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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 (2023).  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: As lot area increases, it is commonly believed that land prices will increase at a non-constant rate. In the case where the land price-area curve increases at a decreasing rate with respect to parcel area, it is believed the cost of subdividing land is the driving factor behind the concavity. This paper uses a unique data set to explore how the area elasticity of price changes over the development cycle as land moves from raw land to finished lots. The results show the area elasticity of price increases as parcels of land move through the phases of development. The results also show concavity in the price-quantity (of lots) curve—as the number of lots bundled in a transaction increases, total price increases at a decreasing rate.

Munneke, Henry J., Sirmans, C.F., Slade, Barrett (2023). Land Prices and the Development Process. Journal of Real Estate Finance and Economics, 67(2). 

Abstract: This paper uses transaction-level data across millions of accounts to identify cryptocurrency investors and evaluate how fluctuations in individual crypto wealth affect household consumption, equity investment, and local real estate markets. We estimate an MPC out of unrealized crypto gains that is more than double the MPC out of unrealized equity gains but smaller than the MPC from exogenous cash flow shocks. This MPC is mostly driven by increases in cash/check spending and mortgages. Moreover, households sell crypto to increase both discretionary as well as housing spending. As a result, crypto wealth causes house price appreciation--counties with higher crypto wealth see higher growth in home values following high crypto returns. Our results indicate that cryptocurrencies have substantial spillover effects on the real economy through consumption and investment into other asset classes.

Aiello, Darren, Baker, Scott R., Balyuk, Tetyana, Di Maggio, Marco, Johnson, Mark J., Kotter, Jason D. (2023). The Effects of Cryptocurrency Wealth on Household Consumption and Investment. National Bureau of Economic Research, Working Papers, 31445.

Abstract: We provide a first look into the drivers of household cryptocurrency investing. Analyzing consumer transaction data for millions of U.S. households, we find that, except for high income early adopters, cryptocurrency investors resemble the general population. These investors span all income levels, with most dollars coming from high-income individuals, similar to equity investors. High past crypto returns and personal income shocks lead to increased cryptocurrency investments. Higher household-level inflation expectations also correlate with greater crypto investments, aligning with hedging motives. For most U.S. households, cryptocurrencies are treated like traditional assets.

Aiello, Darren, Baker, Scott R., Balyuk, Tetyana, Di Maggio, Marco, Johnson, Mark J., Kotter, Jason D. (2023). Who Invests in Crypto? Wealth, Financial Constraints, and Risk Attitudes. National Bureau of Economic Research, Working Papers, 31856.

Abstract: Using inventory turnover to measure the efficiency of corporate inventory management, we perform econometric analyses to verify whether the inventory efficiency of a firm's supply chain partners is a statistically significant driver of the firm's own inventory efficiency. We test two mutually exclusive hypotheses. First, suppliers hold inventory on behalf of customers, effectively displacing inventory up the supply chain and resulting in a negative correlation between supplier and customer inventory turnover. Alternatively, inventory efficiency is integrated along the supply chain, resulting in a positive correlation between supplier and customer inventory turnover. Our bivariate and multivariate analyses of both firm- and industry-level data support the "integration" hypothesis of higher inventory efficiency along the supply chain. Our findings highlight the importance of expanding the research and practice of working capital management beyond the firm-level.

Henry, Joseph J., Christensen, Peter, Brau, James C. (2023). Interrelationships in Inventory Turnover Performance Between Supplier and Customer Firms. Business & Economics Research Journal, 14(2), 157-171.

Abstract: Persistent and difficult methodological issues, such as those highlighted in Ohlson J. (2022. Empirical accounting seminars: Elephants in the room. Accounting, Economics, and Law: A convivium, forthcoming), undermine confidence in the results of empirical studies. Many of these issues relate to the efforts of researchers to defend the statistical significance of their results. However, the seemingly endless combination of methodologies that can be employed make statistical significance a somewhat illusory concept. A more productive approach would be to place greater emphasis on the economic significance of empirical results.

Mitton, Todd (2023). De-emphasizing Statistical Significance. Accounting, Economics & Law, 1.

Abstract: Using cross-state and intertemporal variation in whether a state's minimum wage is bound by the federal minimum wage, we provide evidence that minimum wage increases lead U.S. public firms in minimum-wage-sensitive industries (i.e., retail, restaurant, and entertainment) to cut capital expenditures. These effects are concentrated one to two years after the law goes into effect. Prior to the minimum wage increase, investment trends are similar across minimum-wage-sensitive firms in bound versus unbound states, and we find little evidence that minimum wage changes affect U.S. public firm investment outside of these industries.

T. Gustafson, Matthew, D. Kotter, Jason (2023). Higher Minimum Wages Reduce Capital Expenditures. Management Science, 69(5), 2933-2953.

Abstract: The U.S. mortgage market exhibits competitive instability in which some lenders rapidly emerge from the fringe to substantial market shares. Using inferred discontinuities in application acceptance models to generate local lending shocks, we analyze the impact on a lender of a surge in originations by its competitors. We show that the quickest-growing (but not the largest) competitors divert applications and originations from other lenders. Facing a quickly growing competitor, lenders charge higher interest rates, partially because of the increased risk of their loans. Loan performance suffers for other lenders as the quickest-growing competitor's originations increase.

Aiello, Darren J., Garmaise, Mark J., Natividad, Gabriel (2023). Competing for Deal Flow in Local Mortgage Markets. Review of Corporate Finance Studies, 12(2), 366-401.

Abstract: Measures of private equity (PE) performance based on cash flows do not account for a discount-rate risk premium that is a component of the capital asset pricing model (CAPM) alpha. We create secondary market PE indices and find that PE discount rates vary considerably. Net asset values are too smooth because they fail to reflect variation in discount rates. Although the CAPM alpha for our index is zero, the generalized public market equivalent based on cash flows is large and positive. We obtain similar results for a set of synthetic funds that invest in small cap stocks. Ignoring variation in PE discount rates can lead to a misallocation of capital.

Boyer, Brian, Nadauld, Taylor D., Vorkin, Keith P., Weisbach, Michael S. (2023). Discount-Rate Risk in Private Equity: Evidence from Secondary Market Transactions. Journal of Finance, 78(2), 835-885.

Abstract: Exploiting the random assignment of judges to corporate bankruptcy filings, we estimate financial costs of judicial inexperience. Despite new judges’ prior legal experience, formal education, and rigorous hiring process, their public Chapter 11 cases spend 19% more time in bankruptcy, realize 31% higher legal and professional fees, and 21% lower creditor recovery rates. Examining possible mechanisms, we find that new judges take longer to rule on motions and cases assigned to these judges file more plans of reorganization. Conservative estimates suggest that minor policy adjustments could increase creditor recoveries by approximately $16.8 billion for the public firms in our sample.

Iverson, Benjamin, Madsen, Joshua, Wang, Wei, Xu, Qiping (2023). Financial Costs of Judicial Inexperience: Evidence From Corporate Bankruptcies. Journal of Financial & Quantitative Analysis, 58(3), 1111-1143.

Abstract: Using a standardized methodology, we empirically evaluate 55 proposed determinants of capital structure in terms of statistical significance, economic significance, and identification. We find that robust and economically important determinants of debt ratios are relatively few in number. Nevertheless, because each determinant relates to one of five market imperfections—taxes, distress costs, information asymmetry, agency costs, or supply frictions—we draw conclusions from the evidence as a whole regarding the explanatory power of different capital structure theories. We find greater support for pecking order theory and supply-related theories, with less support for traditional tradeoff theory and agency theory.

Fukui, Toshinori, Mitton, Todd, Schonlau, Robert (2023). Determinants of Capital Structure: An Expanded Assessment. Journal of Financial & Quantitative Analysis, 58(6), 2446-2488.

Abstract: We show that search frictions in credit markets affect accepted interest rates and loan sizes and distort consumption. Using data on car loan applications and originations not intermediated by car dealers, we isolate quasi-exogenous variation in both the costs and benefits to searching for credit. After identifying lender-specific policies that price risk discontinuously, we study the differential response to offered interest rates by borrowers who face high and low search costs. High-search-cost borrowers are 10 |$\%$| more likely to accept loan offers with higher markups, consequently originating smaller loans and purchasing older and less expensive cars than lower-search-cost borrowers. Authors have furnished an Internet Appendix , which is available on the Oxford University Press Web site next to the link to the final published paper online.

Argyle, Bronson, Nadauld, Taylor, Palmer, Christopher (2023). Real Effects of Search Frictions in Consumer Credit Markets. Review of Financial Studies, 36(7), 2685-2720.

Abstract: In an RCT with US small businesses, we document that a large share of firms are not well-informed about bankruptcy. Many assume that bankruptcy necessarily entails the death of a business and do not know about Chapter 11 bankruptcy, where debts are renegotiated so that the business can continue operating. Small businesses are also unaware of a recent major reform that lowered the costs of bankruptcy procedures to enhance their protection. In addition, they exhibit substantial stigma related to bankruptcy, believing that bankruptcy is embarrassing, a sign of failure, and a negative signal to employees and customers. Randomly providing short educational videos that address information or stigma gaps leads to increased firm knowledge about bankruptcy and decreased perceptions of stigma, both immediately and durably over 4 months. The videos also increase reported interest in using Chapter 11 bankruptcy and increase firms' intended debt and investment. However, we do not find long-term evidence of real effects. We then conduct a survey of bankruptcy attorneys and judges, who point to entrepreneurs' overconfidence and, to a lesser extent, excessive perceived legal fees as first-order frictions explaining the limited real impact of treatments that only address information and stigma. Our findings help inform the design of policies targeting the limited use of bankruptcy protection by small businesses.

Bernstein, Shai, Colonnelli, Emanuele, Hoffman, Mitchell, Iverson, Benjamin (2023). Life After Death: A Field Experiment with Small Businesses on Information Frictions, Stigma, and Bankruptcy. National Bureau of Economic Research, Working Papers, 30933.

Abstract: FinTech lending--known for using big data and advanced technologies--promised to break away from the traditional credit scoring and pricing models. Using a comprehensive dataset of FinTech personal loans, our study shows that loan rates continue to rely heavily on conventional credit scores, including 45% higher rates for nonprime borrowers. Other known default predictors are often neglected. Within each segment (prime/nonprime) loan rates are not very responsive to default risk, resulting in realized loan-level returns decreasing with risk. The pricing distortions result in substantial transfers from nonprime to prime borrowers and from low- to high-risk borrowers within segment.

Johnson, M. J., Ben-David, I., Lee, J., & Yao, V. (2023). Fintech Lending with Lowtech Pricing. National Bureau of Economic Research, Working Papers, 31154.