A Labor Capital Asset Pricing Model KUEHN, LARS-ALEXANDER; SIMUTIN, MIKHAIL; WANG, JESSIE JIAXU
The Journal of finance (New York),
October 2017, Letnik:
72, Številka:
5
Journal Article
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Odprti dostop
We show that labor search frictions are an important determinant of the cross-section of equity returns. Empirically, we find that firms with low loadings on labor market tighteness outperform firms ...with high loadings by 6% annually. We propose a partial equilibrium labor market model in which heterogeneous firms make dynamic employment decisions under labor search frictions. In the model, loadings on labor market tightness proxy for priced time-variation in the efficiency of the aggregate matching technology. Firms with low loadings are more exposed to adverse matching efficiency shocks and require higher expected stock returns.
Cash holdings of equity mutual funds impose a drag on fund performance but also allow managers to make quick investments in attractive stocks and satisfy outflows without costly fire sales. This ...article shows that actively managed equity funds with high abnormal cash -- that is, with cash holdings in excess of the level predicted by fund attributes -- outperform their low abnormal cash peers by over 2% per year. Managers carrying high abnormal cash compensate for the low return on cash by making superior stock selection decisions, whereas less capable managers find abnormal cash costly and remain more fully invested in equities. Managers of high abnormal cash funds also proficiently satisfy fund outflows and control fund transaction costs, whereas low abnormal cash funds lack flexibility to cover outflows and can suffer from costly fire sales. The empirical evidence suggests that managers carrying abnormal cash benefit from the flexibility it provides despite the costs of holding cash.
Prior theory suggests that time variation in the degree to which leverage constraints bind affects the pricing kernel. We propose a measure for this leverage constraint tightness by inverting the ...argument that constrained investors tilt their portfolios to riskier assets. We show that the average market beta of actively managed mutual funds—intermediaries facing leverage restrictions—captures their desire for leverage and thus the tightness of constraints. Consistent with theory, it strongly predicts returns of the betting-against-beta portfolio, and is a priced risk factor in the cross-section of mutual funds and stocks. Funds with low exposure to the factor outperform high-exposure funds by 5% annually, and for stocks this difference reaches 7%. Our results show that the tightness of leverage constraints has important implications for asset prices.
Industries are economically linked through customer-supplier trade flows. We show that industry shocks propagating along this intersectoral trade network can feed back to the originating industry, ...causing an “echo”–intermediate-term autocorrelation in returns. Adopting techniques from graph theory, we find that the strength of the trade network feedback is a crucial determinant of the echo effect in industry returns. Returns of the echo strategy implemented within high-feedback strength industries reach 1% monthly. Consistent with limited-information models, the relation between feedback strength and echo profits is strongest in industries with information diffusion frictions, such as low analyst coverage, along the feedback loop. Overall, our results identify intersectoral trade networks as important conduits of industry shocks and provide the first explanation for the echo effect.
I document a positive relationship between corporate excess cash holdings and future stock returns. The difference in returns of portfolios of high and low excess cash firms amounts to 5% annually or ...6% after standard three-factor risk adjustment. Firms with more excess cash have higher market betas and earn lower returns during market downturns. High excess cash companies invest considerably more in the future than do their low cash peers, but do not experience stronger future profitability. On the whole, this evidence is consistent with the notion that excess cash holdings proxy for risky growth options.
This paper shows that the gender and age of the wage setter are crucial determinants of the disparity in wages between sexes. We document our findings using a data set on compensation of corporate ...officers that is uniquely suited for this analysis because officer wages are set by chief executive officers (CEOs). We show that CEOs pay officers of the opposite gender less than officers of their own gender, even when controlling for job characteristics. Older and male CEOs exhibit the greatest propensity to differentiate on the basis of sex. Female officers receive smaller raises if the firm is headed by a man. Our results suggest that CEO gender and age are economically more important determinants of officer compensation than are firm stock performance, stock volatility, or return on assets.
This paper was accepted by Uri Gneezy, behavioral economics.
Abstract
Using individual census records, we provide novel evidence on CEOs’ socioeconomic backgrounds and study their role in investment decisions. Male CEOs allocate more investment capital to male ...than female division managers. This gender gap is driven by CEOs who grew up in male-dominated families where the father was the only income earner and had more education than the mother. The gender gap also increases for CEOs who attended all-male high schools and grew up in neighborhoods with greater gender inequality. The effect of gender on capital budgeting introduces frictions and erodes investment efficiency.
Dissecting Conglomerate Valuations BOGUTH, OLIVER; DUCHIN, RAN; SIMUTIN, MIKHAIL
The Journal of finance (New York),
April 2022, Letnik:
77, Številka:
2
Journal Article
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ABSTRACT
We develop a new method to estimate Tobin's Qs of conglomerate divisions without relying on standalone firms. Divisional Qs differ considerably from those of standalone firms across ...industries, over time, and in their sensitivity to economic shocks. The differences are explained by intraconglomerate covariance structures and access to internal capital markets that mitigate external financing frictions. Consequently, the Qs capture variation in the allocation of assets in the economy: within firms through internal capital markets and across focused and diversified firms through diversifying acquisitions. Overall, our method provides opportunities to study the economic mechanisms that explain corporate diversification.
The Fragility of Organization Capital Boguth, Oliver; Newton, David; Simutin, Mikhail
Journal of financial and quantitative analysis,
05/2022, Letnik:
57, Številka:
3
Journal Article
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Firms with high levels of organization capital (OK), a firm-specific production factor provided by key employees, are known to be risky and earn high stock returns. We argue that fragility of OK ...(i.e., its sensitivity to potential disruptions) is an independently important dimension of this risk. We proxy for fragility by the size of the top management team and show that firms with small teams outperform firms with big teams by 5% annually. The return spread increases in the level of OK and correlates with the outside options of top executives. Further supporting our interpretation, shocks to team composition from unexpected deaths of chief executive officers cause larger value losses in smaller teams.
A growing body of evidence suggests that the benefits of international diversification via developed markets have declined dramatically. While emerging markets still offer diversification ...opportunities, their public equity indices capture only a fraction of emerging countries' economic activity. We propose a diversification approach that exploits the global connectedness of developed countries to gain exposure to emerging countries' overall economies rather than their shallow equity markets. In doing so, we demonstrate that developed markets still offer substantial diversification benefits beyond those available through equity indices. Our results suggest that relying on equity indices to assess diversification benefits understates diversification gains.
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