Day 2: Friday, 11.11.2022
Session 5: Accounting & Governance
Chair: Prof. Dr. Arnt Wöhrmann
1. Firm Opacity and Retail Investments in Attention Stocks and Lottery Stocks: Evidence from Robinhood Investors
10:15am – 10:45am
Authors: Zhan Gao; Jacob J. Leidner; James N. Myers; Linda A. Myers
Presenter: Dr. Jacob J. Leidner
University of Würzburg
Discussant: Andreas Höhre
Abstract: This study investigates whether firm opacity impacts the investment behaviors and outcomes of retail investors using the fintech brokerage Robinhood (i.e., “RH investors”). We theorize that higher firm opacity leads RH investors to make nonrational investment decisions. The testable prediction is that firm opacity increases RH investors’ investments in attention stocks and lottery stocks, which are prominent nonrational behaviors of retail investors. Empirical findings using a measure of RH investors’ stock holdings support this prediction. Furthermore, firm opacity amplifies RH investors’ negative returns from investing in attention stocks and lottery stocks. Additional analyses show that the effect of firm opacity on RH investors’ stock holdings persists during the COVID-19 pandemic, and that opacity affects RH investors’ stock trading. These findings suggest that reducing firm opacity could help to lessen the nonrational investments, as well as the associated adverse consequences, of retail investors trading on Robinhood-type platforms.
2. THE INFLUENCE OF DIRECTOR INCENTIVES ON DIRECTORSHIP PORTFOLIOS
10:45am – 11:15am
Authors: Corinna Ewelt-Knauer; Hannes Gerstel; Mohoamed A. Khaled; Arnt Wöhrmann
Presenter: Hannes Gerstel
Justus Liebig University Giessen
Discussant: Han Xiao
Abstract: Reputation, risk, workload and monetary incentives impact directors’ decisions to join or leave board seats. Using relative incentive proxies, we find that reputational and workload related incentives are most relevant regarding the composition of director portfolios. Moreover, we analyze the interplay of director incentives and directors accepting additional board seats and leaving existing board seats. Our results show that accepting an additional seat or leaving an existing seat significantly increases directors’ reputational growth compared to non-adjusters. Taking on a firm perspective, we also find a positive association between the average portfolio reputation and risk of all outside directors on firm performance and earnings management. Our findings have practical relevance for firms wanting to retain skilled directors and for firms trying to decrease earnings management. Lastly, directors can increase their reputational growth by accepting additional board seats.
3. The Economics of ETF Redemptions
11:15am – 11:45am
Authors: Han Xiao
Presenter: Han Xiao
Pennsylvania State University
Discussant: Hannes Gerstel
Abstract: This paper provides novel evidence of redemptions in corporate bond exchange-traded funds (ETFs). I first investigate economic incentives for choosing redemption baskets in the primary market. ETFs dispose of bonds with high price pressure exposures, and authorized participants (APs) select assets negatively co-move with liquidity in AP portfolios. Regarding the economic impacts, redemptions decrease ETF returns, liquidity, and efficiency in the less elastic secondary market. APs profit from redemptions by correcting arbitrage between ETFs and underlying assets. Lastly, new policies in the COVID-19 pandemic consistently impact ETFs in both primary and secondary markets.
4. The Determinants and Consequences of Sustainability Incentives in CEO Compensation Contracts on CSP: European Evidence
11:15am – 11:45am
Authors: Andreas Höhre
Presenter: Andreas Höhre
Justus Liebig University Giessen
Discussant: Dr. Jacob J. Leidner
Abstract: Given the increasing public awareness of sustainability issues, firms frequently integrate corporate social performance (CSP) targets into executive compensation contracts. Utilizing a STOXX600 sample between 2014 and 2020, this study examines factors which lead to the integration of sustainability-related measures in CEO compensation contracts and analyzes how they affect future CSP. The results indicate that profitability, size, the existence of a compensation committee and higher shares of CEO equity compensation positively predict the likelihood of sustainability-related incentives, whereas firms with established CEOs make less use of this governance mechanism. Despite the expectations, the study does not find evidence that the use of sustainability incentives actually lead to better CSP. While the study develops a better understanding of the conditions under which firms implement CSP incentives into their organizational process, it highlights the need for enhanced incentive designs to enable the intended effects.
Session 6: Corporate Finance
Chair: Prof. Dr. Peter Limbach
1. Does Speculative News Hurt Productivity? Evidence from Takeover Rumors
01:15pm – 01:45pm
Authors: Christian Andres; Dmitry Bazhutov; Douglas Cumming; Peter Limbach
Presenter: Prof. Peter Limbach
University of Bielefeld and CFR
Discussant: Moritz Sefried
Abstract: Takeover speculation may hurt productivity because uncertainty and threat of job loss cause anxiety, distraction, and reduced collaboration and morale among employees and managers. Using a large panel of OECD-headquartered firms, we show that firm productivity temporarily declines after announcements of speculative takeover rumors that do not materialize. This productivity dip is more pronounced for targets and for firms in countries with weaker employee rights and less long-term orientation. Abnormal stock returns mirror these results. The evidence fosters our understanding of potential real effects of speculative news, which are common in financial markets, and the costs of the takeover threat.
2. The Information Value of M&A Press Releases
01:45pm – 02:15pm
Authors: Yang Cao; Florian Kiesel; Henry Leung
Presenter: Yang Cao
Grenoble Ecole de Management
Discussant: Cristian-Mihail Condrea
Abstract: How do managers comment on merger transactions? By analyzing initial public announcements of Mergers and Acquisitions (M&As) between 1995-2020 and extracting the linguistic sentiment from statements made by managers of acquirer and target firms, we provide new evidence on the informational value of M&A disclosures. We find that positive target sentiment results in positive returns for the target, while sentiment disagreement with the acquirer is associated with lower target returns. Further, the positive target sentiment increases the likelihood of a merger completion and tends to shorten the time to deal completion. We decompose acquirer sentiment into manipulative and fundamental components and demonstrate that acquirer CEOs with low confidence and large ownership holdings in the acquirer firm produce M&A statements that are more manipulative. This suggests that sentiment in M&A disclosures not only contains information on fundamentals and managerial attitudes but that it may be manipulated to protect the personal interest of managers.
3. Banks as "Anchors": The Role of Banks in Funding Innovation
02:15pm – 02:45am
Authors: Cristian-Mihail Condrea
Presenter: Cristian-Mihail Condrea
Frankfurt School of Finance and Management
Discussant: Yang Cao
Abstract: Bank investments in the venture capital (VC) market play an important role, especially outside main entrepreneurial hubs. Banks act as anchors to the companies, serving as a positive signal of their quality and attracting further investors. Due to their abilities in monitoring and higher local expertise, banks are able to select profitable VC investments and exit them successfully. I exploit the implementation of the Volcker Rule as a shock where banks are no longer allowed to sponsor or invest in VC funds. I find that companies in regions dependent on bank VC financing suffer a drop in financing and innovation. A proxy for attention to start-ups serves as another confirmation mechanism of our story. I add to the debate on cross-selling services by financial intermediaries and on the certification role that banks play in markets other than lending.
4. How Close is Your Crowd? The Role of Information Asymmetries for Investment Decisions in Crowdinvesting
02:45am – 03:15am
Authors: Moritz Sefried; Kristina Uhl
Presenter: Moritz Sefried
Eberhard Karls Universität Tübingen
Discussant: Prof. Peter Limbach
Abstract: Startups often rely on alternative forms of financing, such as crowdinvesting, as they usually miss reliable credit ratings. We explore the effect of information asymmetries on investment decisions and analyze which role signals, e.g., project likes, and the investor-startup-relationship play. Using a unique proprietary data set of the largest crowdinvesting platform in Mexico, we show that information asymmetries between investors and startups negatively affect the investment probability and investment amount. A relationship only diminishes this effect in specific instances while objective signals do in any case. Evidence is in line with the idea that investors with a close relationship to a startup should be used as fallback options instead of reliable investors in startups’ early stage. Furthermore, we find that signals strongly influence investment decisions in this modern form of financing.