Phone/Fax
p: 404.727.6351
f: 404.727.5238
Office
GBS 502
Goizueta Business School
Emory University
1300 Clifton Rd
Atlanta, GA 30322
Publications & Working Papers
Attracting Flows by Attracting Big Clients (with Lauren Cohen)
Journal of Finance, 64, no. 5 (October 2009): 1225-1252
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
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.
Riding the Merger Wave (with Ran Duchin)
Journal of Financial Economics, Forthcoming
We show that acquisitions initiated during periods of high merger activity ("merger waves") are accompanied by poorer quality of analysts' forecasts, greater uncertainty, and lower turnover-performance sensitivity. Further, the average long-term performance of acquisitions initiated during merger waves is significantly worse. We consider various explanations for these findings and propose that they are consistent with the strategic timing of agency-driven acquisitions. Merger waves increase monitoring costs and make agency-driven acquisition harder to detect. Moreover, the ex ante similarity between managers' actions allows them to be more favorably evaluated ex post ("share the blame"). The results show a possible link, unexplored in the literature, between agency theory and merger waves.
Cash Flow Hedging and Liquidity Choices (with David Disatnik and Ran Duchin)
Review of Finance, Forthcoming
Winner of the 2010 Teva Award in the name of Dan Suesskind for research in corporate finance and financial markets.
This paper studies the interaction between corporate hedging and liquidity policies. To motivate our empirical investigation, we present a theoretical model that shows how corporate hedging facilitates greater reliance on cost-effective, externally-provided liquidity in lieu of internal resources. We then test the predictions of the model by employing a new empirical approach that separates cash flow hedging from non-cash flow hedging. Using detailed, hand-collected data, we construct hedging instruments to address endogeneity, and find that cash flow hedging reduces the firm's precautionary demand for cash and allows it to rely more on bank lines of credit. Furthermore, we find a significant positive effect of cash flow hedging on firm value. Overall, our results identify a new mechanism through which hedging affects corporate financial policies and firm value.
Coinsurance in Mutual Fund Families (with Luis Goncalves-Pinto)
August 2012
Winner of the Best Paper Award (Runner-Up) at the 2012 Auckland Finance Meeting
Media Mention: Financial Times (Dec 9, 2012), "Backroom Dealing Exposed," by Steve Johnson
Media Mention: Financial Times (Dec 16, 2012), "No Surprise At Backroom Dealing Charge," by Steve Johnson
We argue that cross-trading within mutual fund families can decrease the costs associated with asset fire sales. This in turn creates an incentive for fund families to coordinate internal trades in order to support member funds that are in distress. We find evidence that forced sales by funds experiencing large outflows tend to be absorbed by other funds in the family. We show how this is more likely to be observed in families with a large number of funds, and we provide evidence of reciprocity among funds engaging in this type of co-insurance. Consistent with internal coordination, we document that the stock price reaction arising from the widespread selling by distressed funds is weak or insignificant when such funds belong to large families. We then study how co-insurance affects the behavior of investors and fund managers. Consistent with our hypothesis, we show that affiliation with large families significantly reduces the sensitivity of outflows to poor past performance, especially for funds holding more illiquid portfolios. As a result, we find that fund managers of illiquid funds affiliated with large families take on more risk than their small-family peers.
Costs and Benefits of "Friendly" Boards during Mergers and Acquisitions
April 2013
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 observed when outside representation is used to measure independence. The evidence suggests that friendly boards can have both costs and benefits depending on the specific needs of the company. It also highlights the potential discrepancy between actual board independence and its regulatory definition.