Publications & Working Papers

Winner of Society of Quantitative Analysts Award, Best Paper in Quantitative Investments, Western Finance Association 2007

Winner of Barclays Global Investors Best Paper Prize, Asset Allocation Symposium, European Finance Association 2006

Appendix

We explore a new channel for attracting inflows using a unique dataset of corporate 401(k) retirement plans and their mutual fund family trustees. Families secure substantial inflows by being named the trustee of a 401(k) plan. We find that family trustees significantly overweight their 401(k) client firm's stock. Trustee overweighting is more pronounced when the relationship is more valuable to the trustee family, and it is concentrated in those funds that receive the greatest benefit from the inflows. When other mutual funds are selling the client firm's stock, the trustee does the opposite and significantly increases its holdings of the client. This overweighting is not explained by superior information. We also quantify the flow benefit to the trustee mutual funds of being included in the client firm's 401(k) plan and find that this inclusion has an economically and statistically large, positive effect on inflows.

Winner of the Michael J. Barclay Award for the best Ph.D. student paper, Financial Research Association 2008

Although recent regulations call for greater board independence, finance theory predicts that independence is not always in the shareholders' interest. In situations where it is more important for the board to provide advice than to monitor the CEO, more independent directors can decrease firm value because the CEO is not willing to share inside information with independent directors. I test this prediction by examining the connection between takeover returns and board "friendliness" using social ties between the CEO and board members as a proxy for less independent, more "friendly" boards. I find that social ties are associated with higher bidder announcement returns when advisory needs are high but with lower returns when monitoring needs are high. These effects intensify as the proportion of the board socially connected to the CEO increases and are not driven by correlations between social ties and other board characteristics. The evidence suggests that friendly boards can have both costs and benefits depending on the specific needs of the company.

Using unique, hand-collected data, this paper investigates how corporations combine the use of derivative hedging, cash holdings, and bank lines of credit to manage cash flow risks. Consistent with a precautionary saving motive, we find that (i) cash flow derivatives and/or lines of credit serve as substitutes for cash, and (ii) the sensitivity of cash to cash flow volatility is significantly lower for firms that use either derivative hedging, lines of credit, or both. We highlight an important and largely unexplored interaction between cash flow hedging and the use of credit lines: Hedging pushes firms to substitute cash for lines of credit, since it reduces the risk of violating financial covenants. We also show that the relation between hedging, cash, and lines of credit is mainly concentrated in financially constrained firms. Overall, our findings shed new light on the joint determination of corporate policies to manage cash flow risks.

This paper proposes that empire building managers strategically initiate self-serving, inefficient acquisitions during periods of intense merger activity ("merger waves"). We postulate that empire building is harder to detect during merger waves because of the difficulty in following and analyzing many deals simultaneously. In addition, it is easier for empire builders to justify the poor performance that is likely to follow inefficient mergers when their actions were ex-ante similar to those of other agents. Consistent with our hypothesis, we find that (i) while in-wave corporate acquisitions lead to worse long-term performance relative to non-wave mergers, announcement returns and earnings forecasts fail to reflect this difference; (ii) in-wave mergers are associated with poorer governance; and (iii) managers are less likely to be fired following a bad merger if the acquisition was initiated during a wave. Our results bring forth a possible link, unexplored in the literature, between agency theory and merger waves.