Corporate ESG Profiles and Investor Horizons, with Laura Starks and Qifei Zhu
We consider the role investor horizon plays in institutional investors’ preferences for firms with higher Environmental, Social, and Governance (ESG) profiles. We show that investors with longer horizons have stronger preferences for higher ESG firms and we confirm these results through difference-in-differences tests of shocks to firms’ ESG reputations from changes in the FTSE4Good Index. We further find, consistent with implications of the importance of investor horizon in ESG preferences, investors behave more patiently toward the higher ESG firms in their portfolios as compared to their other holdings, selling relatively less after negative earnings surprises or poor stock returns.
- Presented at the 2016 JOIM “Long-run Risks, Returns and ESG Investing” Conference, 2018 Western Finance Association Annual Meeting, 2018 Financial Management Association Annual Meeting, and Best quantitative paper at the 2018 PRI Academic Network Conference
Product Differentiation, Benchmarking and Corporate Fraud, with Audra Boone, Billy Grieser and Rachel Li
We find that product market differentiation is an economically meaningful and robust predictor of accounting fraud. Controlling for traditional measures of competition and large tariff reductions does not influence this finding. Thus, product differentiation appears to capture a unique relation between competition and fraud, which we posit is driven by the firm’s external information environment. To help establish identification, we exploit product similarities with rivals issuing IPOs, as well as cross-sectional variation in firm complexity, institutional ownership, analyst coverage, and financial statement comparability. Our analysis suggests that lower product differentiation enhances external monitoring, which disciplines manager reporting behavior.
- Presented at the 2018 Financial Management Association Annual Meeting (semi-finalist for best paper), Drexel University, Clemson University, Southern Methodist University, Texas Christian University, New Zealand Finance Conference (Best Paper)
The Effect of Mergers on Human Capital: Evidence from Sell-Side Analysts (Job Market Paper)
I find that when brokerage houses merge, acquiring house analysts temporarily produce less accurate estimates. This temporary impairment suggests that the merging process can distract high-skilled employees. Furthermore, high-quality analysts, especially when redundant, often leave target houses to avoid covering new firms. This attrition suggests that high-skilled employees exercise outside options to avoid abandoning human capital. As a consequence of these effects, the forecast error in merged houses remains elevated by 10% for two years, thus impairing information quality in financial markets. I conclude that mergers can temporarily, but significantly, impair firms’ ability to acquire, develop, and retain human capital.
- Presented at the 2016 FMA Doctoral Student Consortium
- Presented at the 2016 FMA Conference
We study how property-rich and property-poor districts respond to funding changes under a wealth equalization policy, using an instrument to exogenously identify funding changes. We find that property-rich districts reduce their tax rates and issue debt for capital expenditures after the state redistributes some of their funding to poorer districts. In contrast, when property-poor districts receive additional funding, this spending correlates with investments, such as employing more and better teachers, implying that properly recaptured and redistributed funds may increase quality in property-poor districts.
- Presented at 42nd Annual Education and Finance Policy Conference