Finance and Insurance Seminar SS 2016
Jeweils Dienstags, 12.00-13.00 Uhr in der Faculty Lounge, Juridicum, Adenauerallee 24-42, 53113 Bonn
Prof. Karin Thorburn, NHH, Norwegian School of Economics, Norwegen: “Does gender-balancing the board reduce firm value?”
Abstract: A board gender quota reduces firm value if it forces the appointment of under-qualified female directors. We examine this costly constraint hypothesis using the natural experiment created by Norway’s 2005 board gender-quota law. This law drove the average fraction of female directors from 5% in 2001 to 40% by 2008, producing a large exogenous shock to director experience and independence. However, statistically robust analyses of quota-induced shareholder announcement returns, and of long-run stock and accounting performance, fail to reject the hypothesis of a zero valuation effect of this shock to board composition. Moreover, firms did not expand board size, nor is there significant evidence of quota-induced corporate conversions to a (non-public) legal form exempted from the quota law. Finally, our evidence on female director turnover and a novel network-based measure of director gender power gap also fails to suggest that qualified female directors were in short supply.
Rüdiger Fahlenbrach, Swiss Finance Institute, Lausanne
31. Mai 2016
Abstract: Initial proposals for bank contingent convertibles (CoCos) envisioned that these bonds would convert to new equity when the bank’s stock price declined to a pre-specified trigger, thereby automatically re-capitalizing the bank and enhancing financial stability. However, subsequent research argued that doing so causes the bank’s stock price to have multiple equilibria or no equilibrium. This paper shows that when CoCos have a perpetual maturity, which characterizes the majority of actual CoCos, a unique stock price equilibrium exists except under unrealistic conditions. A unique equilibrium can occur when conversion terms are advantageous or disadvantageous to CoCo investors and when CoCos convert to new equity shares or are written down. Moreover, the existence of a unique equilibrium stock price is more likely when the bank’s asset risk is higher, when there are direct costs of bankruptcy, and when CoCos are callable by the bank. We illustrate these results by developing models of CoCos with either perpetual or finite maturities that lead to closed-form solutions for stock and CoCo values.
10. Mai 2016
Frédéric Malherbe, London School of Business
3. Mai 2016
Caroline Fohlin, Emory University: “Rumors and Runs in Opaque Markets: Evidence from the Panic of 1907”
Abstract: Using a new daily dataset for all stocks traded on the New York Stock Exchange, we study the impact of information asymmetry during the liquidity freeze and market run of October 1907 ‒ one of the most severe financial crises of the 20th century. We estimate that the run on the market increased spreads from 0.5% to 3% during the peak of the crisis and, using a spread decomposition, we also demonstrate that fears of informed trading account for most of that deterioration of liquidity. Information costs rose most in the mining sector ‒ the origin of the panic rumors ‒ and in other sectors with poor track records of corporate reporting. In addition to wider spreads and tight money markets, we find other hallmarks of information-based illiquidity: trading volume dropped and price impact rose. Importantly, despite short-term cash infusions into the market, we find that the market remained relatively illiquid for several months following the panic. We go on to show that rising illiquidity enters positively in the cross section of stock returns. Moreover, we identify information risk as the main driver of illiquidity. Thus, our findings demonstrate how opaque markets can easily transmit an idiosyncratic rumor into a long-lasting, market-wide crisis. Our results also demonstrate the usefulness of illiquidity measures to alert market participants to impending market runs.
26. April 2016
Boris Nikolov, Université de Lausanne: “Agency Conflicts Around the World” (joined with Erwan Morellec & Norman Schürhoff).
Abstract: We use a dynamic capital structure model to empirically measure agency conflicts across legal environments and decompose their effects into wealth transfers among stakeholders and value losses from policy distortions. Our estimates show that agency costs are large and vary widely across and within countries. Legal origin and provisions for investor protection affect agency costs, but they are more relevant for curtailing governance excesses than guarding the typical form. Agency costs split about equally into wealth transfers and value losses from financial distortions, the latter being larger where ownership is dispersed. Incentive misalignment captures 60% of country variation in leverage.
12. April 2016
Mark Carlson, Bank for International Settlements: “Monitoring and Discipline provided by Bank Examiners and the Panic of 1893”.
Abstract: In this paper, we examine the usefulness of the information provided by the examination process. When considering the value of the examination process, we separate the quantitative information contained in the report from the judgement and expertise of the examiners themselves. We find that both types of information have predictive power about how each bank’s conditions would evolve over the next couple years. Looking across examiners, we find that these individuals appear to have fairly uniform in the “degree of toughness” in their examinations. Based on their assessments, the examiners could recommend the bank take remedial actions. We analyse whether these recommendations contributed to promoting discipline and bolstering the health of the national banks. The evidence here is more tentative, but is consistent with the idea that the recommendations provided by the examiners did improve the stability of the banking system.