Miracle-dz/UniFAR-FTUs huggingface dataset:
COVID-19: Firm Value and Pre-Existing Corporate Governance Regulations

We find that Japanese firms that barely met a voluntary minimum pre-COVID-19 regulation (minimal compliers) lost more firm value than others due to COVID-19. We consider the corporate governance code introduced in 2015. It requires that firms have at least two outside directors on a comply-or-explain basis. Our finding hinges on pre-pandemic liquidity: the relative value of outside directors for companies that under- or over-complied with the code (non-minimal compliers) compared to minimal compliers increases with cash holdings accumulated pre-pandemic. There are no significant differences between under- and over-compliers. Director characteristics make no difference to firm value either. Adoption of a US-type board system, which is selectively available without comply-or-explain disclosure, also increases firm value. Our findings suggest that a firm’s own decision, not policy-induced board formation, is a key for shielding firm value against a sudden shock like the outbreak of COVID-19.
The Effect of the Engagement Partner-Client Economic Bond on Audit Quality in the UK

This study examines whether (1) high fee-paying clients consider engagement partner quality in auditor appointments and (2) engagement partners compromise their independence for economically important clients. Employing a UK setting where the lead audit engagement partner is identified, we find that while engagement partners influence audit outcomes, clients do not pay above expected audit fees either to select low-quality partners to enable them to manage their earnings or high-quality partners to signal the strength of their financial statements. We also find no evidence to suggest that partners compromise their independence for economically important clients, regardless of the possible rewards attached to how much revenue they generate. Together, we surmise that the increased regulation of partner activities and improved corporate governance, in the UK, has lessened concerns regarding excessive fees and low audit quality.
Do Financial Constraints Reduce Process Innovation? Evidence from Australian Firms

Accessing external finance for innovation is notoriously difficult. We study the effect of financial constraints on the probability of conducting process innovation, while also considering the role of past innovating experience. Theoretically, we show a firm’s optimal process innovation decision is a function of its previous decision, financial constraints, and a set of control variables. This decision naturally leads to a set of population moments, which we then test empirically using Australian microdata from 2006-2018. Our results reveal that if a firm does not conduct process innovation in the previous year, financial constraints reduce the probability of process innovation by around 10%. Whereas if a firm does conduct process innovation in the previous period, financial constraints reduce the probability of process innovation by around 12%.
Charles A. Dice Center for Research in Financial Economics Disentangling Anomalies: Risk versus Mispricing

Systematic mispricing primarily affects speculative stocks and tends to take the form of overpricing, predicting lower average returns. Because speculative stocks are typically deemed risky by rational models, failing to control for exposure to systematic mispricing can bias tests of risk-return tradeoffs. Controlling for the effects of systematic mispricing, we recover robust positive risk-return relations for a large number of crosssectional risk proxies, including many low-risk and distress anomalies. We also recover robust positive illiquidity-return relations. We provide a unifying framework to explain a number of puzzles arising from the empirical failure of standard asset-pricing models and show that risk-return relations supporting rational models can be recovered from the data by accounting for the existence of time-varying common mispricing. JEL classification: G12, G14, D84
Optimal Goals-Based Investment Strategies for Switching between Bull and Bear Markets

We solve a dynamic, long-horizon, goals-based wealth management problem, given different investment regimes. In a world with a good regime (bull market) and a bad regime (bear market), an investor who is cognizant that regime switching occurs has the potential to do better than an investor who assumes only one regime. However, models with more than one regime incur the additional risk of regime uncertainty. Investors must be able to predict which regime is governing the market with reasonable levels of confidence, or they can be worse off than investors who assume just one regime. Using data from recent history, we develop a framework that determines how accurate regime prediction needs to be to achieve gains from a regime-cognizant goals-based investing approach.
The role of volunteer experience on performance on online volunteering platforms

Online volunteering platforms allow humanitarian organizations (HOs) to recruit volunteers to work remotely on projects of varying urgency. While removing time and space constraints enables HOs to scale up their volunteer force, HOs must manage greater heterogeneity in volunteers' experience. We investigate empirically how volunteers' experience impacts two performance metrics on online volunteering platforms: project completion rate and volunteer retention. In addition, we examine the conditions under which experience becomes more relevant to project completion rate and retention. We collected a novel panel data set from the Humanitarian OpenStreetMap Team Tasking Manager. Our data set includes 5,162 online volunteering projects with 2,169,683 contributions by 96,450 volunteers. Results from a panel regression model show that a project's completion rate improves in diminishing increments with the experience of the contributing volunteers. We further find that the effect of experience on project completion rate is contingent on the urgency of the project. Regarding retention, results from a parametric hazard model indicate that volunteers are incentivized to return to an online volunteering platform more quickly when they are closer to attaining a new experience‐based rank. However, we find that this effect weakens as volunteers gain experience. Overall, our study sheds light on volunteer management in an online context and offers operational insights on the recruitment and allocation of volunteers for HOs as well as online volunteering platforms.
Aesthetics in Stock Investments: the Mediating Role of Investor's Attitude towards Investor Relation Websites

Purpose: The purpose of this paper is to contribute to the existing literature in behavioral finance by investigating the role played by company's investor relations website/webpage in inducing the individual investor's intention to invest in the company. The study investigates the role of aesthetics and emotions in individual‟s investment behavior. <br><br>Design/ Methodology/Approach: A set of hypotheses was developed, based on theory, and survey data were obtained from 357 retail investors in Delhi-NCR region in order to test the hypotheses. The data pertained to the individual‟s attitude towards the company's investor relations website/webpage and their willingness to invest. Structural Equation Modeling was used to test the proposed hypotheses. <br><br>Findings: Results highlight the positive influence of relative advantage, credibility, ease of use, and trust on investor's attitude towards the investor relations website. The mediating influence of attitude towards investor relations website was influenced in some proposed relationships. It was also evidenced that credibility and trust have a greater influence on attitude towards website for low internet using experience investors as compared to investors with high internet using experience. <br><br>Originality/Value: The study provides theoretical grounding and empirical evidence of the positive influence of individual‟s favourable attitude towards investor relations website on individuals' willingness to invest in company's shares. It is one of the pioneer studies in the Indian financial context and provides valuable insights to the companies to strategically design their investor relations website/webpage that deals with both functional and aesthetic aspect of information sharing and is emotionally appealing. <br><br>Research limitations: The study pertains to attitudes and behavior of individual investors only. Institutional and professional investors are beyond the scope of the paper.
Estimating Financial Networks by Realized Interdependencies: A Restricted Autoregressive Approach

We develop a network-based vector autoregressive approach to uncover the interactions among<br>financial assets by integrating multiple realized measures based on high-frequency data. Under<br>a restricted parameter structure, our approach allows the capture of cross-sectional and time ependencies embedded in a large panel of assets through the decomposition of these two blocks of<br>dependencies. We propose a block coordinate descent (BCD) procedure for the least square estimation and investigate its theoretical properties. By integrating realized returns, realized volume, and realized volatilities of 1095 individual U.S. stocks over fifteen years, we illustrate that our approach identifies a large array of interdependencies with a limited computational effort. As a direct consequence of the estimated model, we provide a new ranking for the systemically important financial institutions (SIFIs) and carry out an impulse-response analysis to quantify the effects of adverse shocks on the financial system.
Stock Pledged Loans, Capital Markets, and Firm Performance in China

Stock pledged loans have become prevalent among large shareholders of listed firms in China. The largest shareholder pledges a greater fraction of her holdings as collateral for credit when the firm is in growth industries, less profitable, not state owned, and has higher leverage. Stock performance of highly pledged firms is indistinguishable from that of firms with low pledge ratios in 2017. During 2018, however, highly pledged firms have worse stock returns and operating performance, and experienced ‘contagion’ – the crash risk of one highly pledged stock spreading to others. Using a regulatory reform in 2013 that allowed securities companies to provide stock pledged loans, we find that obtaining these personal loans had no adverse effects on the firms when the pledge ratio was low. Overall, forced sales of pledged stocks and worsened agency conflict are responsible for the poor performance of highly pledged firms during the 2018 bear market.
Risky Business: The Risk-Reward Trade-off is Different for Nonprofit and For-profit Firms

Experts generally agree that risk-taking is necessary for progress and innovation, however, the current research finds that consumers penalize nonprofits for taking risks. Five studies document that consumers judge nonprofit, relative to for-profit, firms more negatively for choosing high-risk ventures even when the risks are linked with high expected returns. Process evidence shows that these patterns occur because consumers view nonprofits as existing in a moral domain, rendering the decision to take risks as morally questionable; by contrast, risk-taking by for-profit companies is not viewed as morally problematic to the same degree. Follow-up studies demonstrate important implications for these findings, including that when for-profit companies operate in a moral domain, they too are penalized for risk-taking. In addition, consumers show a greater decrease in likelihood of financially supporting nonprofits than for-profits after they choose similarly risky ventures. These findings demonstrate that consumers exhibit different risk tolerances for nonprofit versus for-profit firms in ways that can limit innovation and growth in charitable and other morally relevant domains.
Market Risk and Financial Performance of Listed Non-bank Financial Institutions in Kenya

Non-Bank Financial Institutions (NBFIs) have surfaced as a growing segment in the financial sector as they complement the mainstream banking institutions to provide financial services to customers. In the present day’s dynamic business environment, these financial institutions face market risks including interest rate risk, foreign exchange risks, commodity risks and equity. The objective of the study was to examine the effect of interest rate risk on the financial performance of NBFIs listed on the Nairobi Stocks Exchange (NSE) over the period 2012–2017. The study focused on balance sheets components and financial ratios of 9 listed non-bank financial institutions in Kenya. The study used unbalanced panel data from 9 listed non-bank financial institutions over the period 2008–2017.The study used the net profit margin to assess financial performance of the companies while the degree of financial leverage indicators of interest rate risk. The financial performance was regressed against the market risk factors using the random effects models based on the Hausman and the LM tests specifications. The results show that financial leverage has a significant positive impact on the performance of the NBFIs with a p value of 0.000. The study concluded that interest risk has momentous effects on financial performance of the listed NBFIs in Kenya. Therefore, the study recommended that the management of the NBFIs should employ effective risk management strategies to mitigate their effects of the market risks. <br>
Married to the Firm? A Large-Scale Investigation of the Social Context of Ownership

Using a large sample of private firms across Europe, we examine how the social context of owners affects firm strategy and performance. Drawing on embeddedness theory and the institutional logics perspective, we argue that embeddedness in a family, particularly the nuclear family, can strenghten identification and commitment to the firm, but can also induce owners to behave more conservatively. Consistent with this argument, we find that family-owned firms have higher profit margins, returns on assets, and survival rates compared to single-owner or unrelated-owners firms, but also invest and grow more slowly, hold greater reserves of cash, and rely less on external debt. These differences are largest when a married couple holds a majority of the firm's equity. Family ties among firm owners, particularly marital ties, appear to facilitate conservation of cash and lower operating costs, which increases firm survival but which also dampens investment and growth.
On the Likelihood and Extent of Listed US Firms’ Disclosures on Climate Change Risk

This paper investigates the determinants of the likelihood and extent of climate change risk disclosures made by US firms through SEC filings, using a sample of 6129 US domiciled firm-years for the period from 2009 to 2017 that feature (or do not feature) disclosures about climate change risk made according to general disclosure principles for the reporting of material risks under SEC Regulation S-K. A growing number of US and international institutional investors regard climate change risk information as material to their decision-making process. The potential risks associated with climate change also have attracted growing attention from policy makers and standard setters. We identify factors that are associated with the likelihood of firms initiating and maintaining the disclosure of information on climate change risk, and its extent, contributing information that should be useful in assessing the effectiveness of the current US disclosure requirements.
Signaling the Uncertainty of Future Economic Benefits: Accounting for R&D in Australia

This paper contributes empirical evidence to the international accounting debate over whether capitalisation of research and development (R&D) expenditure should be permitted. It exploits more flexible accounting rules in Australia prior to 2005 which allowed expensing or capitalisation of R&D at management discretion. Following Kothari, Laguerre and Leone (2002), association with the uncertainty of future economic benefits is used to evaluate the capitalising versus expensing decision. This paper examines the associations of total R&D expenditures and separate capitalised and expensed R&D expenditures, as well as PPE expenditures, with future earnings variability. The results, which are robust to alternative measures of key variables, show that the expensed R&D is associated with higher earnings variability. We interpret this as indicating that management uses its accounting choice to signal the uncertainty of future economic benefits from R&D expenditures to investors, rather than using it to manage earnings.
'Less is More': Credit Default Swaps and Firm Cyclicality

Firm cyclicality decreases by around 40% after the inception of credit default swap (CDS) trading. The effect is due to CDS firms’ lower asset growth-GDP growth sensitivity in good times and stronger for firms facing a more severe exacting creditor problem, i.e., those with powerful shareholders, high industry Q, high liquidation costs and low ratings. Moreover, CDS trading impedes unhealthy growth and increases profitability and market value. The effect is not due to lower M&amp;A activity of CDS firms and robust before and after the global financial crisis. The evidence highlights an important disciplining effect of CDS on corporate growth.
Financial Crises and Labor Market Recoveries: A Bayesian Evaluation

Average hours worked in the US recovers much faster than the unemployment rate following financial crises. Using an identified vector autoregression framework with nine quarterly US time series from 1984 to 2014, I find that an adverse financial shock leads to a fall in economic activity with a persistent increase in the unemployment rate but a transitory decrease in average hours worked. I then embed labor market frictions and financial frictions into a New Keynesian model to explain this stylized fact. The model introduces a relatively new financial shock the default cost shock, which captures the financial market’s inefficiency. I estimate the model using Bayesian methods and find that the default cost shock explains a significant portion of the variations in aggregate variables. In particular, this shock accounts for the business cycle features of a financial crisis better than the other relevant shocks do.
How Corporate Governance Able to Moderate Income Smoothing in Mining Sector

Income smoothing has become a phenomenon. It when companies report large profits, people become asked whether this is really real profit or profit that is intentionally made for a particular purpose. Departing from this, we made a study of income smoothing in the mining sector. Mining sector is one sector that is classified as profitable for people; this sector can be called an opportunist and opportunist sector often associated with earnings management and income smoothing. Our research is quantitative research. We use secondary data, financial statements of mining companies for the past five years. We use path analysis for the analysis tools in this study. We use three moderator variables, namely: institutional ownership, managerial ownership and audit committee. We examine the three moderator variables whether they can moderate profitability and leverage on income smoothing. The results of our study state that profitability influences income smoothing. In addition managerial ownership is able to moderate profitability and leverage, while the audit committee is only able to moderate profitability on income smoothing.
On the Valuation Skills of Corporate Bond Mutual Funds

We introduce a novel measure to assess the valuation skills of investment-grade corporate bond funds. Our measure recognizes funds ex-ante holding a higher fraction of underpriced bonds as having better valuation skills. The measure predicts future fund performance, is stable over time, and is unrelated to other sources of skill. Fund investors recognize such skill by responding more to the past performance of funds with better valuation skills. Consistent with the equilibrium model of Gârleanu and Pedersen (2018), our evidence suggests that as growing capital gets allocated to skilled bond funds, the investment-grade corporate bond market is becoming more efficient.
Intangible Investment during Sovereign Debt Crisis: Firm-level Evidence

This paper measures the output and TFP costs of sovereign risk by focusing on firm-level investment. Combining Italian firm-level and aggregate-level data, we show that firms reduce their investment and reallocate their resources away from intangible assets and towards tangible assets during the sovereign debt crisis. This asset reallocation is more pronounced among small and high-leverage firms, indicating the role of financial constraints. In our model, sovereign risk deteriorates banks’ balance sheets, disrupting banks’ ability to finance firms. Firms with greater external financing needs are more exposed to sovereign risk. Facing tightening financial constraints, firms internalize that tangibles can be used as collateral while intangibles can not, thus reallocating resources towards tangible investment. In a counterfactual analysis, we find that elevated sovereign risk explains 86% of output losses and 72% of TFP losses during the 2011-2013 Italian sovereign debt crisis.
Is There a Replication Crisis in Finance?

Several papers argue that financial economics faces a replication crisis because the majority of studies cannot be replicated or are the result of multiple testing of too many factors. We develop and estimate a Bayesian model of factor replication, which leads to different conclusions. The majority of asset pricing factors: (1) can be replicated, (2) can be clustered into 13 themes, the majority of which are significant parts of the tangency portfolio, (3) work out-of-sample in a new large data set covering 93 countries, and (4) have evidence that is strengthened (not weakened) by the large number of observed factors. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber. org.
Credit Ratings Quality in Uncertain Times

We investigate ratings quality across uncertain and normal times proxied by variations in economic policy uncertainty. We find that increased policy uncertainty is associated with weaker rating standards. This finding is unrelated to variations in macroeconomic conditions and holds when we use an instrumental variable approach. The effect is more pronounced for firms with which rating agencies have more conflicts of interest. We also find that ratings are less informative about firm credit quality in times of heightened policy uncertainty. These findings suggest that increased policy uncertainty distorts ratings quality through a conflicts of interest channel.
How Do Managerial Incentives Affect the Maturity Structure of Corporate Public Debt?

I examine the relation between managerial ownership and the maturity structure of corporate public debt by using a sample of newly issued Japanese corporate bonds. Firms with higher managerial ownership issue shorter maturity bonds. In addition, firms with higher managerial ownership have lower credit ratings and experience higher yield spreads. Finally, firms with higher managerial ownership exhibit higher firm performance and show a preference for risk-taking activities. Overall, my findings support the view that bondholders are concerned about wealth transfers from bondholders to shareholders through risk-taking activities and require firms with higher managerial ownership to issue shorter maturity bonds.