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(1 - 12 of 12)
- Title
- ESSAYS ON MUTUAL FUND GOVERNANCE AND THE ADVISORY FEE CONTRACTS.
- Creator
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ERZURUMLU, YAMAN, Frye, Melissa, University of Central Florida
- Abstract / Description
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This dissertation consists of three studies related to corporate governance of equity mutual funds in a framework of relations between the three closely interrelated actors of mutual fund industry. The mutual fund advisers, the shareholders and the mutual fund board being the advocate of shareholders rights. The first study analyzes the advisory fee, using a survivorship bias free data set of 176 equity funds managed by 125 different advisers. The price of professional portfolio management...
Show moreThis dissertation consists of three studies related to corporate governance of equity mutual funds in a framework of relations between the three closely interrelated actors of mutual fund industry. The mutual fund advisers, the shareholders and the mutual fund board being the advocate of shareholders rights. The first study analyzes the advisory fee, using a survivorship bias free data set of 176 equity funds managed by 125 different advisers. The price of professional portfolio management provided by the mutual fund adviser depends not only on the fund characteristics but also on the fund objective, the adviser's portfolio related and management based decisions, and the portfolio performance. I find that the advisers may reduce their own costs through the use of derivatives or manipulate the actual fee contract by engaging in soft dollar agreements. Advisers actively manage the advisory fee contracts responding to the outcome of their management decisions. The advisory fee increases after voluntary fee reimbursement or if the adviser is not fully reimbursed for certain services. Risk taking behavior is the main motivation behind the structure of advisory contracts. Also, I show that non-surviving funds have higher advisory fees, suggesting competitive fee pricing may be necessary for survival. The second study focuses on the relation between general board characteristics, independent director characteristics and the advisory fee which is solely an outcome of the negotiations between the fund board and the adviser, thus a good proxy for the governance skills of the board. I also examine the impact of SEC's regulation change of 2000. Mutual fund scandals that took place after the regulation change of 2000 suggested that besides the fraction of independent seats, the individual characteristics of the members that occupy board seats are crucial for mutual fund board governance. I find that boards benchmark objective average fee but not necessarily for the best interest of shareholders. Shareholders are likely to benefit from the expertise of members with higher tenure and finance backgrounds. Although increase in board independence is likely to contribute to board governance, the effect of 2000 regulation change of board independence on its arguably target group is limited. Nominating committee improves the board governance. Although the results do not suggest that an independent chairman directly improves board governance, I find modest evidence that the impact of an independent chairman is likely to depend on the expertise of the member that would occupy the chairman seat. Third study analyzes a specific tool, soft dollar arrangements using a survivorship bias free data set of 432 equity funds managed by 129 different advisers. Soft dollar arrangements affect all three actors of mutual fund industry. They are widely used by the advisers, have to be monitored closely by the fund board and eventually affect the overall wealth of shareholders. Fund advisers determine the broker base, scope of brokerage services and whether to self produce or outsource brokerage services through soft dollar arrangements. In return, shareholders expect to benefit from better fund performance and reduction in advisory fee. I find that transaction execution not necessarily motivated by additional brokerage services is likely to be responsible for high turnover. Construction of brokerage base by the adviser is not arbitrary. Advisers ex ante construct the broker base in order to minimize the brokerage commissions and considering ex post soft dollar arrangements. Transaction execution related services lead to less brokerage commissions and soft dollar use while both increase if research is a consideration for broker participation. More concentrated broker base leads to lower brokerage fee and higher soft dollar use. Results indicate that advisers enforce competition within brokerage industry for lower cost of transaction execution. Shareholders benefit from increasing soft dollar use through performance improvement and reduction in advisory fee. Yet, the cost of soft dollar arrangements seems to exceed their benefit to shareholders. If the results indicate competition within brokerage industry for lower cost of transaction execution, the undisclosed premium paid for the additional services are likely to be responsible for this adverse effect.
Show less - Date Issued
- 2006
- Identifier
- CFE0001180, ucf:46874
- Format
- Document (PDF)
- PURL
- http://purl.flvc.org/ucf/fd/CFE0001180
- Title
- THE EFFECT OF CORPORATE SOCIAL RESPONSIBILITY ON FIRM VALUE AND PERFORMANCE.
- Creator
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Maxey, Jennifer E, Frye, Melissa, University of Central Florida
- Abstract / Description
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In this thesis, I test the effects of corporate social responsibility (CSR) on firm valuation and performance from the financial crisis of 2007 to year 2013. Prior research on CSR suggests that CSR is related to firm performance, but the results have not been consistent. My study focuses on the time period following the crisis since trust between firms and stakeholders may be more important following a negative shock. The components of CSR are broken out into environmental, human rights,...
Show moreIn this thesis, I test the effects of corporate social responsibility (CSR) on firm valuation and performance from the financial crisis of 2007 to year 2013. Prior research on CSR suggests that CSR is related to firm performance, but the results have not been consistent. My study focuses on the time period following the crisis since trust between firms and stakeholders may be more important following a negative shock. The components of CSR are broken out into environmental, human rights, diversity, community impact, employee relations, product, and corporate governance. I find evidence that at least some measures of firm performance are positively related to CSR. Specifically, I find that a high CSR score is associated with a high return on assets. I also find a positive relation with Tobin's Q in certain model specifications. The components of CSR that hold the greatest weight in terms of ROA are environmental, employee relations, diversity, and product strengths. Given the importance of these financial performance measures, my results provide support for corporate spending on social capital.
Show less - Date Issued
- 2019
- Identifier
- CFH2000570, ucf:45638
- Format
- Document (PDF)
- PURL
- http://purl.flvc.org/ucf/fd/CFH2000570
- Title
- OPTIMAL INVESTMENT STRATEGIES USING MULTI-PROPERTY COMMERCIAL REAL ESTATE: ANALYSIS OF PRE/POST HOUSING BUBBLE.
- Creator
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Kundiger, Kyle, Frye, Melissa, University of Central Florida
- Abstract / Description
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This paper analyzes theperformance of five commercial real estate property types (office, retail, industrial, apartment, and hotel) between 2000 and 2012 to determine the U.S. housing crisis'simpact on Real Estate investing. Under the concept of Modern Portfolio Theory, the data was analyzed using investment analysis programs to determine correlation, risk/return characteristics, and trade-offs (Sharpe ratio) as well as the optimal allocation among the individual property types. In light of...
Show moreThis paper analyzes theperformance of five commercial real estate property types (office, retail, industrial, apartment, and hotel) between 2000 and 2012 to determine the U.S. housing crisis'simpact on Real Estate investing. Under the concept of Modern Portfolio Theory, the data was analyzed using investment analysis programs to determine correlation, risk/return characteristics, and trade-offs (Sharpe ratio) as well as the optimal allocation among the individual property types. In light of the results, each property type plays a different role in investment strategies in various economic cycles. Some assets are attractive solely based onpotential return, or risk for return tradeoffs; however, through diversification, other property types play valuable roles in hedging risk on investors' target returns.
Show less - Date Issued
- 2012
- Identifier
- CFH0004296, ucf:44935
- Format
- Document (PDF)
- PURL
- http://purl.flvc.org/ucf/fd/CFH0004296
- Title
- ESSAYS ON CORPORATE GOVERNANCE.
- Creator
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Yang, Minhua, Frye, Melissa, University of Central Florida
- Abstract / Description
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This dissertation is composed by two essays that explore the changes in corporate governance around the passage of Sarbanes-Oxley (SOX) 2002. In the first essay, I examine the relation between board structure and compensation as a bargaining game between the board and the CEO. Bargaining game theories describe an endogenous process of determining the structure of director and CEO compensation. The Sarbanes-Oxley Act (SOX) altered the equilibrium of power between the board and CEO by changing...
Show moreThis dissertation is composed by two essays that explore the changes in corporate governance around the passage of Sarbanes-Oxley (SOX) 2002. In the first essay, I examine the relation between board structure and compensation as a bargaining game between the board and the CEO. Bargaining game theories describe an endogenous process of determining the structure of director and CEO compensation. The Sarbanes-Oxley Act (SOX) altered the equilibrium of power between the board and CEO by changing the monitoring role of the board. SOX essentially provides a natural experiment to test how a shock to the bargaining game alters the balance of power between directors and the CEO. Using the ratio of director compensation to CEO compensation to proxy for bargaining power, I find a significant increase following the passage of SOX, consistent with directors gaining bargaining advantage. Moreover, firms with strong shareholder rights exhibit even greater evidence of power shifting to the directors. Overall, the results suggest that directors gain more power relative to the CEO in determining compensation plans and strong shareholder rights help firms to align directors' incentives with those of shareholders. In the second essay, I examine the relation between CEO compensation structure and acquirer returns. In the literature, researchers find that executive compensation structures influence corporate acquisition decisions. Equity-based executive compensation should reduce the non-value-maximizing behavior of acquiring managers. A series of corporate reforms such as SOX and the FASB expensing rule affected the structure of CEO equity-based compensation. I find a significant increase in CEO restricted stock compensation and a significant decrease in CEO option-based compensation following these reforms. I also find that CEOs with strong managerial power are more likely to receive more restricted stock in their compensation package after the 2002 reforms. Finally, I find a significant positive relation between the restricted stock compensation of acquiring firm CEOs and abnormal stock returns after 2002. This provides empirical support on the effectiveness of the shift away from options towards restricted stock in executive compensation packages. Restricted stock is associated with better merger decisions.
Show less - Date Issued
- 2009
- Identifier
- CFE0002916, ucf:48009
- Format
- Document (PDF)
- PURL
- http://purl.flvc.org/ucf/fd/CFE0002916
- Title
- ESSAYS ON CORPORATE GOVERNANCE.
- Creator
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Tan, Tih Koon, Frye, Melissa, University of Central Florida
- Abstract / Description
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This dissertation is composed by two essays that explore corporate governance issues in S&P firms. The first essay examines changes in corporate governance after a firm gets added to the S&P 500 index? Using firms added from 1994 to 2007, this paper examines how governance mechanisms change for these firms. Specifically, I look at both the overall governance and details on how each mechanism changes. I find that governance improves after being added to the index. Controlling for firm size,...
Show moreThis dissertation is composed by two essays that explore corporate governance issues in S&P firms. The first essay examines changes in corporate governance after a firm gets added to the S&P 500 index? Using firms added from 1994 to 2007, this paper examines how governance mechanisms change for these firms. Specifically, I look at both the overall governance and details on how each mechanism changes. I find that governance improves after being added to the index. Controlling for firm size, leverage, prior firm performance, and growth opportunities, the market reacts positively to governance improvements as a whole. In addition, changes in governance are positively associated with changes in operating performance. In the second essay, the departure of a CEO often raises questions about who will replace him/her. This study examines the homogeneity/heterogeneity nature of the internal labor market using a novel measure, a heterogeneity index, which captures the concentration of executive compensation levels. I find that a more homogeneous internal labor market is associated with (1) a greater likelihood of an internal replacement, (2) a higher probability of a CEO turnover, and (3) a bigger tournament prize. In addition, the negative performance-turnover relationship is strengthened by a more homogeneous internal labor market. The heterogeneity index seems to proxy for internal labor market competition.
Show less - Date Issued
- 2010
- Identifier
- CFE0003258, ucf:48549
- Format
- Document (PDF)
- PURL
- http://purl.flvc.org/ucf/fd/CFE0003258
- Title
- HOW HAS THE VALUATION OF TECHNOLOGY IPOS CHANGED SINCE THE DOT-COM BUBBLE?.
- Creator
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Rush, Andrew, Frye, Melissa, Whyte, Ann Marie, University of Central Florida
- Abstract / Description
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In my paper, I extended Aggarwal, Bhagat and Rangan's "The Impact of Fundamentals on IPO Valuation". I examine IPO valuations over three time periods: 2002-2006, 2007-2011 and 2012-2016. In these time periods, I analyze the first day returns these firms experience along with testing the significance of four variables on their valuations: Total Assets, Previous Year's Sales, Previous Year's R&D Expense, and Sales-to-Assets Multiple. The results point to a shift in valuation tactics from...
Show moreIn my paper, I extended Aggarwal, Bhagat and Rangan's "The Impact of Fundamentals on IPO Valuation". I examine IPO valuations over three time periods: 2002-2006, 2007-2011 and 2012-2016. In these time periods, I analyze the first day returns these firms experience along with testing the significance of four variables on their valuations: Total Assets, Previous Year's Sales, Previous Year's R&D Expense, and Sales-to-Assets Multiple. The results point to a shift in valuation tactics from valuing in line with investors' expectations in the early years to undervaluing them in more recent years. Also, Sales and R&D have statistical significance for firm's valuations over recent years while Total Assets remains constant and the Sales-to-Assets multiple does not have significance.
Show less - Date Issued
- 2017
- Identifier
- CFH2000174, ucf:46018
- Format
- Document (PDF)
- PURL
- http://purl.flvc.org/ucf/fd/CFH2000174
- Title
- Three essays on the compensation, structure, and decision making of the board of directors.
- Creator
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Pham, Duong, Frye, Melissa, Turnbull, Geoffrey, Gatchev, Vladimir, Farrell, Kathleen, University of Central Florida
- Abstract / Description
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My first essay examines compensation of newly formed boards of directors following tax-free corporate spin-offs. The empirical results show newly formed spin-off boards are paid significantly more than peer boards in the same industry with similar firm size. Higher compensation is observed for spin-off firms where the CEOs are not formerly employed by the parent firms but not for spin-off firms with parent related CEOs, indicating that new directors demand higher compensation for the work...
Show moreMy first essay examines compensation of newly formed boards of directors following tax-free corporate spin-offs. The empirical results show newly formed spin-off boards are paid significantly more than peer boards in the same industry with similar firm size. Higher compensation is observed for spin-off firms where the CEOs are not formerly employed by the parent firms but not for spin-off firms with parent related CEOs, indicating that new directors demand higher compensation for the work involved in setting up the new governing system for the spun-off firms especially when there is a brand new CEO managing the spinoff firm. Differences in the structure of director compensation are consistent with better incentive alignment for the newly formed spinoff boards who have the rare opportunity to design their compensation from scratch. The paper also finds evidence that limited CEO's influence on the composition of the spinoff board leads to weaker cronyism between the board and the CEO of spinoff firms.My second essay explores the role CEO gender plays in shaping the board of directors. The literature provides strong evidence that male CEOs are more overconfident than female CEOs. I contend that a male CEO, who may overestimate his ability and/or underestimate the monitoring role of the board, will prefer to exert as much control over the board as possible and thus prefer a weaker board. I find consistent results that new male CEOs are more likely to increase board size, decrease board independence, reduce board gender diversification, have worse director attendance and have lower overall board monitoring. In contrast, new female CEOs have more gender diversified boards and are associated with an increase in overall board monitoring intensity. I also find supporting evidence in terms of CEO compensation, where new male CEOs gain more control and are compensated more in both total compensation and equity compensation post transition, consistent with what we expect from a weaker board.iiiMy third essay examines CEO's influence on the board of directors in spinoff firms. CEO's influence on the board of directors has been the main concern for shareholders who entrust the firm board with the task of monitoring the firm CEOs. Current literature shows that the more powerful the CEO, the better he is able to extract rents via his compensation at the expense of shareholders. In this study, I utilize a sample of spinoff firms that need to form a brand new board of directors from scratch to shed more lights on the CEO influence question. Particularly, I hypothesize and find that since spinoff CEOs appointed from the parent firm have more influence over the selection of spinoff directors, they enjoy higher compensation with lower pay-performance sensitivity (PPS) and have lower turnover-performance sensitivity than CEOs at similar non-spinoff firms. In contrast, spinoff CEOs hired from outside the pre-spinoff business have similar compensation, PPS and turnover-performance sensitivity to their peers. The results provide supporting evidence for the CEO influence hypothesis and show that limiting CEO's involvement in the selection of directors might help mitigate subsequent CEO rent seeking behavior.
Show less - Date Issued
- 2017
- Identifier
- CFE0006639, ucf:51245
- Format
- Document (PDF)
- PURL
- http://purl.flvc.org/ucf/fd/CFE0006639
- Title
- Three Essays on Investments: An Examination of the Effects of Diversification and Taxes.
- Creator
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Hurst, Matthew, Anderson, Randy, Chen, Honghui, Schnitzlein, Charles, Frye, Melissa, Schmitt, Donna, University of Central Florida
- Abstract / Description
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Chapter 1 examines the effect of property-type diversification in equity real estate investment trusts (REITs) from 1995 to 2006. A strong positive relationship is documented between property-type diversification and return on assets, return on equity, and Tobin's Q. The diversification benefit comes from both the ability to select better performing property types in (")hot(") markets and the limited exposure to poorly performing property types in (")cold(") markets. Diversified REITs produce...
Show moreChapter 1 examines the effect of property-type diversification in equity real estate investment trusts (REITs) from 1995 to 2006. A strong positive relationship is documented between property-type diversification and return on assets, return on equity, and Tobin's Q. The diversification benefit comes from both the ability to select better performing property types in (")hot(") markets and the limited exposure to poorly performing property types in (")cold(") markets. Diversified REITs produce higher cash flows relative to equity as a result of a broader opportunity set; moreover, return on assets increases with the degree of diversification, which suggests significant shielding to property-type specific risk. Additionally, results indicate that diversified REITs operate and trade above their contemporaneous predicted values, which are calculated using imputed multipliers from specialized REITs. The evidence shows that the market is operating efficiently and has incorporated this information; diversified REITs Q ratios are significantly greater than specialized REITs.Chapter 2 uses a large sample of municipal bond closed-end funds to examine how tax liability affects seasonal trading. Optimal tax trading dictates that net tax liability be calculated after all trades. Investors' net tax liability is held in a holding account of his or her choosing. This study investigates what happens when there is tax liability in excess of Safe Harbor, and tax holding accounts are liquidated to cover the payments. We find that there exists a pattern of negative returns and increased volume in the month of March that is unexplained by changes in yield. Chapter 3 examines the ex-dividend day effect for municipal bond closed-end. The proposed explanations for this phenomenon are tax effects, short-term trading and/or market microstructure effects. In this study I use a unique set of dividend distributions to provide additional evidence that ex-dividend behavior is related to taxation as well as short-term trading. The sample I use is comprised of dividends in nontaxable closed-end funds, which ordinarily are not subject to Federal Income Tax. However, there is an occasional distribution that is subject to capital gains or ordinary income tax. This provides a unique environment in which to study the ex-dividend price behavior of a fund while eliminating the need for comparisons across funds.
Show less - Date Issued
- 2012
- Identifier
- CFE0004549, ucf:49228
- Format
- Document (PDF)
- PURL
- http://purl.flvc.org/ucf/fd/CFE0004549
- Title
- Essays on the Effect of Excess Compensation and Governance Changes on Firm Value.
- Creator
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Dah, Mustafa, Frye, Melissa, Whyte, Ann, Gatchev, Vladimir, Schnitzlein, Charles, Campbell, Terry, University of Central Florida
- Abstract / Description
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This dissertation consists of three essays on the effect of excess compensation and corporate governance changes on the firm's performance. The first paper utilizes a cost minimization stochastic frontier approach to investigate the efficiency of director total compensation. Our findings suggest that board members are over compensated. We show that, on average, the director actual compensation level is above the efficient compensation level by around 63%. Our results suggest that an increase...
Show moreThis dissertation consists of three essays on the effect of excess compensation and corporate governance changes on the firm's performance. The first paper utilizes a cost minimization stochastic frontier approach to investigate the efficiency of director total compensation. Our findings suggest that board members are over compensated. We show that, on average, the director actual compensation level is above the efficient compensation level by around 63%. Our results suggest that an increase in director excess compensation decreases the likelihood of CEO turnover, reduces the turnover-performance sensitivity, and increases managerial entrenchment. Thus, the surplus in director compensation is directly associated with managerial job security and entrenchment. Furthermore, although director excess compensation is not significantly inversely related to the firm's future performance, it has an indirect negative effect on future performance through its impact on the entrenchment-performance relationship. Therefore, this essay proposes that the overcompensation of directors is directly associated with a board culture predicated by mutual back-scratching and collusion between the CEO and the board members. The second essay tests the effect of an exogenous shock, the Sarbanes-Oxley Act (SOX) of 2002, on the structure of corporate boards and their efficiency as a monitoring mechanism. The results suggest an increase in the participation of independent directors at the expense of insiders. Consequently, we investigate the implications of board composition changes on CEO turnover and firm value. We document a noticeable reduction in CEO turnover in the post-SOX period. We also demonstrate that, after SOX, a board dominated by independent directors is less likely to remove a CEO due to poor performance. Finally, we highlight a negative association between the change in board composition and firm value. We propose that our findings are predicated on an off equilibrium result whereby firms were forced to modify their endogenously chosen board composition. Therefore, contrary to the legislators' objectives, we suggest that the change in board structure brought about inefficient monitoring and promoted an unfavorable tradeoff between independent directors and insiders. The third essay examines the relationship between the firm's governance structure and its value during different economic conditions. We show that both relative industry turnover and CEO entrenchment increase during economic downturns. We also find that relative industry turnover and managerial entrenchment have opposite impacts on the value of the firm throughout the recessionary period. While industry turnover leads to an appreciation in firm value, managerial entrenchment reduces shareholders' wealth. The negative impact of managerial entrenchment on firm value, however, outweighs the positive impact of industry turnover. Accordingly, we propose that a recession provides managers with a good opportunity to camouflage their behavior and extract more private benefits and, thus, blame the poor performance on bad economic conditions.
Show less - Date Issued
- 2012
- Identifier
- CFE0004202, ucf:49029
- Format
- Document (PDF)
- PURL
- http://purl.flvc.org/ucf/fd/CFE0004202
- Title
- Three Essays on Market Efficiency and Corporate Diversification.
- Creator
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Jaber Hyder, Fawzi, Chen, Honghui, Gatchev, Vladimir, Frye, Melissa, Choi, Yoon, Schnitzlein, Charles, University of Central Florida
- Abstract / Description
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In my first essay, I use additions to the S(&)P 500 index as a laboratory to investigate how the interaction between arbitrageurs and arbitrage risk affects security prices. I find that the price effect is strong when there is high arbitrage risk (as measured by the lack of close substitutes) and low presence of arbitrageurs (as measured by low ownership by active institutions). Furthermore, a strong presence of arbitrageurs moderates the effect of arbitrage risk on the post-addition price...
Show moreIn my first essay, I use additions to the S(&)P 500 index as a laboratory to investigate how the interaction between arbitrageurs and arbitrage risk affects security prices. I find that the price effect is strong when there is high arbitrage risk (as measured by the lack of close substitutes) and low presence of arbitrageurs (as measured by low ownership by active institutions). Furthermore, a strong presence of arbitrageurs moderates the effect of arbitrage risk on the post-addition price reaction of added stocks. I also find a significant decrease in arbitrageurs' ownership in the added stocks post addition. More importantly, this decrease is accompanied by a significant increase in arbitrageurs' ownership in the added stocks' close substitutes. My second essay examines the sensitivity of investments to changes in investment opportunities for diversified and for single-segment firms. Because many concerns have been raised about existing proxies of investment opportunities, I introduce and examine the empirical performance of a new proxy based on financial analysts' earnings forecasts. The findings are consistent with the idea that firms respond efficiently to changes in investment opportunities. I find that firms increase (decrease) their capital expenditures when there is a favorable (unfavorable) change in opportunities. In addition, I find that diversified firms are more sensitive to changes in investment opportunities than are single-segment firms and that much of the difference in investment behavior between the two types of firms is explained by changes in investment opportunities. My findings are consistent with the idea that, when compared to single-segment firms, diversified firms use their larger internal capital markets and enjoy a less constrained response to changes in investment opportunities. The overall findings are in contrast to existing evidence that diversified firms allocate resources inefficiently.In my third essay, I investigate how the diversification discount depends on internal and external governance control mechanisms. The study uses CEO power to measure internal control and institutional ownership to measure external control. I find that CEO power has a negative effect on firm value and that this effect is greater for diversified firms. I also find that while institutional ownership is positively related to the value of single-segment firms it is not significantly related to the value of multi-segment firms. The overall findings that the diversification discount is more pronounced for firms with weaker internal and external governance control mechanisms support the hypothesis that governance control mechanisms are less effective in diversified firms than in single-segment firms.
Show less - Date Issued
- 2017
- Identifier
- CFE0006606, ucf:51265
- Format
- Document (PDF)
- PURL
- http://purl.flvc.org/ucf/fd/CFE0006606
- Title
- Three Essays on Asset Pricing in Security and Housing Markets.
- Creator
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Zheng, Minrong, Chen, Honghui, Turnbull, Geoffrey, Frye, Melissa, Zahirovic-Herbert, Velma, University of Central Florida
- Abstract / Description
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In my first essay, I investigate the relationship between IPO long-run underperformance (Ritter, 1991) and the idiosyncratic risk puzzle (Ang, Hodrick, Xing and Zhang, 2006), the phenomenon of abnormally low returns for stocks with high idiosyncratic risk. I show that IPO long-run underperformance is in fact a manifestation of the surprisingly low returns for high idiosyncratic risk stocks. IPO underperformance disappears after I control for the idiosyncratic risk. Specifically, the...
Show moreIn my first essay, I investigate the relationship between IPO long-run underperformance (Ritter, 1991) and the idiosyncratic risk puzzle (Ang, Hodrick, Xing and Zhang, 2006), the phenomenon of abnormally low returns for stocks with high idiosyncratic risk. I show that IPO long-run underperformance is in fact a manifestation of the surprisingly low returns for high idiosyncratic risk stocks. IPO underperformance disappears after I control for the idiosyncratic risk. Specifically, the underperformance of IPO firms only presents following the months in which they are classified into the highest idiosyncratic risk quintile. On the other hand, I find that the idiosyncratic risk puzzle is magnified by the IPO underperformance for two reasons. First, IPOs are over-represented in the highest volatility quintile. Second, while stocks in the highest volatility quintile underperform in general, the intra-quintile underperformance is substantially more severe for the IPO firms. My results are robust to different sample requirements. My second essay examines school quality and quality risk capitalization when school quality is uncertain, taking into account uncertainty induced by low signal content in quality measures available to parents or stochastic quality outcomes. Extending the residential bid rent theory to the uncertainty environment, the theory shows that greater school quality increases housing prices steepens the price gradient, whereas the quality risk decreases the housing prices and flattens the price gradient. The empirical models incorporate two sources of quality risk, the variance in measured school quality and school attendance zone instability. Coupling an output based measure using the over-period average of school normalized math test scores based on the Orange County public elementary school average scores with an input based measure using student/teacher ratios provides quality measures that appear to correlate sufficiently with parents' perceptions of elementary school quality, but school peer effects play important role as well. Estimates reveal capitalization of quality and uncertainty that are consistent with theory as well as systematic patterns across housing market phases and neighborhood in income level. My third essay is a meta-analysis of the body of empirical results for school quality capitalization in house prices. One puzzling aspect of the housing markets literature is that, while public school quality is a major concern of many households, empirical studies of school quality capitalization into house prices yield mixed and sometimes inconsistent results not only across studies, but also within studies when using different school quality measures and models. These differences are reflected in the capitalization coefficient value, level of significance, and even direction of capitalization effects. This paper conducts meta-analysis of the school quality capitalization estimates to identify the factors contributing to this variation. It reveals that the way the school quality is measured matters. Peer effects measures yield less significant capitalization estimates than input and output based measures and value added measures exhibit lower significance than other output based measures. Moreover, both boundary fixed effects and neighborhood fixed effect approaches can effectively and significantly control for the influence of neighborhood amenities. Adding more school quality variables reduces the capitalization significance of individual school quality variables. The most unexpected finding is that school quality capitalization significance is much less in the South than in other regions. Also surprising is that econometric methods do not appear to be driving results.
Show less - Date Issued
- 2016
- Identifier
- CFE0006518, ucf:51358
- Format
- Document (PDF)
- PURL
- http://purl.flvc.org/ucf/fd/CFE0006518
- Title
- Two Essays on Investors' Attention to Economically Linked Firms.
- Creator
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Khoshnoud, Mahsa, Chen, Honghui, Frye, Melissa, Gatchev, Vladimir, Turnbull, Geoffrey, Harrison, David, Roberts, Robin, University of Central Florida
- Abstract / Description
-
My first essay examines the degree to which the market prices of publicly traded firms reflect and respond to new information regarding the economic viability and vitality of organizations to which they are strategically linked. More specifically, I exploit the uniquely transparent nature of the lessor-lessee relationship across commercial real estate markets to evaluate whether future returns to real estate investment trusts (REITs) are systematically affected by the financial return...
Show moreMy first essay examines the degree to which the market prices of publicly traded firms reflect and respond to new information regarding the economic viability and vitality of organizations to which they are strategically linked. More specifically, I exploit the uniquely transparent nature of the lessor-lessee relationship across commercial real estate markets to evaluate whether future returns to real estate investment trusts (REITs) are systematically affected by the financial return performance and/or operational opacity of the tenants who lease their investment properties. Using a hand collected data set identifying the principal tenants of 96 publicly traded REITs, I find those firms with the best performing tenants generate annualized abnormal returns which are approximately six percent higher than those realized by REITs with the worst performing tenants. These results are robust to a variety of model specifications, and a closer inspection of the results reveals these performance differentials are consistent with emerging evidence across the literature suggesting investors' limited attention materially influences the return predictability of assets. With respect to the current investigation, I thus conclude investors' limited attention leads to the failure of REIT prices to fully reflect the valuation implications of their tenants' return performance.My second essay investigates how sophisticated investors, such as short sellers, trade on information along the supply chain. Short sellers are known to be generally better informed than common investors. Given the economic linkages that exist between the suppliers and customers, one would expect short sellers to trade on such information. My results indicate that short interest predicts unexpected earnings news, consistent with short sellers extracting information from economic relationships. When I evaluate stock return and short interests in regression analysis, I find strong negative relation between short interest in supplier firm and the future stock returns for the customer firm for the return in the next month. The negative relation persists for twelve months. I find similar results from portfolio approach. I argue that one plausible channel that explains the information content of supplier (customer) firm's short interest for the customer (supplier) firms is short sale constraints on the customer (supplier) firms. My results are consistent with this explanation. Overall, my findings suggest that short sellers play an important role in the price discovery of related firms on supply chain, beyond their direct effects documented previously.
Show less - Date Issued
- 2017
- Identifier
- CFE0006755, ucf:51842
- Format
- Document (PDF)
- PURL
- http://purl.flvc.org/ucf/fd/CFE0006755
