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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 (2022).  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: I document large variation in empirical methodology in corporate finance regressions in top finance journals. Although methodological variation allows for customization of empirical tests to fit specific theories, it can also enable excessive reporting of statistically significant results. For example, given discretion over 10 routine methodological decisions, a researcher could report that over 70% of randomly generated variables are statistically significant determinants of leverage at the 5% level. The methodological decisions that affect statistical significance the most are dependent variable selection, variable transformation, and outlier treatment. I discuss remedies that can mitigate the negative effects of methodological variation

Mitton, T. (2022). Methodological Variation in Empirical Corporate Finance. Review of Financial Studies, 35(2), 527–575.


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. (2022). Young Firms, Old Capital. Journal of Financial Economics, 146(1), 331–356.

Abstract:  We analyze the interaction between management and investors during Chinese IPO roadshows through Jaccard Similarity analysis of written Chinese logograms. We provide evidence that when agreement is high, investor optimism increases, leading to relatively large first-day underpricing. We further show that high agreement biases investors to systematically overestimate IPO prospects leading to poor long-run abnormal performance. Jaccard Similarity is different from current content analysis methodologies because it is language and culture agnostic, requiring no a priori construction of thematic dictionaries. Elimination of such dictionaries removes the danger that the researcher has imposed predispositions upon the study.

Brau, J. C., Cicon, J., & Owen, S. R. (2022). A Textual Analysis of Logograms in Chinese IPO Roadshows: How Agreement between Investors and Management Relates to Pricing and Performance. International Journal of Financial Studies, 10(2), 1–24.

Abstract:  Financially constrained mortgage servicers destroyed substantial MBS investor value during the financial crisis through their management of delinquent mortgages. Servicers advance to investors monthly payments missed by borrowers. In order to minimize this obligation to extend financing to distressed borrowers, constrained servicers aggressively pursued foreclosures and modifications at the expense of investors, borrowers, and future mortgage performance. When agency frictions between the servicer and the investor are higher, the servicer's financial constraints matter more. IV regressions suggest that, on average per defaulted loan, servicers' financial constraints are responsible for 20% of the total investor value reduction during the financial crisis.

Aiello, D. J. (2022). Financially Constrained Mortgage Servicers. Journal of Financial Economics, 144(2), 590–610.

Abstract:  This paper studies the adoption and impact of prize-linked savings (PLS) accounts, which offer lottery-like payouts to individual account holders in lieu of interest. Using microlevel data from a bank in South Africa, we show that PLS is attractive to a broad group of individuals, with financially constrained individuals and those with no other deposit accounts particularly likely to participate. Individuals who choose to use PLS increase their total savings on average by 1% of annual income. Exploiting the random assignment of prizes, we present causal evidence that PLS substitutes for lottery gambling but is a complement to standard savings. This paper was accepted by Tyler Shumway, finance.

Cole, S., Iverson, B., & Tufano, P. (2022). Can Gambling Increase Savings? Empirical Evidence on Prize-Linked Savings Accounts. Management Science, 68(5), 3282–3308.