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Company & Finance: Faculty Publications

This page features faculty publications indexed in the Business Source Premier and EconLit databases and published in the last calendar year (2021).  BYU Finance faculty names are highlighted.  Click on the title image to view the article record and download or request the full text.

Recent Finance Faculty Publications

Abstract:  Many observers have argued that the fall in RMBS prices during the crisis was partly caused by fire sales. Using a unique dataset of RMBS transactions for insurance companies, we show evidence supportive of a role, at the transaction level, of forced sales that occurred at discounted prices relative to fundamentals, and find that the RMBS market behaved as a whole as would be expected in the presence of fire sales. We show that risk-sensitive capital requirements and mark-to-market accounting can jointly create incentives for financial institutions subject to adverse capital shocks to sell stressed securities.

Merrill, C. B., Nadauld, T. D., Stulz, R. M., & Sherlun, S. M. (2021). Were there fire sales in the RMBS market? Journal of Monetary Economics, 122, 17–37.

Abstract:  Using loan-level data on millions of used-car transactions across hundreds of lenders, we study the consumer response to exogenous variation in credit terms. Borrowers offered shorter maturity decrease expenditures enough to offset 60% to 90% of the monthly payment increase. Most of this is driven by shifting toward lower-quality cars, but affected borrowers offset 20% to 30% of a monthly payment shock by negotiating lower prices for equivalent cars. Our results suggest that durable goods prices adjust to reflect credit terms even at the individual level, with one year of additional loan maturity increasing a car's price by 2.8%.

Argyle, B., Nadauld, T., Palmer, C., & Pratt, R. (2021). The capitalization of consumer financing into durable goods prices. Journal of Finance, 76(1), 169–210.

Abstract:  Using a sample of 1,429 seasoned equity offerings (SEOs) by real estate investment trusts (REITs), we use content analysis to test whether the soft information in a company's offering prospectus influences SEO underpricing. After controlling for relevant variables, we find that companies that use more positive (negative) words in their filings are negatively (positively) related to SEO underpricing. We posit that in REIT SEOs more positive and fewer negative words decrease investor pricing uncertainty (fear) of the offer and as a result experience less underpricing.

Brau, J. C., Carpenter, J. T., Cicon, J. E., & Howton, S. (2021). Soft information and the underpricing of REIT seasoned equity offerings. Journal of Real Estate Portfolio Management, 27(2), 137–148. https://doi.org/10.1080/10835547.2021.2008591

Abstract:  Cross-border investment in non-listed real estate is on the rise. This article aims to compare the U.S. NFI-ODCE index with the European INREV ODCE index and the recently released Asian ANREV ODCE index with the hope that this study will be helpful to cross-border investors in these major markets. From 2016 through 2020 (five years), we found that the NCREIF fund count remained relatively flat, but the INREV and ANREV fund count increase steadily. At the end of 2020, NCREIF's GAV was 270 billion dollars compared with INREVs 39 billion dollars and ANREV's 16 billion dollars, a considerable size difference between the U.S. and the other two. However, much smaller ANREV Gross Asset Value grew much faster. When we calculated the 12-month rolling returns for the respective regions, we found that ANREV realized a 12-month rolling total return of 7.59% compared with INREV at 5.52% and NCREIF at 5.28%. When looking at a longer time period of 4 ½ years, we calculated a lower SHARP Ratio of 1.36 for ANREV compared to INREV at 2.28 and NCREIF at 2.32, demonstrating that INREV and NCREIF have similar and more favorable reward to risk ratios than ANREV. Further analysis found that the INREV and NCREIF ODCE indices are highly correlated, but we found that they were not cointegrated; therefore, we could not use one index to predict the values in the other. We encourage caution when generalizing these results since they are based on relatively short periods. It will be interesting to make these comparisons again when we have a long history of performance for the INREV and ANREV indices.

Slade, B. A., Fisher, J. D., & D’Alessandro, J. (2021). A comparison of NCREIF, INREV, and ANREV open-end core fund indices. Journal of Real Estate Portfolio Management, 27(2), 89–103. https://doi.org/10.1080/10835547.2021.2003506

Abstract:  Compiling new liability-level data from the balance sheets of personal bankruptcy filers, we document that a sizable share of reported liabilities are "shadow debt," debt not reported to credit bureaus that often arises from the non-payment of goods and services. We use this new data to evaluate how debtor cash flows affect when consumers file for bankruptcy and how much debt they have at bankruptcy. We find that filers respond to a quasi-exogenous $100 increase in monthly cash flows by delaying filing by an average of one month and by increasing unsecured indebtedness by $4,000 in the months preceding filing. A large share of the additional debt incurred by delaying filers is shadow debt, and our effects are concentrated among filers without employment, health, or marriage shocks.

Argyle, B., Iverson, B., Nadauld, T. D., & Palmer, C. (2021). Personal bankruptcy and the accumulation of shadow debt. NBER Working Papers, 28901. https://doi.org/http://www.nber.org/papers/w28901.pdf

Abstract:  Standard measures of private equity performance based on cash flows overlook discount rate risk. An index constructed from prices paid in secondary market transactions indicates that private equity discount rates vary considerably. While the standard alpha for our index is zero, measures of performance based on cash flow data for funds in our index are large and positive. To illustrate that results are not driven by idiosyncrasies of private equity secondary markets, we obtain similar results using cash flows and returns of synthetic funds that invest in small cap stocks. Ignoring variation in PE discount rates can lead to a misallocation of capital.

Boyer, B., Nadauld, T. D., Vorkink, K. P., & Weisbach, M. S. (2021). Discount rate risk in rrivate equity: Evidence from secondary market transactions. NBER Working Papers, 28691.  https://doi.org/http://www.nber.org/papers/w28691.pdf

Abstract:  We link a seemingly biased trading behavior to equilibrium asset prices. U.S. equity mutual fund managers tend to sell both their big winners and big losers. This selling pressure pushes down current prices and leads to higher future returns; aggregating across funds, we find that securities for which investors have large unrealized gains and losses outperform in the subsequent month. Funds with larger turnover, shorter holding period, and higher expense ratios, are significantly more likely to manifest this trading pattern, and unrealized profits from such funds have stronger return predictability. This cross-sectional return predictability is difficult to reconcile with alternative explanations.

An, L., & Argyle, B. (2021). Overselling winners and losers: How mutual fund managers’ trading behavior affects asset prices. Journal of Financial Markets, 55.

Abstract:  U.S. state pensions are underfunded by trillions of dollars, but their economic burden is unclear. In a model of inefficient taxation, real estate fully reflects the cost of pension shortfalls when it is the only form of immobile capital. We study the effect of pension shortfalls on real estate values at state borders, where labor and physical capital could more easily relocate to a state with a smaller shortfall. Using plausibly exogenous variation driven by pension asset returns, we find that one dollar of pension underfunding reduces house prices near state borders by approximately two dollars. Our estimates imply a deadweight loss associated with addressing pension shortfalls that is consistent with prior research in settings with high returns to public spending and costs of taxation.

Aiello, D., Bernstein, A., Kargar, M., Lewis, R., & Schwert, M. (2021). The economic burden of pension shortfalls: Evidence from house prices. NBER Working Papers, 29405.  https://doi.org/http://www.nber.org/papers/w29405.pdf

Abstract:  With the onset of the COVID-19 crisis in March 2020, small business lending through fintech lenders collapsed. We explore the reasons for the market shutdown using detailed data about loan applications, offers, and take-up from a major small business fintech credit platform. We document that while the number of loan applications increased sharply early in March 2020, the supply of credit collapsed as online lenders dropped from the platform and the likelihood of applicants receiving loan offers fell precipitously. Our analysis shows that the drying up of the loan supply is most consistent with fintech lenders becoming financially constrained and losing their ability to fund new loans.

Ben-David, I., Johnson, M. J., & Stulz, R. M. (2021). Why did small business fintech lending dry up during March 2020? NBER Working Papers, 29205. https://doi.org/http://www.nber.org/papers/w29205.pdf

Abstract:  Across a broad range of equipment types and industries, we document a pattern of local capital reallocation from older firms to younger firms. Start-ups purchase a disproportionate share of old physical capital previously owned by more mature firms. The evidence is consistent with financial constraints driving differential demand for vintage capital. The local supply of used capital influences start-up entry, job creation, investment choices, and growth, particularly when capital is immobile. Conversely, incumbents accelerate capital replacement in the presence of more young firms. The evidence suggests previously undocumented benefits to co-location between old and young firms.

Ma, S., Murfin, J., & Pratt, R. D. (2021). Young firms, old capital. NBER Working Papers, 29189.  https://doi.org/http://www.nber.org/papers/w29189.pdf