Controlling for unobserved heterogeneity (or "common errors"), such as industry-specific shocks, is a fundamental challenge in empirical research.This paper discusses the limitations of two approaches widely used corporate finance and asset pricing research: demeaning dependent variable with respect to group (e.g., "industry-adjusting") adding mean group's control. We show that these methods produce inconsistent estimates can distort inference. In contrast, fixed effects estimator consistent...

Journal Article Growing Out of Trouble? Corporate Responses to Liability Risk Get access Todd A. Gormley, Gormley University Pennsylvania Search for other works by this author on: Oxford Academic Google Scholar David Matsa Northwestern The Review Financial Studies, Volume 24, Issue 8, August 2011, Pages 2781–2821, https://doi.org/10.1093/rfs/hhr011 Published: 11 April 2011

Controlling for unobserved heterogeneity (or "common errors"), such as industry-specific shocks, is a fundamental challenge in empirical research. This paper discusses the limitations of two approaches widely used corporate finance and asset pricing research: demeaning dependent variable with respect to group (e.g., "industry-adjusting") adding mean group's control. We show that these methods produce inconsistent estimates can distort inference. In contrast, fixed effects estimator...

Abstract We analyze whether the growing importance of passive investors has influenced campaigns, tactics, and successes activists. find activists are more likely to seek board representation when a larger share target company’s stock is held by passively managed mutual funds. Furthermore, higher ownership associated with increased use proxy fights, settlements, likelihood activist achieves or sale targeted company. Our findings suggest that recent growth institutional mitigates free-rider...

ABSTRACT This paper investigates the impact of changes in banking sector on firms’ timely recognition economic losses. In particular, we focus entry foreign banks into India during 1990s, which likely causes an exogenous increase lender demand for loss recognition. Analyzing variation both timing and location new banks’ entries, find that bank is associated with more this positively related to a firm's subsequent debt levels. The change appears driven by shift incentives supply additional...

Passive institutional investors are an increasingly important component of U.S. stock ownership. To examine whether and by which mechanisms passive influence firms’ governance, we exploit variation in ownership mutual funds associated with assignments to the Russell 1000 2000 indexes. Our findings suggest that governance choices, resulting more independent directors, removal takeover defenses, equal voting rights. appear exert through their large blocs, consistent observed differences...

In 2017, “The Big Three” institutional investors launched campaigns to increase gender diversity on corporate boards. We estimate that their led American corporations add at least 2.5 times as many female directors in 2019 they had 2016. Firms increased by identifying candidates beyond managers’ existing networks and placing less emphasis candidates’ executive experience. also promoted more key board positions, indicating firms’ responses went tokenism. Our results highlight index investors’...

This paper discusses empirical methods that rely on Russell 1000/2000 index assignments for identification. Using simulated data, the illustrates why varying approaches reach conflicting conclusions about effect of assignment a firm's ownership structure and corporate policies. Some estimators likely suffer from bias (e.g., those employ sharp regression discontinuity estimation); others do not either use fuzzy or an instrumental variable estimation). The also changes in Russell's methodology...

This paper examines the two-way relationship between managerial compensation and corporate risk by exploiting an unanticipated change in firms’ business risks. The natural experiment provides opportunity to examine two classic questions related incentives — how boards adjust response these affect managers’ risk-taking. We find that, after left-tail increases, reduce exposure stock price movements that less convexity from options-based pay leads greater risk-reducing activities. Specifically,...

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Pursuing delinquent borrowers requires considerable effort, and creditors may lack the incentive to exert this costly effort in uncompetitive banking sectors. To examine this, we use a uniquely large data set of public private corporate bankruptcy filings spanning banking-sector reform that deregulated bank entry across different regions India. We find increased competition is associated with more firms seeking stay on assets, decline duration, shift toward workouts rather than liquidations....

Institutional investors conduct more governance research and are less likely to follow proxy advisor vote recommendations when a company's bonds comprise larger share of their assets. These findings driven by bond holdings, shareholder proposals, companies where fixed-income managers be attentive an interest with equity in improving governance. The do not concentrate on or proposals creditor-shareholder conflicts likely. Overall, the suggest that corporate holdings influence how actively...