Research articles for the 2019-08-23

A New Understanding of the History of Limited Liability: An Invitation for Theoretical Reframing
Harris, Ron
In this paper, I will investigate the historical development of limited liability â€" widely considered the cornerstone of the business corporation. I challenge the common, linear narratives about how limited liability evolved, and argue that corporations, the stock markets, and the corporate economy enjoyed a long and prosperous history well before limited liability in its modern sense became established. This radically different historical understanding calls for the economic theory of limited liability to be revisited. It also opens up a new set of conceptual, empirical, and theoretical research questions, and points to new possibilities for viable liability regimes in the future.

A Tale of Two Markets: Regulation and Innovation in Post-Crisis Mortgage and Structured Finance Markets
Bratton, William W.,Levitin, Adam J.
This Article takes the occasion of the tenth anniversary of the financial crisis to review recent developments in the structured products market, connecting the emergent pattern to post-crisis regulation.The Article tells a tale of two markets. The financial crisis stemmed from excessive risk-taking and shabby practice in the subprime home mortgage market, a market that owed its existence to the private-label, originate to securitize model. But the pre-crisis boom in private label subprime mortgage-backed securities could never have happened absent back up financing from an array of structured products and vehicles created in the capital marketsâ€"the CDOs that found their way into CDO squareds, SIVs, and synthetics, magnifying subprime credit risk and carrying it into the system’s vulnerable nodes where the bailouts occurred in 2008. The post-crisis regulatory pattern shifts the emphasis back from the end point in the causation chain (magnified risk and bailouts) to the start point (residential mortgage origination and securitization). It is only at the start point, in the world populated by consumers and their immediate counterparties, that we find anything like new prohibitions. The capital markets side of the picture is touched much more lightly. Even so, at a quick glance today’s structured products market looks like a qualitatively different placeâ€"subprime RMBS, CDOs, CDO squareds, CDO-based synthetics and SIVs are all gone. This Article takes a closer and longer look at today’s structured products market to show that the difference between now and then is more a matter of degree. The new regulatory landscape for structured products has definite borders, and it is at just those borders where the beat of financial innovation and regulatory arbitrage goes on. This activity is not centered at the banks, for there private label originate-to-securitize and investment in private label products is affirmatively discouraged by post-crisis regulation. Today’s innovation in structured products occurs at the more lightly-regulated nonbanks, which are displacing the banks at the riskier end of the residential mortgage and corporate lending markets.

Abnormal Returns and Asymmetric Information Surrounding Strategic and Financial Acquisitions
Osborne, Sarah
We investigate the importance of information asymmetry in self-selection when evaluating target abnormal returns of financial versus strategic takeover bids during a period of possible informed trading in the United States. Heckman (1979) is used to control for sample selection bias due to differences in information environments in private equity bids versus tender/merger offers. We evidence that takeover announcements are not randomised indicative of timed announcements, and further that private equity firms exhibit lower price impact post-announcement. We conclude that the long-term financial motive of private equity takeovers, coupled with higher private information pre-announcement, leads to lower abnormal returns post-announcement.

An Empirical Demand â€" Supply Model of Proprietary Financial Information
Litjens, Robin,Suijs, Jeroen
This paper analyses supply of and demand for financial information in a setting where proprietary cost seems the primary driver for a firm’s public disclosure decision. The empirical setting is mandatory public disclosure of annual reports by private firms in the Netherlands. As these firms have to file their annual report with the Dutch Chamber of Commerce within thirteen months after fiscal year end, the filing delay serves as a proxy for the firm’s unwillingness to disclose. We measure demand for information on the basis of the timeliness that annual reports are requested by users. Proprietary cost at firm level varies whether a firm has to file a profit and loss account and whether firms have above industry median profitability. Our findings are in line with our hypotheses, i.e., supply and demand for information are correlated: the higher the unwillingness of firms to disclose annual report information, the higher the demand for this information is. The main findings are supported by difference-in-difference tests, exogenous legislative changes, alternative measures of demand and supply, and additional tests on propensity score matching. Overall, our study highlights proprietary cost as an important determinant of the timing of public disclosure and subsequent demand.

Analyzing Commodity Futures Using Factor State-Space Models with Wishart Stochastic Volatility
Kleppe, Tore Selland,Liesenfeld, Roman,Moura, Guilherme V.,Oglend, Atle
We propose a factor state-space approach with stochastic volatility to model and forecast the term structure of future contracts on commodities. Our approach builds upon the dynamic 3-factor Nelson-Siegel model and its 4-factor Svensson extension and assumes for the latent level, slope and curvature factors a Gaussian vector autoregression with a multivariate Wishart stochastic volatility process. Exploiting the conjugacy of the Wishart and the Gaussian distribution, we develop a computationally fast and easy to implement MCMC algorithm for the Bayesian posterior analysis.An empirical application to daily prices for contracts on crude oil with stipulated delivery dates ranging from one to 24 months ahead show that the estimated 4-factor Svensson model with two curvature factors provides a good parsimonious representation of the serial correlation in the individual prices and their volatility. It also shows that this model has a good out-of-sample forecast performance.

Competition and Bank Risk: Evidence from Geographic Bank Deregulation
Berger, Allen N.,El Ghoul, Sadok,Guedhami, Omrane,Saheruddin, Herman
We examine the effects of competition on bank risk. We find strong evidence that interstate banking deregulation â€" which generally increases bank competition â€" is associated with lower bank risk and some evidence intrastate branching increases bank risk. Further, interstate banking reduces bank risk more in sparsely populated states. Additional analyses suggest that in contrast to previous studies that focus on large banks, the impact of interstate banking deregulation on bank risk is driven by small banks, with strong small banks having lower risk after interstate banking. However, intrastate branching deregulation is associated with higher risk for small and medium banks.

Cyber Insurance Supply and Performance: An Analysis of the U.S. Cyber Insurance Market
Xie, Xiaoying,Lee, Charles,Eling, Martin
This article examines the determinants of cyber insurance participation, the amount of coverage offered, and the performance of current cyber insurers. Our results support the competitive advantage hypothesis, are in line with the coordinated risk management hypothesis, but only partially support the business growth constraint hypothesis. We find that insurers offer cyber insurance to capitalize on their competitive advantage in understanding and pricing cyber risks and to balance their risks between investment and underwriting. We find limited evidence that insurers participate in cyber insurance to compensate for constraints on business growth. In addition, the type of coverage offered (standalone or packaged) and the amount of coverage offered vary substantially across firm characteristics. Standalone coverage incurs higher loss ratios than packaged coverage, demonstrating its riskier nature. Changes in cyber insurance loss ratios are not driven by premium growth, but by claim frequency and severity growth, emphasizing the significance of cyber insurance policy design.

Determinants of Market Reactions to Project Finance Approvals
Ferguson, Andrew,Grosse, Matthew,Lam, Peter
Despite the growing importance of project loans in funding large-scale projects, there is a void in the finance literature examining market reactions to project financing. Using a unique hand-collected sample of mining project finance deals announced by listed single project mine developers, we document on average a significant, positive 3-day market-adjusted return of 2.18%, suggesting project finance is associated with value creation. Further, there are very few studies in the financial economics literature of information asymmetry and its implications for small firms. We further document a reduction of 2.28% in bid-ask spread around all project finance announcements, suggesting a lowering of information asymmetry. In multivariate analysis, we find the event window abnormal returns are significantly higher for project loans where the borrower exhibits higher pre-event return volatility and for projects located in areas with higher political uncertainty. In additional tests, we explore the implications of bank versus non-bank loans on market reactions and find that non-bank lenders, as a group are associated with higher returns relative to bank lenders. Our results are robust to controlling for a host of factors, including loan syndication, lender equity ownership, lender specialisation and borrower characteristics such as size and insider ownership.

Did the Siebel Systems Case Limit the SEC’s Ability to Enforce Regulation Fair Disclosure?
Allee, Kristian D.,Bushee, Brian J.,Kleppe, Tyler,Pierce, Andrew T.
We examine whether a shock to the enforceability of Regulation Fair Disclosure (Reg FD) limited its ability to restrict the flow of private information between managers and investors. Initial studies provide evidence that Reg FD reduced managers’ selective disclosure of material information. We test whether the initial effects of Reg FD on selective disclosure have diminished due to the SEC’s challenges in enforcing Reg FD. Specifically, we predict and find evidence that the SEC’s failed litigation attempt in SEC v. Siebel Systems, Inc. likely lowered managers’ perceived costs of selective disclosure and contributed to a return of informed trading by transient institutional investors. We also find that SEC v. Siebel Systems led to an unleveling effect that creates differential private information advantages, even among sophisticated investors. Our results suggest that researchers should exercise caution in assuming that Reg FD broadly restricted private information flows, and our study highlights the importance of enforcement in achieving intended regulatory outcomes.

Do Laws Change Minds? Evidence From Same-Sex Marriage Laws and Lending Practices to Sexual Minorities
Hagendorff, Jens,Nguyen, Duc Duy,Sila, Vathunyoo
We exploit the staggered adoption of same-sex marriage (SSM) legalization to examine its effect on lending practices toward same-sex borrowers. We use loan-level data from the Home Mortgage Disclosure Act between 2004-2018, a period that spans the entire rollout of SSM legalization across the United States. We find that following SSM legalization, the probability that same-sex mortgage applicants are denied credit increases compared to otherwise similar different-sex applicants. This backlash is concentrated among states in which SSM legalization is imposed by state or federal courts rather than by public votes or state legislatures. Our results present a contrasting view to a recent literature that documents a positive influence of SSM legalization on the social attitudes towards same-sex couples.

Does Financial Innovation Increase Inequality? A Competitive Search Approach
Choi, Bong-Geun,Lee, Hyun
The distribution of asset holdings among US banks is increasingly concentrated toward a few large banks at the top. Concurrently, the household wealth inequality has increased. This paper provides a theoretical link between these empirical facts, by developing a novel quantitative general equilibrium model that embeds the heterogeneous banking sector into a standard heterogeneous agent model with incomplete-markets. We introduce competitive search to the inter-bank market with adverse selection problem and endogenously generate three different rates of return: savings rate, borrowing rate, and the rate of return on equity. We show that financial innovation â€" defined as a technological progress that improves the intermediation efficiency â€" led by the big banks will intensify the adverse selection problem in the inter-bank market and increase the relative size of the big banks over their smaller counterparts. As a result, both the interest rates for borrowing and savings fall, creating even more incentive to borrow for credit constrained households, which ultimately propagates the household wealth inequality.

ETF Ownership and Corporate Cash Holdings
Tosun, Onur Kemal,El Kalak, Izidin
Do exchange-traded funds (ETFs) influence corporate cash-holding decisions? Consistent with the managerial learning channel from the stock market, we document strong evidence that firms included in ETF baskets have higher cash-holding levels. We address endogeneity concerns through instrumental variable, dynamic generalized methods of moments, and propensity score-matching methods. Further, we identify changes in revenues, external financing, share repurchases, and net working capital as potential channels through which cash holdings increase due to higher ETF ownership. This increase in cash holdings is associated with a positive impact on firm value. Finally, we find that ETF investments increase the CEO’s pay-for-performance sensitivity.

Education and Wealth Accumulation: Evidence from Sweden
Girshina, Anastasia
This paper studies the relationship between education and wealth accumulation over the life cycle. The analysis relies on an administrative panel that reports educational attainment, financial assets, real estate property, and debt, as well as career-long income histories of Swedish residents. To address selection bias and identify the causal effect of education, I control for parental background and ability and use within-siblings variation in educational attainment as two alternative identification strategies. I find that education has a positive and economically large effect on both financial and real estate wealth, and that this effect is compensated only partly by the differences in debt levels. I further show that education affects wealth accumulation not only through its direct effect on labor income, but also through differences in consumption-savings and investment decisions. The results are robust to the alternative identification strategy exploiting the reform of compulsory schooling as a source of exogenous variation in educational attainment. The findings suggest that considering only income returns to education greatly understates its economic benefits.

From Trulia to Akorn: The Chess Game Of M&A Litigation (Notes on the Decline of Disclosure-only Settlements, on the Rise of Mootness Fees and on the Future of Delaware’s Dominance in Corporate Law)
Matera, Pierluigi,Sbarbaro, Ferruccio Maria
The doctrinal shift in the judicial review standard on disclosure-only settlements in merger objection lawsuits set by the Chancery Court of Delaware in 2016 with In re Trulia might appear prima facie reasonable. It was to a certain extent predictable, given the exorbitant increase in M&A litigation of last years, culminating with challenges to 95% of ≥ $100,000,000 deals in 2014. Indeed, not only it is evidently implausible that 95% or more of large public company merger deals could involve a wrongdoing; but the pattern mostly followed by those cases clearly suggests the frivolous and vexatious nature of those claims: shortly after the announcement of a merger, quick-triggered plaintiff attorneys file a case against the deal and, as rapidly as they file it, they settle it on non-monetary terms. The agreement typically provides modest supplemental disclosures in exchange for blanket class releases and attorney fee awards â€" relying upon courts’ practice to routinely validate any settlement. Thus, by requesting that disclosures deliver a «plainly material benefit» to stockholders and that the related release is «narrowly circumscribed» in order to grant a settlement the approval, Trulia’s Court intended to neutralise just those collusive dynamics; dynamics that entail significant costs with no benefit for shareholders and that undermine the basic mechanism of regulation-by-litigation model. Yet, a closer look can cast doubt on the legal grounds of the new standard and also on its effectiveness in addressing the issue of nuisance litigation. Some commentators have argued that materiality is just the enforcement of a pre-existing legal duty of directors; and its performance cannot be the consideration for a settlement. In addition, the materiality requirement could paradoxically become even an incentive for directors to withhold information in the transaction, in prediction and for the sake of a prospective settlement.Moreover, as anticipated even in Trulia, the success of the solution rests on the premise that Delaware’s companies would constrain merger lawsuits to the Delaware courts by adopting the forum-selection bylaws, now expressly allowed by that State legislation; or that other jurisdictions would follow the shift on settlement countenance. Should the standard not be adopted by sister courts and should the companies not introduce in their bylaws forum-selection provisions, it would be possible, to a certain extent even easy, for plaintiffs’ attorney to file the case before a court of another State, with a resulting migration of the litigation. Indeed, even if a federal Court (In Re Walgreen) promptly and decisively followed Trulia, in other states’ jurisdictions Trulia’s authority seems to be less persuasive than expected; and its take-up appears to be rather slow and sometimes uncertain. It could be the result of the non-adversarial process, as parties submitting disclosure settlements outside of Delaware have little interest to cite newer Delaware authority. Nevertheless, another possible reason cannot be ignored: namely, the lure presented by the different policy of attracting corporate litigation and challenging Delaware’s dominance by deliberately persisting in a less strict standard on disclosure settlements’ validation.Furthermore, forum selection bylaws â€" although widely implemented by Delaware’s corporations after the mentioned codification â€" fell short of expectations. They are not automatically executing, and the defendant corporation is supposed to enforce them; in the sense that if not invoked by the defendant, the court cannot apply these clauses. The board of directors may opt to waive the application of forum selection provisions and accept a lawsuit before a non-Delaware forum in order to negotiate a broad release on terms that currently would not be approved in Delaware under Trulia. Defendant could then get a broad release, proceed with the transaction and secure the transaction.The decline in disclosure-only settlement is just an apparent achievement, as correspondingly a new, abusive and disturbing tactic has risen: the mootness dismissal, i.e. a voluntary dismissal coupled with the grant of a mootness fee for plaintiffs’ attorney by the defendant. The scheme is pretty simple: the allegation that just the filing of the case persuaded defendants to provide increased disclosures, inducing the plaintiffs to voluntarily dismiss the case, justifies the payment of mootness fee to plaintiff’s attorney by the defendant. It is true that, in this case, the dismissal is without prejudice for the class and the defendant obtains no release from future claims. And it is true that mootness fees are on average much lower than the attorney’s fees granted in a typical disclosure-only settlement â€" and on these grounds, mootness fees are subject to the more lenient standard set forth in Trulia (a court does not need to weigh the «get» of the supplemental disclosures against the «give» of a release when determining whether to grant an award of fees). Though, by this way plaintiff and defendant move the collusive agreement out of the court and set a new routine pattern that eludes the judicial oversight, especially in federal jurisdiction, where the mootness dismissal and the related fees are not even subject to court’s approval and to a potential denial under Rule 23, Fed. R. Civ. P.Empirical data on mootness dismissal in the context of M&A litigation for the last 2 years confirm that these concerns are not groundless: mootness dismissal cases have displaced and substituted disclosure-only settlements. And this is also the evidence of the effectiveness and obstinacy of plaintiffs’ attorneys’ adaptive response.Thus, it comes as no surprise that on 24th June 2019, with House v. Akorn, the Northern District of Illinois has scrutinised an out-of-court agreement to pay a mootness fee to plaintiffs’ counsel â€" following to some supplemental disclosures that caused plaintiffs to voluntarily dismiss their claims without prejudice. In Akorn, Judge Durkin invoked «its inherent authority» and extended Walgreen. Accordingly, finding the disclosure not material, he abrogated the agreement and ordered the plaintiffs’ attorneys to return the fees to Akorn. Indeed, by reviewing the agreement under the same materiality standard set for disclosure-only settlements and related releases, the federal Court has even applied a stricter standard than the one applicable to mootness fees under Trulia. An appeal is currently pending.Yet, the sequence of events and the broad dissatisfaction for the solutions set by Trulia go well beyond the criticism on the doctrinal and policy defects of Trulia’s materiality. They question both the ability of the litigation system to perform an effective response to the tactics conceived by plaintiffs’ attorneys operating like professional bounty hunter; and Delaware’s dominance in corporate law, that apparently has been experiencing a persistent and relentless Autumn. Finally and consequently, they can bring into question even the sustainability of the permanent litigation model regulating American corporate law.An analysis following this path and upholding this conclusion points to the exploration of other solutions, such as a private ordering solution consisting in the adoption of no pay bylaws to impede corporation and their directors to compensate plaintiff’s attorney. And, on a more general perspective, new models of regulation should be considered, like the Anglo-Irish code and panel-based model.

Heterogeneous Elasticities of Bank Loan Supply: Evidence from SBA Loan Guarantee Expansion
Choi, Bong-Geun,Lee, Hyun
US Small Business Administration (SBA) temporarily expanded its loan subsidy program from 2009 to 2010 in an effort to stimulate loans to small businesses. We explore the heterogeneous bank responses following this policy change. Using a novel data that merges the quarterly bank-level call report to the subsidized loan data, we first show that big banks prefer to issue many loans of small size while small banks issue few loans of bigger size.Abstract which can be explained through a simple portfolio optimization model with fixed cost. Then, we show that small banks â€" especially those that were part of SBA's Preferred Lender Program â€" increased both the extensive (number of loans) and the intensive (average loan size) margin the most. Then, we show that these big banks that make up the majority of the loan volume were particularly inelastic in increasing loan supply in response to this positive policy shock. This has strong policy implications given that a sizable amount of taxpayer's money was used to fund this temporary expansion.

In Fed Watchers’ Eyes: Hawks, Doves and Monetary Policy
Istrefi, Klodiana
I construct a novel measure of policy preferences of the Federal Open Market Committee (FOMC) as perceived in public. This measure is based on newspaper and financial media coverage of 130 FOMC members serving during 1960-2015. Narratives reveal that about 70 percent of these FOMC members are perceived to have had persistent policy preferences over time, as either inflation-fighting hawks or growth-promoting doves. The rest are perceived as swingers, switching between types, or remained an unknown quantity to markets. Hawk and Dove perceptions capture "true" tendencies as expressed in preferred rates, forecasts and dissents of these FOMC members well. At the FOMC level the composition of hawks and doves varies significantly, featuring slow- and fast-switching hawkish and dovish regimes, due to the rotation of voting rights each year, members’ turnover and swings in preferences.

Interbank Rate Uncertainty and Bank Lending
Altavilla, Carlo,Carboni, Giacomo,Lenza, Michele,Uhlig, Harald
This paper investigates the effects of interbank rate uncertainty on lending rates to euro area firms. We introduce a novel measure of interbank rate uncertainty, computed as the cross-sectional dispersion in interbank market rates on overnight unsecured loans. Using proprietary bank-level data, we find that interbank rate uncertainty significantly raises lending rates on loans to firms, with a peak effect of around 100 basis points during the 2007-2009 global financial crisis and the 2010-2012 European sovereign crisis. This effect is attenuated for banks with lower credit risk, sounder capital positions and greater access to central bank funding.

Is Active Investing Doomed as a Negative Sum Game? A Critical Review
Warren, Geoff
Against a background of passive investing in the ascendancy, I delve into the issue of whether active fund managers can add value through the prism of Sharpe’s proposition that active investing is a zero sum game prior costs and negative sum game after costs. I explain some of the gaps in Sharpe’s proposition that leave room for active managers to outperform. I make the point that most research on the performance of active funds neither directly tests Sharpe’s proposition, and if anything seems inconsistent with it acting as a constraint on the ability of active managers to create value. I argue that the circumstances of the investor and the nature of the market are more important considerations for the choice between active and passive management, with notable differentiators including the fee paid, investor objectives and the asset category being considered. The main message is that ‘it depends’.

Lee and Carter go Machine Learning: Recurrent Neural Networks
Richman, Ronald,Wuthrich, Mario V.
In this tutorial we introduce recurrent neural networks (RNNs), and we describe the two most popular RNN architectures. These are the long short-term memory (LSTM) network and gated recurrent unit (GRU) network. Their common field of application is time series modeling, and we demonstrate their use on a mortality rate prediction problem using data from the Swiss female and male populations.

On the Dynamic Capital Structure of Nations: Theory and Empirics
Barth, James R.,NI, YINAN,Sun, Yanfei
We analyze the optimal capital structure of a nation from a corporate finance perspective. In particular, we draw an analogy between a nation's fiat money and corporate equity following Bolton and Huang (2018). Based on dynamic capital structure theory, we develop a stochastic model to determine the optimal combination of fiat money and foreign-currency debt used by a nation to fund its investments. The optimal capital structure of a nation depends on the trade-off between the inflation risk of fiat money and the default risk of foreign-currency debt. Introducing outstanding debt to our model sheds light on how a nation dynamically adjusts its capital structure over time. Based on an analysis of 22 emerging economies, the empirical results support our theoretical model of the capital structure of a nation.

The Asymmetric Private Information Mask: A Comparative Analysis of Private Equity Bids and Tender/Merger Offers
Osborne, Sarah
Increased regulation imposed by the Securities and Exchange Commission to mitigate selective disclosure has led to a rise in private equity funds as an alternative to developed market investments. The extent of any informational advantage that participants gain through selective disclosure (due to the comparatively lower oversight of selective disclosure surrounding private equity transactions) remains contentious. This study tests whether private equity target firms exhibit differences in adverse selection costs due to informed trading pre- and post-announcement, relative to tender/merger target firms. The analysis employs the probability of informed trading derived from market bid-ask spreads. Private information may result in increased insider trading as investors seek to maximise profits, acting on private company information. On the other hand, anticipated profit from insider trading may be negated due to the time taken to convert private information into monetisable assets. This study finds a significant decrease in the probability of informed trading in the post-announcement period for private equity bid targets relative to tender/merger offer targets. This result is interpreted as decreased information asymmetry post-announcement for private equity bid targets relative to tender/merger offer targets.

The Effect of Mutualization and Collateralization on Credit Default Swaps Premium
Rojas Cama, Freddy
This paper examines the effect of collateralization and mutualization (of losses) on credit default swaps (CDS) premium in a context of high counterparty risk operating through an opaque derivatives market. This setup certainly makes clearing practices to affect the size of positions, recovery rate and premium. This model not only has the benefit of being realist to the light of causes and propagation of great recession but also to assessing clearing practices in a partial equilibrium. I closely follow contributions of Koeppl and Monnet [38], Koeppl [35], Acharya and Bisin [1] and Stephens and Thompson [55]. I show that premium is high when mutualization takes place as clearing policy; the new allocation is characterized by a high recovery rate and low risk premium as fully-insured contracts spread significantly relative to OTC markets. The risk premium ebbs as different type of default-fund calls flow into the clearinghouse. The aforementioned pushes down the premium, however it does not offset the upward effect stemming from the increasing recovery rate. Additionally, as literature suggests collateralization avoids default, premium is high and the value of the position (or recovery rate) increases. In these contracts the risk premium is low too. This research contributes to compress insurance pricing theory into a material that may be a critical input in large macroeconomic models.

The Effect of Ownership Structure on Intellectual Capital Efficiency: Evidence From Borsa Istanbul
Nassar, Sedeaq,Ashour, Mahmoud,Tan, Omer,Külah, Sezer
This study examined the effect of ownership structure on intellectual capital efficiency of listed firms on Borsa Istanbul. Data covering the 2005-2015 period is gathered from the FINNET database and companies’ financial statements to compute VAIC, and from the ISO500 website to obtain the ownership structures of the companies. The ownership structure is divided into five different categories; government, family, institutional, individual, and foreign, while the efficiency of intellectual capital is measured using Pulic’s model Value Added Intellectual Coefficient (VAIC). This measure is composed of three main components, Human Capital Efficiency (HCE), Structural Capital Efficiency (SCE), and Capital Employed Efficiency (CEE). In general, we find that family and foreign ownership structures have a significant negative impact on intellectual capital efficiency, while government, institutional, and individual ownership structures have a negative impact on intellectual capital efficiency. It seems that in this setting, all ownership structures have a negative impact on intellectual capital.

The Off Exchange Routing Decision
Kye, Hyungil,Mizrach, Bruce
A rising fraction of U.S. equity trading volume is being executed away from the national stock exchanges on the over-the-counter (OTC) market. This paper develops a theoretical model of the decision to route off-exchange to either alternative trading systems (ATS) platforms and OTC non-ATS dealers for executions. Using data from the Financial Industry Regulatory Authority, we compute weekly time series of market shares for all ATS and OTC non-ATS trading centers at the individual stock level in the period of April 4, 2016 - June 30, 2018. We test the model, using a panel-data instrumental variable approach, and confirm that both ATS and OTC non-ATS market shares increase with bid-ask spreads, decrease with on-exchange depth, and decrease with volatility. We extend our model to allow for heterogeneity, grouping venues by the probability of finding off-exchange liquidity. When we estimate our model within trade intensity groups, we find that ATS or OTC non-ATS trading centers respond more elastically to exchange liquidity conditions

The Pricing of Mismeasured EPS Under the If-Converted Method
Partridge, Clay
GAAP potentially mismeasures diluted EPS in two ways in the presence of convertible instruments - debt or preferred stock. First, GAAP treats certain convertible instruments that are not likely to convert as if they will convert. Second, GAAP treats certain convertible instruments that are likely to convert as if they will not convert. In both cases, GAAP understates diluted EPS. I examine whether and under what conditions investors incur the information costs necessary to reflect the accounting mismeasurement of diluted EPS in common equity prices. I provide evidence that suggests, on average, that investors do. However, the association between common equity prices and accounting mismeasurement of the economic conversion effects varies with the magnitude of the measurement error, as a proxy for benefit of information, and/or analyst coverage, as a proxy for the information environment. This evidence suggests investors partially process accounting mismeasurement of diluted EPS.

The Recipe of Successful Crowdfunding Campaigns: An Analysis of Crowdfunding Success Factors and Their Interrelations
Koch, Jascha-Alexander,Siering, Michael
Online crowdfunding websites are multi-sided platforms that offer project founders the possibility to publish their project ideas, to address potential investors, and to ask for funding. The successful funding of crowdfunding campaigns is important for founders, investors, platform operators, and diverse interest groups as well. As a consequence, research has already shed light on some success factors of crowdfunding campaigns, but the interrelations between the success factors have been neglected so far. Building upon previous research in the field of crowdfunding, investment decision making, and signaling theory, we propose a research model to explain crowdfunding success considering success factors and their interrelations. Our findings reveal that not only the factors themselves but also their interrelations are important to explain funding success. Our results are highly relevant for the stakeholders on crowdfunding platforms in order to prepare and identify successful project proposals.

Weather-Induced Mood and Crowdfunding
Shafi, Kourosh,Mohammadi, Ali
Do investors' moods influence their contributions to risky investments in equity crowdfunding? Yes. We use weather as a proxy for mood because besides serving as powerful mood stimulus, changes in weather are plausibly exogenous and orthogonal to attributes of crowdfunding campaigns, yielding an advantageous identification strategy. Our results, based on data from Companisto -- one of the largest European equity crowdfunding platforms -- indicate that change in sky cloud cover from zero to full reduces investors' contribution amounts by about 10-15% (across different specifications). Our paper highlights the broader role of financiers' moods and emotions in providing valuable financial resources to entrepreneurs.

What Actually Causes Management to Resist a Takeover Bid: Managerial Entrenchment or Price Improvement?
Carline, Nicholas F.,Gogineni, Sridhar,Yadav, Pradeep K.
Using instrumental variables, we find that having more antitakeover provisions is not only more likely to prevent a bid but also more likely to cause management resistance in the event of not doing so. The deterrent effect is likely to be decreasing in the cost to rival bidders of acquiring information about the target firm. Our findings support the notion that managerial entrenchment causes management resistance rather than that the motive is to compensate for having less pre-bid defenses and thus weaker bargaining power for price improvement. We also find that a lower premium is unlikely to cause management resistance.

What is the Social Trade-off of Securitization? A Tale of Financial Innovation
Choi, Bong-Geun
This paper conducts a macroeconomic welfare analysis of securitization in a real business cycle model with a banking sector. I model securitization as an optional interbank funding channel that credibly reduces the diversion ability on borrowed funds and increases operation costs on loan assets. In effect, securitization allows banks to increase the asset size while sacrificing the rate of return per unit of assets. I demonstrate that the availability of securitization increases the resilience against banking sector breakdowns and increases the size of credit booms associated with a subsequent breakdown. The economy with securitization option experiences less frequent financial recessions but once a financial recession occurs, it is likely to be more severe. In the presence of the savings glut externality where households do not internalize the effects of their savings behavior on the banking sector, the financial innovation of increasing the profitability of securitization can exacerbate an over-investment in production. Therefore, under highly developed securitization, regulation may be needed to balance the social gains and the social losses from securitization. In a calibrated version of the model, I illustrate that an optimal regulation on the incentives of securitization can make the availability of securitization socially beneficial.