by the philosophic life, offer starkly different portraits of Alcibiades, the most illustrious among Socrates’ students who chose a political life. Their presentations diverge particularly on the nature of Alcibiades’ relationship with his teacher. This article argues that Xenophon and Plato’s contrasting presentations of Alcibiades shed light on their own disagreement on the proper relationship between philosophy and political life.Les élèves de Socrate, attirés par la vie philosophique, présentent des portraits nettement contrastés d’Alcibiade, le plus illustre des élèves de ce maître qui ont choisi la carrière politique. Leurs présentations divergent notamment sur la nature de la relation qu’Alcibiade entretenait avec son professeur. Cet article soutient que les différentes présentations qu’offrent Xénophon et Platon d’Alcibiade éclairent leur propre désaccord quant à la relation de la philosophie et de la vie politique

Do Online Consumers Value Corporate Social Responsibility More in Times of Uncertainty?: Evidence from Online Auctions Conducted During the Onset of the COVID-19 Pandemic

The relationships between Corporate Social Responsibility (CSR) and consumer behaviors have been widely explored in the literature. From the consumer standpoint, it has been shown that individuals largely want to be socially responsible actors and that, more than ever, they consider the CSR aspects of products or services when contemplating purchasing decisions. We utilize data from 23,247 online auctions conducted before and during the COVID-19 pandemic to analyze in what way consumer preferences might be influenced by how the CSR characteristics of products are touted in their descriptions. We find that a greater CSR emphasis is positively associated with an increased prospect of an online auction item selling. Additionally, we find CSR is valued more by consumers during a period of economic hardship and social uncertainty (COVID-19). Finally, we find that profit-seeking behaviors by intermediary auction house brokers undermine the effect of CSR on consumer purchasing behavior

Project Daedalus: An Additive Manufacturing Vending Machine

The project was a research endeavor focused on designing and building a vending machine for 3D-printed parts. It also had the secondary objective of catalyzing leadership qualities among its membership by emphasizing individual responsibility and forward thinking. The project began in the spring of 2015, when the topic of autonomous 3D-printing was chosen, funding was secured, and the majority of the leadership was brought on. Over the summer and into the fall semester the team developed project requirements and infrastructure, and gathered members from the parent organization. By December of 2015 most of the machine design had been completed, and the parts were en route so that building could be started in the spring semester. Due to a combination of time constraints, underestimated difficulty, and unforeseen logistical circumstances, the project was not able to achieve its primary goal of having a working prototype by May 2016. However, it is the belief of the project’s leadership and many of the members that it succeeded in its secondary goal of creating competent and confident leaders, several of whom went on to lead projects of their own