Political Corruption and Corporate Risk-Taking

We use variation in corruption convictions across judicial districts in the US to examine the relationship between political corruption and risk-taking of public firms. Firms headquartered in regions with high levels of political corruption have lower total risk and lower idiosyncratic risk on average. Further analysis shows that corruption tends to encourage firms to pursue risk-decreasing investments, lower the riskiness of their operations, and decrease asset liquidity. While managerial ownership is intended to align the interests of managers and shareholders, the presence of corruption appears to encourage undiversified managers to decrease risk-taking. Our evidence is consistent with agency theory and the asset-shielding argument that political corruption discourages managers from taking risks that expose firms to expropriation by politicians, resulting in suboptimal corporate policies

Ringing the Bell: Does it Matter and Why?

We explore the ongoing debate between market efficiency and behavioral finance by examining the market’ s reaction to what most investors would consider an information-neutral event: a firm ringing the opening or closing bell on the NYSE. Consistent with behavioral theories, we find that firms who ring the opening bell experience, on average, a positive abnormal return on the event day; however, we find that the reaction is concentrated in a particular group of participants. Specifically, we find the abnormal returns are driven almost entirely by firms who are celebrating the transfer of their stock listing to the NYSE. Given the potential benefits and signals associated with such an event, the favorable reaction is more consistent with market efficiency than any type of behavioral bias (i.e., the event is not information- neutral). In a more general sense, we caution against blanket conclusions of inefficiency that may result from a failure to more closely examine underlying causes for certain market reactions

Slack and R&D Strategy: The Effect of Slack on Internal R&D and External R&D, and Innovation

Firms use their internal resources effectively and efficiently in order t

The influence of economic policy uncertainty on corporate trade credit and firm value

This research investigates the relationship between government economic policy uncertainty (EPU) and trade credit and its value implication for U.S. public firms. We find that firms curtail their receivables periods and face shorter payables periods from suppliers during high EPU. The impact of trade credit policy changes on firm value is nonlinear. Tightening trade credit during periods of high EPU increases shareholder value only to a certain point, beyond which it is value-destroying since overly reducing trade credit can lead to losing customers to competitors