For more information about the Mitsui Finance Brown Bag Series, please contact Gabriella Ring at [email protected].
The audience for these brown bags is generally faculty and doctoral students.
march 12
Title: Public Information and the Securities Lending with Kevin Smith (Stanford)
Abstract: We develop a dynamic model to study how the securities lending market affects the trading and pricing of a stock around the arrival of public information. When investors disagree about the firm’s value but agree about how to interpret a public news event given this value, loan fees rise before and fall after the event in proportion to its informativeness. The news reduces the expected stock price after its release when the demand for shorting is high, but has no impact on the pre-announcement price. If little information is expected to arrive, the price can be significantly inflated even when the loan fee is low. When investors disagree more about the news than about firm value, only investors with extreme beliefs take positions before the announcement and the news increases firms’ ex-ante valuations by encouraging trade.
Time: 11:45 a.m. - 12:45 p.m.
Location: R1220
march 19
Title: Retail Investors and Corporate Governance: Evidence from Zero-Commission Trading
Abstract: We examine the effects of the sudden abolition of trading commissions by major brokerages in 2019 and subsequent increase in retail-investor base on corporate governance. Firms with greater retail ownership experienced greater positive abnormal returns around the abolition of commissions. Firms with positive abnormal returns in response to the abolition of commissions subsequently saw decreases in institutional ownership, shareholder voting, and corporate governance scores. These firms also reduced the percentage of shares needed for a quorum at shareholder meetings. Our results show that entry costs influence retail ownership and influence on corporate governance.
Time: 11:45 a.m. - 12:45 p.m.
Location: R1220
march 26
Title: Incentive Issues in ESG ratings
Abstract: This paper examines incentive issues associated with ESG ratings in a sustainable investment environment with delegated asset management. Within a rational expectations framework, I identify two equilibrium outcomes: one where a rating agency provides unbiased information due to strong investor non-pecuniary preferences, and another where the agency inflates ratings to attract fund investments. The analysis characterizes conditions under which a rating agency may distort scores to cater to fund managers' interests, highlighting potential agency problems that could undermine the reliability of ESG ratings.
Time: 11:45 a.m. - 12:45 p.m.
Location: R1220
april 2
Title: When Banks Move Out, What Moves In?
Abstract: We examine how local consumer financial services markets respond to the exit of traditional banks. Using detailed establishment-level data and exogenous branch closures due to mergers, we show that bank exit leads to a decline in the entry of nonbank financial service providers. The reduction is concentrated among businesses offering depository services, such as check cashing outlets, money transfer firms, and ATMs. These results underscore the complementarity between banks and other financial service providers and highlight the broader risks to assess, especially in areas vulnerable to becoming banking deserts.
Time: 11:45 a.m. - 12:45 p.m.
Location: R1220
april 9
Title: Investor Expertise and Private Investment Selection
Abstract: Individual investors own 50% of global assets but only 16% of private market assets. As regulations expand individual investor access to private markets, we examine how they select venture capital funds compared to professional investors. In a survey experiment with 593 professional and 445 individual investors, we find that while both groups prioritize returns, they differ systematically in how they evaluate general partners (GPs). Professional investors heavily weight track records and avoid first-time funds, while individual investors show no response to past performance and instead weakly emphasize educational backgrounds and location. We develop a risk-averse benchmark model to evaluate these behaviors, finding that professional investors' preferences are consistent with a fund selection strategy aligned with historical VC performance, while individual investors' selections deviate significantly from this benchmark. Using historical transition probabilities between performance quartiles, we estimate that these selection differences alone could result in returns that are 12.44% lower. Our estimates suggest that fund selection accounts for about 20% of the total performance gap when considering fund access constraints. Using observational data, we confirm that funds with more individual investors achieve significantly worse exit performance and have weaker performance persistence. The systematic differences in how individual investors select funds could lead to substantially lower returns, even if they had equal access to investment opportunities.
Time: 11:45 a.m. - 12:45 p.m.
Location: R1220
april 16
Title: Credit Market Consequences of Social Norm Violations: Evidence from an Infidelity Platform Data Breach
Abstract: Intrahousehold financial health are determined by spouses’ individual decisions and preferences, yet marriage dynamics are often unobserved. We exploit the exogenous shock of the 2015 Ashley Madison data breach to examine how the public revelation of extramarital intentions affects households’ financial outcomes. Linking leaked user records to a consumer credit panel, we employ a difference-in-differences approach to estimate changes in credit scores, delinquencies, and the likelihood of divorce. Our results indicate that public exposure to infidelity constrains households’ credit expansion, with important dynamic effects. Additional evidence suggests that households adjust their financial behavior by reducing joint credit commitments in the aftermath of the breach, and men, in particular, experience worse credit outcomes when compared to women. These results highlight how information about marriage quality can impact household financial outcomes and have broader societal consequences.
Time: 11:45 a.m. - 12:45 p.m.
Location: R1220
april 23
Title: Breaking the Bond: The Effect of Banker Turnover on Municipal Bonds
Abstract: This paper explores which relationships—those with banks or those with bankers—provide more value to borrowers. A key identification strategy exploits the quasi-exogenous shock from the 2021 Texas underwriter ban, which barred five of the largest banks from underwriting municipal bonds in the state and triggered widespread banker departures from the banned banks. Using novel data on individual banker career moves, I analyze how banker switches impact financing outcomes for municipalities. I find that borrowers tend to follow their relationship banker to a new bank, with municipalities affected by the ban doing so at twice the rate of unaffected ones. By following their banker, borrowers mitigate the negative effects of losing their connection to a bank. After the ban, affected issuers pay 5.4 basis points more in yield relative to unaffected issuers. However, among affected issuers, those who follow their banker pay 15.6 basis points less than those who do not. These results underscore the importance of human capital in underwriting.
Time: 11:45 a.m. - 12:45 p.m.
Location: R1220