Research articles for the 2019-09-19

Changes in CEO Compensation after the Tax Cuts & Jobs Act and the Impact of Corporate Governance: Initial Evidence
Luna, LeAnn,Schuchard, Kathleen,Stanley, Danielle
The Tax Cuts and Jobs Act (TCJA) expanded the impact of IRC Section 162(m) by disallowing deductions for any compensation over $1 million paid to top executives. Under prior law qualified performance-based pay was exempt from the $1 million cap. We examine whether TCJA affected compensation decisions in the first year following enactment. We identify a tax sensitive group of firms and use a difference-in-difference design to test our main hypotheses. We find that CEO salary is higher post-TCJA in the treatment group, but find no significant differences for total compensation. Our results provide some evidence that eliminating the tax incentive to structure CEO pay as performance-based impacted the mix of compensation. In our cross sectional tests focusing on corporate government attributes, we find total compensation is higher at firms where a higher percentage of outside directors and members of the compensation committee were appointed during the CEO’s tenure.

Consumption smoothing in the working-class households of interwar Japan
Kota Ogasawara

I analyze Osaka factory worker households in the early 1920s, whether idiosyncratic income shocks were shared efficiently, and which consumption categories were robust to shocks. While the null hypothesis of full risk-sharing of total expenditures was rejected, factory workers maintained their households, in that they paid for essential expenditures (rent, utilities, and commutation) during economic hardship. Additionally, children's education expenditures were possibly robust to idiosyncratic income shocks. The results suggest that temporary income is statistically significantly increased if disposable income drops due to idiosyncratic shocks. Historical documents suggest microfinancial lending and saving institutions helped mitigate risk-based vulnerabilities.

Corruption Risk in Contracting Markets: A Network Science Perspective
Johannes Wachs,Mihály Fazekas,János Kertész

We use methods from network science to analyze corruption risk in a large administrative dataset of over 4 million public procurement contracts from European Union member states covering the years 2008-2016. By mapping procurement markets as bipartite networks of issuers and winners of contracts we can visualize and describe the distribution of corruption risk. We study the structure of these networks in each member state, identify their cores and find that highly centralized markets tend to have higher corruption risk. In all EU countries we analyze, corruption risk is significantly clustered. However, these risks are sometimes more prevalent in the core and sometimes in the periphery of the market, depending on the country. This suggests that the same level of corruption risk may have entirely different distributions. Our framework is both diagnostic and prescriptive: it roots out where corruption is likely to be prevalent in different markets and suggests that different anti-corruption policies are needed in different countries.

Cost of Debt Financing Under Simultaneous Changes in Shareholder Rights and CEO Debt-Like Pay
Nguyen, Phuong Lan
I study how the cost of debt responds to simultaneous changes in shareholder rights and CEO debt-like compensation. I find that increasing CEO debt-like compensation can partially offset the effect of enhancing shareholder rights on debt yield spreads. When companies enhance their shareholder rights, those simultaneously increasing their CEO debt-like pay can offer 18 (6.5) bsp less to raise new bonds (bank loans) than those decreasing this type of pay. However, both of these groups still face larger spreads than their no-change peers. The effect of increasing CEO debt-like pay persists even in the absence of restrictive covenants. These results suggest that aligning CEO incentives more to debtholders by using incentive contract can assist the enhancement of shareholder rights.

Discrimination in the Stock Market: Board Gender and Stock Performance
Sanford, Anthony,Tremblay-Boire, Joannie
In this paper, we use event studies to estimate the effects of changes to a public firm's board of trustees on stock returns. The goal is to determine whether the gender of an incoming board member is perceived differently by investors. Scholarly findings on gender and leadership have been mixed at best. Overall, the evidence seems to indicate that women and men in comparable leadership positions are much more alike than different. Yet, the number of women in leadership positions in the United States (and globally) is still disproportionately low-a phenomenon known as the "glass ceiling." Our study shows that women and men, at least in the United States, are still not created equal in the eyes of investors. Using BoardEx data on the composition of U.S. public firm boards for 1992-2017, we find that changes to a firm's board are consistently perceived as a negative information shock by investors, but the effect of incoming female board members is more than twice as negative as than of male counterparts.

Do Directors’ Mobility Restrictions Matter? An International Evidence
Orujov, Ayan,Vasilakis, Chrysovalantis
From business to politics and academia, the economic effects of restrictions of high-skilled migration are under scrutiny. We examine and quantify the effects of the restrictions on corporate directors’ mobility on the firm market value. Using two unexpected events â€" the outcome of the EU referendum in the UK and the election of Donald Trump as the US President and his decisions to restrict the entrance of nationals of several majority Muslim countries to the USA - we find that restricting international mobility of high-skilled workers has a negative impact on the firm value, measured as the cumulative abnormal returns (CARs). This result remains robust under alternative specifications and placebo tests. Moreover, we show that the firms that have foreign directors on boards that do not face additional mobility restrictions experience an increase in value around the aforementioned events, suggesting the transfer of usefulness between the two categories of foreign directors.

Does Competing Through Corporate Social Responsibility Engagements Lead to Superior Financial Performance?
Lattanzio, Gabriele,Litov, Lubomir P.
We develop a novel metric of corporate social responsibility (CSR) rivalry to capture the environmental sustainability engagements of a firm relative to its “green” and “toxic” peers. We document that our measure has superior predictive power about firms’ future pollution levels when compared to alternative unitary CSR scores. Firms with superior relative CSR performance exhibit higher sales growth, profitability, corporate valuation, and future stock returns. Our results suggest that firms compete for CSR ratings and that relative â€" in addition to unitary â€" CSR metrics are linked to financial performance.

Does the leverage effect affect the return distribution?
Dangxing Chen

The leverage effect refers to the generally negative correlation between the return of an asset and the changes in its volatility. There is broad agreement in the literature that the effect should be present for theoretical reasons, and it has been consistently found in empirical work. However, a few papers have pointed out a puzzle: the return distributions of many assets do not appear to be affected by the leverage effect. We analyze the determinants of the return distribution and find that the impact of the leverage effect comes primarily from an interaction between the leverage effect and the mean-reversion effect. When the leverage effect is large and the mean-reversion effect is small, then the interaction exerts a strong effect on the return distribution. However, if the mean-reversion effect is large, even a large leverage effect has little effect on the return distribution. To better understand the impact of the interaction effect, we propose an indirect method to measure it. We apply our methodology to empirical data and find that the S&P 500 data exhibits a weak interaction effect, and consequently its returns distribution is little impacted by the leverage effect. Furthermore, the interaction effect is closely related to the size factor: small firms tend to have a strong interaction effect and large firms tend to have a weak interaction effect.

Evaluating the Financial Health of Central Public Sector Enterprises in India through Z Score Model
Pardeshi, Bhushan,Thorat, Hansraj
The contribution of the Central Public Sector Enterprises (CPSEs) in Indian economy is significant. The CPSEs are proclaimed towards gaining control over the commanding heights of the nation and promoting critical development in terms of the social gains, strategic value and resources. This paper is an attempt to analyze the financial performance and efficiency of selected CPSEs and also evaluate the financial health by using the Altaman’s Z Score; as the CPSEs are considered as a powerful instrument of bringing about the socio-economic transformation in our country. The study shows that ONGC, BEL and RCF are in gray zone where the solvency level is medium. SAIL and NTPC are in distress zone.

FinTech, BigTech, and the Future of Banks
Stulz, René M.
Banks are unique in that they combine the production of liquid claims with loans. They can replicate most of what FinTech firms can do, but FinTech firms benefit from an uneven playing field in that they are less regulated than banks. The uneven playing field enables non-bank FinTech firms to challenge banks for specific products whose success is not tied to what makes banks unique, but they cannot replace banks as such. In contrast, BigTech firms have unique advantages that banks cannot easily replicate and therefore present a much stronger challenge to established banks in consumer finance and loans to small firms. Both Fintech and BigTech are contributing to a secular trend of banks losing their comparative advantage as they have less access to unique information about parties seeking credit.

Generational political dynamics of retirement pensions systems: An agent based model
Sérgio Bacelar,Luis Antunes

The increasing difficulties in financing the welfare state and in particular public retirement pensions have been one of the outcomes both of the decrease of fertility and birth rates combined with the increase of life expectancy. The dynamics of retirement pensions are usually studied in Economics using overlapping generation models. These models are based on simplifying assumptions like the use of a representative agent to ease the problem of tractability. Alternatively, we propose to use agent-based modelling (ABM), relaxing the need for those assumptions and enabling the use of interacting and heterogeneous agents assigning special importance to the study of inter-generational relations. We treat pension dynamics both in economics and political perspectives. The model we build, following the ODD protocol, will try to understand the dynamics of choice of public versus private retirement pensions resulting from the conflicting preferences of different agents but also from the cooperation between them. The aggregation of these individual preferences is done by voting. We combine a microsimulation approach following the evolution of synthetic populations along time, with the ABM approach studying the interactions between the different agent types. Our objective is to depict the conditions for the survival of the public pensions system emerging from the relation between egoistic and altruistic individual and collective behaviours.

Hedge Fund Returns Characterized by Correlation Regimes (Presentation Slides)
Schwendner, Peter
We compute monthly correlation matrices of 25 global futures markets in four asset classes: fixed income, commodities, equities, fx. Comparing and grouping those correlation matrices leads to distinct «regimes» in time. We can characterize these regimes by futures market returns, finding patterns between risk-on and risk-off assets. One of those regimes is especially «risk-off». We can also characterize these regimes by CS hedge fund index returns. In the «risk-off» regime, they also underperform. The Eurekahedge EHF funds show a similar performance behaviour according to strategies across regimes as the CS hedge fund indices. The dispersion across the Eurekahedge EHF funds for each month is largest in the «risk-off» regime.

Legal Architecture and Design for Gulf Cooperation Council Economic Integration
Bashar H. Malkawi

The Cooperation Council for the Arab States of the Gulf (GCC) is generally regarded as a success story for economic integration in Arab countries. The idea of regional integration gained ground by signing the GCC Charter. It envisioned a closer economic relationship between member states.Although economic integration among GCC member states is an ambitious step in the right direction, there are gaps and challenges ahead. The best way to address the gaps and challenges that exist in formulating integration processes in the GCC is to start with a clear set of rules and put the necessary mechanisms in place. Integration attempts must also exhibit a high level of commitment in order to deflect dynamics of disintegration that have all too often frustrated meaningful integration in Arab countries. If the GCC can address these issues, it could become an economic powerhouse within Arab countries and even Asia.

Multimodal Deep Learning for Finance: Integrating and Forecasting International Stock Markets
Sang Il Lee,Seong Joon Yoo

In today's increasingly international economy, return and volatility spillover effects across international equity markets are major macroeconomic drivers of stock dynamics. Thus, information regarding foreign markets is one of the most important factors in forecasting domestic stock prices. However, the cross-correlation between domestic and foreign markets is highly complex. Hence, it is extremely difficult to explicitly express this cross-correlation with a dynamical equation. In this study, we develop stock return prediction models that can jointly consider international markets, using multimodal deep learning. Our contributions are three-fold: (1) we visualize the transfer information between South Korea and US stock markets by using scatter plots; (2) we incorporate the information into the stock prediction models with the help of multimodal deep learning; (3) we conclusively demonstrate that the early and intermediate fusion models achieve a significant performance boost in comparison with the late fusion and single modality models. Our study indicates that jointly considering international stock markets can improve the prediction accuracy and deep neural networks are highly effective for such tasks.

New Active Blockholders and the Adjustment of CEO Inside Debt-Equity Ratio
Nguyen, Phuong Lan
Using an extensive dataset of CEO compensation in 5,775 U.S companies, I show that new active blockholders restructure CEO compensation to benefit both shareholders and debtholders. I measure CEO compensation structure by using the ratio between debt-like pay and equity-like pay, and benchmark this measure against a target structure which is optimal for total firm value. Large deviation from the target compensation structure attracts new active blockholders. A company having new active blockholders adjusts its CEO compensation to the target structure 2.5 times faster than the median company in the sample. Stock (Bond) returns increase by 1,291 (309) bps over the two years of active holding period as the new active blockholders adjust CEO compensation to the target structure. These findings suggest that new active blockholders mitigate the agency cost of debt, and by doing so, they enhance total firm value.

New Policy Design for Food Accessibility to the People in Need
Rahul Srinivas Sucharitha,Seokcheon Lee

Food insecurity is a term used to measure hunger and food deprivation of a large population. As per the 2015 statistics provided by Feeding America - one of the largest domestic hunger-relief organizations in the United States, 42.2 million Americans live in food insecure households, including 29.1 million adults and 13.1 million children. This constitutes about 13.1% of households that are food insecure. Food Banks have been developed to improve food security for the needy. We have developed a novel food distribution policy using suitable welfare and poverty indices and functions. In this work, we propose an equitable and fair distribution of donated foods as per the demands and requirements of the people, thus ensuring minimum wastage of food (perishable and non-perishable) with focus towards nutrition. We present results and analysis based on the application of the proposed policy using the information of a local food bank as a case study. The results show that the new policy performs better than the current methods in terms of population being covered and reduction of food wastage obtaining suitable levels of nutrition.

Non-Performing Loans, Governance Indicators and Systemic Liquidity Risk: Evidence From Greece
Anastasiou, Dimitrios,Bragoudakis, Zacharias ,Malandrakis, Ioannis
In this study we propose a new determinant of non-performing loans for the case of the Greek banking sector. We employ aggregate yearly data for the period 1996- 2016 and we conduct a Principal Component Analysis for all the Worldwide Governance Indicators (WGI) for Greece, aiming to isolate the common component and thus to create the GOVERNANCE indicator. We find that the GOVERNANCE indicator is a significant determinant of Greek banks’ non-performing loans indicating that both political and governance factors impact on the level of the Greek non-performing loans. An additional variable that also has a statistically significant impact on the level of Greek non-performing loans, when combined with WGI in the dynamic specification of our model, is systemic liquidity risk. Our results could be of interest to policy makers and regulators as a macro prudential policy tool.

Option Pricing Formulas Under a Change of Numèraire
Attalienti, Antonio,Bufalo, Michele
We present new formulations of the Cox-Ross-Rubinstein and Black-Scholes formulas for european options through a suitable change of measure which corresponds to a change of numèraire for the underlying price process. Among other consequences, a closed formula for the price of an european call option at each node of the multiperi- odal binomial tree is achieved, too. Some of the results contained herein should be compared with the analogous ones obtained in [7] by means of different techniques.

Political Business Cycles, Elections and Entrepreneurial Finance: A Framework
Chinchwadkar, Rohan
Political processes affect the real economy. An important channel through which politics affects economics is uncertainty. It has been observed that political uncertainty is high around national elections and negatively affects corporate investments and foreign capital inflows. If national elections affect corporations and foreign investors, we should expect them to also affect entrepreneurial finance provided by investors like venture capitalists (VCs). To add to that, in a complex federal democracy, state level politics is a significant source of political uncertainty.This is the first paper to examine the impact of national and state elections on entrepreneurial finance and provides a framework of VC investment behavior in the face of political uncertainty. We find that VC investments decrease significantly due to political uncertainty around national and state elections. VCs respond strongly to national elections by decreasing the total investment value and the number of deals in election years. However, they give a softer response to regional political uncertainty around state elections by decreasing only the average deal size.

Predicting the Stock Market Index Using Stochastic Time Series Arima Modelling: The Sample of BSE and NSE
C, Viswanatha Reedy
Stock market is basically volatile and the prediction of its movement will be more useful to the stock traders to design their trading strategies. An intelligent forecasting will certainly abet to yield significant profits. Many important models have been proposed in the economics and finance literature for improving the prediction accuracy and this task has been carried out through the modelling based on time series analysis. The main aim of this paper is to check the stationarity in time series data and predicting the direction of change in stock market index using the stochastic time series ARIMA modelling. The best fit ARIMA (0,1,0) model was chosen for forecasting the values of time series, viz., BSE_CLOSE and NSE_CLOSE by considering the smallest values of AIC, BIC, RMSE, MAE, MAPE, Standard Error of Regression, and the relatively high Adjusted R2 values. Using this best fitted model, the predictions were made for the period ranging from 7th January, 2018 to 3rd June, 2018 (22 expected values) using the weekly data ranging from 6th January, 2014 to 31st December, 2017 (187 observed values). The results obtained from the study confirmed the prospective of ARIMA model to forecast the future time series in short-run and would assist the investing community in making the profitable investment decisions.

Regulatory Intensity
Kalmenovitz, Joseph
I develop a novel measure of regulatory intensity, based on information disclosed periodically by federal agencies in connection with 36,000 regulations. My measure captures the daily quantity of active regulations and their estimated compliance costs since 1980. I exploit pre-scheduled expiry dates as a plausibly exogenous variation in regulatory intensity, and find that a surge in regulatory intensity leads to significant reduction in firm-level investment and hiring. The negative effect is magnified for companies with irreversible investment opportunities, consistent with a precautionary delay motive.

Remote Board Meetings and Board Monitoring Effectiveness: Evidence from China
Cai, Xinni,Jiang, Fuxiu,Kang , Jun-Koo
Using unique data on board meeting types of Chinese firms, we examine the effect of remote board meetings on board monitoring effectiveness. We find that compared to face-to-face meetings, remote meetings are associated with better meeting attendance behavior of directors, higher likelihood of director dissent on monitoring-related proposals, higher forced CEO turnover-performance sensitivity, and more effective investments. Proposal-director-level analysis further shows that remote meetings increase (reduce) dissension incentives of busy and young directors (first-term and socially connected directors). The results suggest that remote meetings improve board monitoring effectiveness by facilitating status equalization among directors and alleviating their pressure for conformity.

Secondary Market Liquidity and Primary Market Allocations in Corporate Bonds
Flanagan, Thomas,Kedia, Simi,Zhou, Xing (Alex)
Using a regulatory version of TRACE data that include almost all primary and secondary market trades in corporate bonds over the period 2010-2017, we provide the first comprehensive study on the primary market for corporate bonds. Secondary market illiquidity can drive gains from primary market allocations to far exceed underpricing. Based on initial allocations identified from regulatory disclosures by insurance firms, we find that gains from initial allocations are greater for investors with trading relationships with the underwriter. Such favoritism toward investors with trading relationships increases with secondary market illiquidity.

Shadow Banking and Canada’s Monetary Policy
Kronick, Jeremy,Wu, Yan Wendy
This paper provides the first empirical evidence in Canada on the link between monetary policy and the growth of shadow banks, and by extension, financial stability. Using monthly Canadian financial market data from 1991-2015 in a two-stage time-varying coefficient Bayesian vector autoregression approach, we find that greater shares of shadow bank deposits and business loans reduce the effectiveness of monetary policy. Further investigations with a structural VAR approach indicate that this drag might be the result of deposits and credits shifting between shadow banks and traditional banks. We also find that contractionary monetary policy increases financial instability by shifting household mortgage loans and business loans from chartered banks to shadow banks.

The Cross Section of Country Equity Returns: A Review of Empirical Literature
Zaremba, Adam
The last three decades brought mounting evidence regarding the cross-sectional predictability of country equity returns. The studies not only documented country-level counterparts of well-established stock-level anomalies, such as size, value, or momentum, but also demonstrated some unique return-predicting signals such as fund flows or political regimes. Nonetheless, different studies vary remarkably in terms of their dataset and methods employed. This study aims to provide a comprehensive review of the current literature on the cross-section of country equity returns. We focus on three particular aspects of the asset pricing literature. First, we study the choice of dataset and sample preparation methods. Second, we survey different aspects of the methodological approaches. Last but not least, we review the country-level equity anomalies discovered so far. The discussed cross-sectional return patterns not only provide new insights into international asset pricing but can also be potentially translated into effective country allocation strategies.

The Design and Operation of Rules of Origin in Greater Arab Free Trade Area: Challenges of Implementation and Reform
Bashar H. Malkawi,Mohammad I. El-Shafie

Rules of origin (ROO) are pivotal element of the Greater Arab Free Trade Area (GAFTA). ROO are basically established to ensure that only eligible products receive preferential tariff treatment. Taking into consideration the profound implications of ROO for enhancing trade flows and facilitating the success of regional integration, this article sheds light on the way that ROO in GAFTA are designed and implemented. Moreover, the article examines the extent to which ROO still represents an obstacle to the full implementation of GAFTA. In addition, the article provides ways to overcome the most important shortcomings of ROO text in the agreement and ultimately offering possible solutions to those issues.

The Effect of Credit Rating Downgrades and Customer-supplier Relationships
Alldredge, Dallin,Chen, Yinfei,Liu, Steve,Luo, Vicky (Lan)
Extant research documents the valuation effects of credit rating change on the stock price. This study extends the research by examining the information transfer effects of customer credit rating downgrades on supplier firms. We find that supplier firms experience negative abnormal returns during the announcement of customer firms’ rating downgrades. This effect persists over a 50 trading day window after the downgrade announcement. We also find that credit rating deterioration spreads along the supply chain, where the probability of future rating downgrades is significantly higher for supplier firms with downgraded customers. Further, we show that the information transfer effects are associated with certain cross-sectional factors, including the market anticipation of customers rating downgrades, the strength of the customer-supplier linkage, the valuation effects within customer firms’ industries, and investor attention on supplier firms.

The Effect of Oil Price on United Arab Emirates Goods Trade Deficit with the United States
Osama D. Sweidan,Bashar H. Malkawi

We seek to investigate the effect of oil price on UAE goods trade deficit with the U.S. The current increase in the price of oil and the absence of significant studies in the UAE economy are the main motives behind the current study. Our paper focuses on a small portion of UAE trade, which is 11% of the UAE foreign trade, however, it is a significant part since the U.S. is a major trade partner with the UAE. The current paper concludes that oil price has a significant positive influence on real imports. At the same time, oil price does not have a significant effect on real exports. As a result, any increase in the price of oil increases goods trade deficit of the UAE economy. The policy implication of the current paper is that the revenue of oil sales is not used to encourage UAE real exports.

The Precious Metals Holdings of Chinese Commercial Banks
Baur, Dirk G.,Hossain, Md Zakir,Retnawati, Anna,Treepongkaruna, Sirimon,Yu, Jing
Despite gold having no official role in the global monetary system, major central banks still hold large gold reserves and emerging country central banks such as the Peoples Bank of China (PBOC) have significantly increased their gold holdings in recent years. Interestingly, Chinese commercial banks have increased their gold and precious metals holdings by even more than the PBOC. This paper exploits the relative transparency of Chinese commercial banks’ precious metals holdings and gold import licenses and finds that the holdings improve bank resilience, increase trading income and reduce interbank connectedness. The results provide first evidence for the special role of gold from a commercial bank’s perspective.

The Tokenization of Assets: Using Blockchains for Equity Crowdfunding
Roth, Jakob,Schär, Fabian,Schöpfer, Aljoscha
In this chapter, we present tokenization of equity crowdfunding on a Blockchain as a possible approach to ease access to capital for startups. We propose a categorization of token standards into UTXO-based, layer-based and smart contract-based tokens. In a second step, we analyze the advantages that tokenization can bring, such as cryptographically secured ownership, programmability of assets, access to the Blockchain-ecosystem, enhanced divisibility of shares as well as the formation of a well-functioning secondary market. Tokenization allows to decouple the ledger of assets from the crowdfunding platform, thus lowering the cost of secondary market trading and the intermediary’s power. We conclude by mentioning several drawbacks including information asymmetries between investors and campaign creators, regulatory issues and high energy intensity of Proof-of-Work-secured Blockchains.

The Truth About Forced Arbitration
Research, AAJ
This comprehensive analysis of the self-reported data provided by two consumer arbitration organizations makes clear that forced arbitration is not an alternative judicial process, but instead eliminates claims, immunizes corporations, and allows abuse, discrimination, fraud, and essentially all other corporate wrongdoing to go unchecked. Americans are more likely to be struck by lightning than they are to win a monetary award in forced arbitration.

To Detect Irregular Trade Behaviors In Stock Market By Using Graph Based Ranking Methods
Loc Tran,Linh Tran

To detect the irregular trade behaviors in the stock market is the important problem in machine learning field. These irregular trade behaviors are obviously illegal. To detect these irregular trade behaviors in the stock market, data scientists normally employ the supervised learning techniques. In this paper, we employ the three graph Laplacian based semi-supervised ranking methods to solve the irregular trade behavior detection problem. Experimental results show that that the un-normalized and symmetric normalized graph Laplacian based semi-supervised ranking methods outperform the random walk Laplacian based semi-supervised ranking method.

Turning Back the Clock on Disclosure Regulation? â€" Evidence from the Termination of the Quarterly Reporting Mandate in Europe
Hitz, Joerg-Markus,Moritz, Florian
We investigate economic consequences of the deregulation of quarterly reporting in member states of the European Union, as stipulated by the amended Transparency Directive in 2013. We observe that subsequent to this deregulation, only relatively few firms reduced reporting frequency by switching from quarterly reporting to semi-annual reporting. Using a difference-in-differences design, we then explore the capital market and investment (real) effects of the deregulation. We find that on average, firms that chose to terminate quarterly reporting experienced reductions in liquidity, and increased their long-term investments. These results are robust to controlling for endogeneity, and point at both, potential economic benefits (less short-termism) and losses (reduced transparency) of the deregulation. Our findings represent rare evidence on economic consequences of disclosure deregulation, suggesting that prior regulatory effects can be potentially reversed, effectively “turning back the clock”. This finding is of potential interest not only to researchers, but also to policy-makers and securities regulators.

Why Do Institutional Investors Oppose Shareholder Activism? Evidence from Voting in Proxy Contests
Liu, Yanran
This paper examines why institutional shareholders frequently oppose activists when activism increases the value of target firms. Because institutions underweight targets and activism could adversely affect the values of rival firms, institutional investors often lack incentives to support activists when gains on targets are diluted or offset by losses on rival firms. Using hand-collected data of mutual and pension funds voting in proxy contests, I find that institutions that benefit less from the activism events are less likely to support the activists. The evidence suggests that institutional investors’ portfolio returns explain their support for the activists.