Miracle-dz/UniFAR-FTUs huggingface dataset:
The Cost of Misaligned Incentives: Evidence from the Funding Sources and Real Effects of Tax-Motivated Dividends

Prior research finds that firms pay special dividends before a dividend tax increase. We examine the funding sources and real effects of these tax-motivated special dividends, finding that firms incur costs – reducing investment and repurchases – to pay them. The funding sources, and related real effects, vary with shareholders’ tax incentives. When tax-insensitive institutional investors likely influence the dividend to benefit firms’ taxable shareholders other than insiders, firms reduce repurchases and capital expenditures. Conversely, when taxable insiders likely influence the dividend, and their tax incentives are misaligned with firms’ primarily tax-insensitive shareholder base, firms reduce R&amp;D, consistent with misaligned payouts signaling managerial myopia which erodes shareholder value. Tests using both market responses to, and total factor productivity changes around, tax-motivated special dividends support these conclusions. These findings add to our understanding of tax-based agency issues influencing real corporate decisions and identify a previously unexplored cost of dividend tax increases.
Hedging Demands, Incomplete Markets, and Imperfect Information

I present a model of consumption and portfolio choice with imperfect information. I solve analytically the consumption and portfolio choice problem for an investor learning about the current value of time-varying expected returns. When prices are the only observables, the investor optimally estimates the current expected returns using the realized returns. Because of this, the market is observationally complete for an imperfectly informed investor. The observational completeness of the market allows me to find analytical, closed-form solutions to the investor’s consumption and portfolio choice problem. I show how learning affects both the covariance and the consumption smoothing component of the hedging portfolio. Applying the model to monthly return data, I show a significant reduction in hedging demands due to imperfect information. In contrast to portfolio choice assuming expected returns are observed, in some cases the reduction implies the agent will optimally hold a negative hedging portfolio. I solve in closed-form for the model implied R for the return forecast regression, in other words the predictable fraction of return variance, and discuss the relationship between the reduction in hedging demands and the reduction in the model implied R for the return forecast regression. ∗Ph.D. Candidate, Sloan School of Management, Massachusetts Institute of Technology. Corresponding Address: MIT Sloan School of Management; 50 Memorial Drive, E52-458; Cambridge, MA 02142. E-mail: jfr@mit.edu. I thank George Chacko, Jonathan Lewellen, Leonid Kogan, Steve Ross, Dimitri Vayanos, and Jiang Wang for their advice. This paper benefitted from suggestions by John Campbell, Robin Greenwood, Andrew Lo, Stavros Panageas, Anna Pavlova, Luis Viceira, and Joshua White. I gratefully acknowledge the financial support of the General Electric Faculty for the Future Fellowship.
Can the German minimum wage alleviate poverty and income inequality? Evidence from observed data and simulated counterfactuals

This study provides ex-post evidence on the redistributive impact of the minimum<br>wage on disposable household incomes in Germany. Although the reduction<br>of income inequality and poverty were emphasized as policy goals of the of minimum<br>wage introduction, the distributional literature for Germany has focused<br>on hourly wages and earnings or relied on ex-ante simulations. Since ‘natural’<br>control groups are not available due to a nationwide introduction, this paper accumulates<br>descriptive evidence. Based on data from the German Socio-Economic<br>Panel we analyze changes in wage and income inequality, poverty, and different<br>mechanisms that affect transmission from individual gross wage-rates to disposable<br>household incomes. The minimum wage is found to be an ineffective tool<br>for income redistribution. Increases at the bottom of the wage distribution do not<br>translate into increases in disposable incomes of poor households because individuals<br>affected by the minimum wage do not live primarily in households at the<br>bottom, but are spread across the income distribution. Thus, welfare dependence<br>is only marginally reduced. Additional simulations show that neither full compliance,<br>nor substantial increases of the level would make the minimum wage more<br>effective in reducing inequality and poverty.
Does IT Matter to Acquisitions? The Impacts of IT Distance on Post-Acquisition Performance

Although researchers have examined the role of dyadic dynamics (i.e., interactions between the acquirer and the target firm) in the success of acquisitions, little attention has been devoted to the role of information technology (IT). In this study, we extend this literature by examining how pre-acquisition IT distance (i.e., the difference between the enterprise IT systems of the two firms that reflects the system incompatibility and resulting costs of system integration) affects the acquirer’s post-acquisition performance. To measure IT distance, we used a word-embedding technique to map each firm’s IT systems portfolio to a low-dimensional embedding space and calculate the distance between the firms in that space. Using data on U.S. firms’ acquisition activities over seven years, we found that IT distance is negatively associated with the acquirer’s post-acquisition performance. Also, the adverse effect of IT distance is stronger for acquisitions motivated by operational synergies, compared to those seeking non-operational synergies. This finding supports our fundamental premise that IT distance disrupts post-acquisition synergy creation, and more so when the combined firm has a greater need for tight integration to create acquisition synergies. This research contributes to the merger and acquisition (M&A) literature in management and IS by introducing a novel concept of IT distance and by theorizing and empirically examining its performance implications in acquisitions. The findings of this study can inform practitioners on how to devise IT strategies in corporate acquisitions to mitigate IT risks and achieve greater post-acquisition performance.
Optimal Portfolio Choice for Higher-order Risk Averters

Optimal portfolio choice is investigated for investors with various types of higher-order risk aversion. Finite systems of convex inequalities are introduced to evaluate the efficiency of a given benchmark, and for constructing enhanced portfolios which dominate the benchmark for all higher-order risk averters. An analysis of equity industry rotation strategies shows that accounting for skewness love and kurtosis aversion increases long positions in recent winner industries which feature more favorable skewness and kurtosis than the market index. An analysis of equity stock index options combinations shows that accounting for higher-order risk aversion leads to buying of underpriced option series in addition to the standard solution of writing of overpriced options. In both applications, optimization with higher-order risk constraints appears leads to superior out-of-sample performance compared with simpler strategies based on heuristic rules, single utility functions and limiting portfolio variance.
Non-substitutable consumption growth risk

Standard applications of the consumption-based asset pricing model make the assumption that goods and services within the nondurable consumption bundle are substitutes. We estimate substitution elasticities between different consumption bundles and show that households cannot substitute energy consumption by consumption of other nondurable goods or services. As a consequence, energy consumption shows up as a separate factor in the pricing kernel. Cross-sectional variation in energy consumption betas explains a large part of the value premium. Value stocks are typically more energy-intensive than growth stocks and thus riskier, since they suffer more from the oil supply shocks that also affect households.
A general semiparametric approach when innovation distribution is considered a nuisance parameter

This paper proposes a general approach for semiparametric models, in which the innovation density is regarded as the nonparametric component, to first derive the semiparametric power envelope and then construct semiparametrically efficient tests. For the former step, we start with an explicit nonparametric modeling for density perturbation and show all such cases lead to LAN, LAMN or LABF type limit experiments; Next, we derive a structural representation of these limit experiments which suggests employing the invariance argument to eliminate the nuisance density location and shape parameters; The obtained invariant statistics are proved to be maximally invariant, thus, by the Neyman–Pearson lemma, their likelihood ratios define the semiparametric power envelopes for all (asymptotically) invariant tests. To construct feasible inference, we show that one can either do so with a nonparametrically estimated density $\hat{f}$, or with rank statistics. However, the rank-based procedure is not easily extended to multivariate cases. To address this issue, we propose a unified method based on componentwise ranks which allows a innovation pre-transformation step. Finally, we apply this semiparametric approach to the cointegration testing problem (of a multivariate LABF limit). For the first time, we derive the semiparametric power envelope; Moreover, we propose $\hat{f}$- and rank-based versions of the traditional Johansen trace test; Simulation results show that these semiparametric efficient versions can well control their sizes and outperform the original Johansen test in powers under non-Gaussianity.
Expanding Financial Access Via Credit Cards: Evidence from Mexico

Credit card debt is increasingly common among poor and inexperienced borrowers – thus de facto a financial inclusion product. However, it remains relatively under-studied. We use detailed card level data and a product that accounted for 15% of all first-time formal loans in Mexico and show that default rates are high and ex-ante unpredictable for new borrowers – suggesting an important role for ex-post contract terms in limiting risk. However, using a large nation-wide experiment we find that default is unresponsive to minimum payment increases, a commonly proposed policy remedy. We provide evidence that the zero result is driven by the offsetting effects of tightened liquidity constraints and lower debt burdens. Surprisingly, we also find muted default responses to large experimental changes in interest rates – suggesting a limited role for ex-post moral hazard in our context. Finally, we use job displacements to document large effects of unemployment on default, highlighting the centrality of idiosyncratic shocks as a barrier to the expansion of formal credit among poorer populations.
The Friedman Rule:Experimental Evidence

We explore the celebrated Friedman rule for optimal monetary policy in the context of a laboratory economy based on the Lagos-Wright model. The rule that Friedman proposed can be shown to be optimal in a wide variety of different monetary models, including the Lagos-Wright model. However, we are not aware of any prior empirical evidence evaluating the welfare consequences of the Friedman rule. We explore two implementations of the Friedman rule in the laboratory. The first is based on a deflationary monetary policy where the money supply contracts to offset time discounting. The second implementation pays interest on money removing the private marginal cost from holding money. We explore the welfare consequences of these two theoretically equivalent implementations of the Friedman Rule and compare results with two other policy regimes, a constant money supply regime and another regime advocated by Friedman, where the supply of money grows at a constant k-percent rate. We find that, counter to theory, the Friedman rule is not welfare improving, performing no better than a constant money regime. By one welfare measure, we find that the k-percent money growth rate regime performs best.
A Template-Free and Surfactant-Free Method for High-Yield Synthesis of Highly Monodisperse 3-Aminophenol–Formaldehyde Resin and Carbon Nano/Microspheres

A template-free and surfactant-free method for the synthesis of highly monodisperse phenol formaldehyde resin and corresponding carbon nano/microspheres with excellent size tunability has been developed for the first time after investigating a series of phenol derivatives, including 3-methylphenol, 1,3,5-trihydroxybenzene, 2-aminophenol, 3-aminophenol, and 4-aminophenol. The method is based on the polymerization reaction of 3-aminophenol and formaldehyde in the mixture solutions of water and ethanol to generate 3-aminophenol/formaldehyde (APF) resin colloidal spheres. The sizes of APF resin colloidal spheres are tunable in a very broad range from 80 nm up to 2500 nm by changing reaction conditions. The excellent thermal stability of APF resins allows the generation of monodisperse carbon spheres by the pyrolysis of APF resin spheres with high yields. Both APF resin spheres and corresponding carbon spheres are so monodisperse (polydispersity <3%) that can form three-dimensional periodic structures. The method has striking features of excellent monodispersity, very broad size tunability, high yield, smooth sphere surface, and easy preparation. This approach also holds great promise for the large-scale production of resin spheres and carbon spheres.
Developing a Scientific Foundation for Stakeholder Theory

We advance a unifying theoretical framework for stakeholder analysis by way of a rigorous mathematical formulation that can be used to inform both qualitative and quantitative research. The framework comprises five components contributing to stakeholder salience. Three of these relate to power, legitimacy and urgency, well known from classical stakeholder theory. The remaining two components represent types of resistance to change within an organization. Stakeholders are modeled as interactive entities, while legitimacy arises through a mathematical projection mechanism. Individual stakeholder groups seek to maximize esteem while minimizing pressure exerted on them by other agents. A novel mechanism transforms wealth into esteem; wealth forms only part of a stakeholder group's total utility.
Employee Sexual Harassment Reviews and Firm Value

Firms with workplace sexual harassment risk are reluctant to disclose such information. However, rank-and-file employees may reveal harassment information via anonymous job reviews. We investigate whether a measure of sexual harassment (SH score) constructed by performing textual analysis of online job reviews contains value-relevant information that affects firm performance. We find that SH reveals significant future problems for firms in terms of profitability, labor costs, and stock performance. In our sample firms during 2011-2017, high SH scores are associated with sharp declines in operating profitability and increases in labor costs. Firms in the top quantiles (top 1% to 5%) of the SH score earned lower risk-adjusted stock returns, representing an annual shareholder value loss of $0.8 to $1.4 billion per harassment-prone firm. These results indicate that sexual harassment has a highly detrimental effect on firm value, and employee voluntary reporting can be a valid disclosure mechanism when firms are disincentivized to reveal bad news. This research highlights the value-relevance of information held by rank-and-file employees, including information about possible corporate misconduct.
The Conditional Volatility Premium on Currency Portfolios

Unconditional asset pricing models have generally found it challenging to identify evidence of risk aversion. This paper addresses this challenge by examining whether currency portfolios display an intertemporal risk-return relationship. We consider time-varying relations because investors' risk-aversion may change over time, based upon changing economic states. Moreover, we take into account a broad based measure of investors' expectation from a data rich environment and factor model. We identify that the relations between risk and return vary over time, and the risk-aversion parameters on momentum and value currency portfolios increased during the financial crisis. Those parameters can command both positive and negative values. Therefore traditional time-invariant models may not identify strong risk-return relations because state dependent evidence is "washed out. "
Debt Maturity Heterogeneity and Investment Responses to Monetary Policy

We study how debt maturity heterogeneity determines firm-level investment responses to monetary policy shocks. We first document that debt maturity significantly affects the responses of firm-level investment to conventional monetary policy shocks: firms who hold more long-term debt are less responsive to monetary shocks. The magnitude of responses due to debt maturity heterogeneity is comparable to the well-documented responses due to debt level heterogeneity. Evidence from credit ratings and borrowing responses indicates that the higher future default risk embedded in long-term debt plays an essential role. We then develop a heterogeneous firm model with investment, long-term and short-term debt, and default risk to quantitatively interpret these facts. Conditional on the level of debt, firms with more long-term debt are more likely to default on their external debt and consequently face a higher marginal cost of external finance. As a result, these firms are less responsive in terms of investment to expansionary monetary shocks. The effect of monetary policy on aggregate investment, therefore, depends on the distribution of debt maturity.
Information flow and credit rating announcements

We employ the implied volatility spread (IVS) and the short lending fee as measures of private<br>information conveyed by their respective markets. Using credit rating announcements as an<br>informational event, we find that both IVS and the short fee have significantly higher predictive<br>power for returns on event days versus non-event days. Both IVS and the short fee also predict the<br>direction and magnitude of credit rating changes. Options order imbalance (OIB) does not explain<br>the results. In models with both explanatory variables, the short fee remains significant in all<br>specifications, while IVS loses explanatory power.
Does organizational form matter to loan pricing?

We examine whether different organizational forms influence agents’ pricing decisions. We study a secondhand car loan setting consisting of independent agents and in-house agents. We label independent agents more entrepreneurial than in-house agents and argue that entrepreneurship motivates agents to scan the environment for the opportunity to maximize their payoffs. We predict that entrepreneurial agents are more likely to increase prices when presented with the opportunity to do so. We expect this to be the case for opaque loans as they are less subject to competition compared with transparent loans, that experience stronger competition. We find that opaque loans have higher prices than transparent loans for both types of agents. Moreover, the price difference between the two loan types is greater for independent agents than for in-house agents. While prior literature suggests greater agency costs of outsourcing, our study recognizes the potential benefits of outsourcing sales activities to independent agents.
Climate Risk Disclosure and Institutional Investors

Through a survey and analyses of observational data, we provide systematic evidence that institutional investors value and demand climate risk disclosures. The survey reveals the investors have a strong demand for climate risk disclosures, and many actively engage their portfolio firms for improvements. Empirical analyses of holdings data corroborate this evidence by showing a significantly positive association between climate-conscious institutional ownership and better firm-level climate risk disclosure. We establish further evidence of institutional investors’ influence on firms’ climate risk disclosures by examining a shock to the climate risk disclosure demand of French institutional investors (French Article 173).
Climate Change and Commercial Real Estate: Evidence from Hurricane Sandy

This study examines how sophisticated investors capitalize flood risk in commercial real estate markets. Using a detailed property-level transaction database, we document that New York commercial properties exposed to flood risk trade at a large persistent discount following Hurricane Sandy's landfall. Additionally, commercial properties in Boston, which largely escaped direct hurricane-related damage, exhibit persistent post-Sandy price penalties. In contrast, property prices in Chicago are unaffected by the storm. These results are consistent with a persistent shift in the salience of flood risk along the northeastern seaboard following Sandy's landfall, and reflect the northward migration of hurricanes induced by climate change.
The removals of anti-takeover provisions and CEO inside debt-equity ratio changes

I document evidence that 525 S&amp;P 1500 companies that remove anti-takeover provisions (``ATPs") in period 2009-22017 raise their CEO inside debt afterwards to address the heightened agency problem of debt due to increased leverage. By using a difference-in-difference-in-difference analysis, I document significant increases in CEO inside debt-equity ratios after companies remove ATPs. Inside debt also rises significantly after ATP removals, which accounts for 70\% of increases in the overall ratios. In contrast, inside equity significantly decreases after companies remove ATPs, as these companies reduce the stocks and options awarded to their CEOs. These findings are robust to different explanatory variables, matching samples, and removals of certain ATPs. Further analysis displays that inside debt-equity ratios increase continually for the first three years after ATP removals. This trend coincides with the after-ATP-removal spike in leverage, which is caused by increased debt issuance. I also show that increasing inside debt-equity ratios, especially increasing inside debt, helps companies reduce the cost of borrowing after ATP removals.
COVID-19 and the Discounting of Real Economic Activity in the U.S. and European Stock Markets

Using an extended version of the Gordon dividend discount model, the large falls in the U.S. and European stock market assets at the beginning of the COVID-19 pandemic are found to be the result of pricing expected future falls in real economic activity caused by the global shock. The subsequent boom in asset markets and reductions in volatility immediately following this initial fall in stock prices are caused by a strong connection of the central banks' balance sheet extension to the near-term stock market uncertainty. This connection of unconventional monetary policy actions is strongly priced in the U.S. and European markets.