Patent Trolls and The Market for Acquisitions
Journal of Financial and Quantitative Analysis, (Forthcoming)
I study the effect of patent-infringement claims by patent trolls on acquisitions of small firms. Exploiting staggered adoption of state anti-patent troll laws, I find that the laws have two effects. First, the number of acquisitions of small firms declines after these laws are adopted. Second, the anti-troll laws increase the acquisition price for acquirers. The market reflects the increased cost of acquisition as measured by lower acquisition announcement returns. Large firms increase R&D after the adoption of state laws, replacing external innovation. Using a sample of acquisitions that are plausibly unaffected by the laws, I disentangle alternative explanations.
CEO Inside Debt and Mutual Fund Investment Decisions
Journal of Banking & Finance, 2022, Volume 145, 106641
I show equity mutual funds invest less in companies with higher CEO inside debt, whereas corporate bond funds invest more in such companies. The effect persists after accounting for endogeneity using first-time mandatory disclosure of inside debt in 2007 as a quasi-natural experiment, and using state-level personal income tax rates as instruments for inside debt. This finding suggests that fund managers pay attention to incentive implications of inside debt when making portfolio decisions. The effect of inside debt on portfolio allocation is stronger in firms with higher likelihood of default and higher idiosyncratic risk, firms suffering from debt overhang, and firms with lower credit ratings. Lastly, equity funds that underweight high-inside debt firms and bond funds that overweight them deliver positive alphas.
Running a Mutual Fund: Performance and Trading Behavior of Runner Managers
Journal of Empirical Finance, 2022, Volume 69, 43-62
with Sima Jannati
This paper examines the relationship between the representation of marathon runners in a fund management team and its future performance. We find that funds with a larger proportion of runner managers have a higher level of risk-adjusted excess returns. We also find that these funds have a lower level of the disposition bias, deviate more from their benchmark portfolios, hold fewer stocks in their portfolios, and hold their stocks for a longer duration. Also, they tend to hold more stocks that are about to experience desirable earnings outcomes. Overall, the results suggest that personality traits that affect achievements in other dimensions of life may translate into fund management success.
Transient Emotions, Perceptions of Well-being, and Mutual Fund Flows
Finance Research Letters, 2021, Volume 41, 101825
with William Bazley and Sima Jannati
Investors’ sentiment is typically proxied by aggregate measures. However, it is composed of distinguishable elements, including impermanent emotions and subjective appraisals of well-being. We show that experiencing transient happiness is associated with flows to mutual funds in the following month. When considering funds’ investment style, heterogeneous effects arise. Happiness and perceived well-being correspond with flows to growth funds but not value funds. Ultimately, broad measures of sentiment may conceal nuances of investor behavior, which can potentially affect asset prices through investment style preferences.
Mutual Fund Strategy: Swing for the Fences or Bat for Average
with John Chalmers
Manuscript Posted Soon
We characterize mutual funds’ investment strategy by three baseball-inspired measures: Batting Average, Home Runs, and Strikeouts. These measures have higher persistence over time than risk-adjusted returns. Funds with high Home Runs and Strikeouts attract more flow, charge higher management fees, and take more risk, yet, they fail to deliver higher risk-adjusted returns. It seems that some funds swing for the fences as a strategy, hitting home runs and striking out more frequently. Batting Average also attracts more fund flow but is not associated with higher fees. Furthermore, high-batting average funds exhibit lower return volatility while delivering similar risk-adjusted returns. In falsification tests, we do not find the above patterns in investment strategy among a sample of passive funds.
Consumer Response to ESG News: Evidence From Supermarket Goods
with John Chalmers and Gretchen Gamrat
Manuscript Posted Soon
Using detailed weekly sales data for more than 17,000 consumer products, we show that product sales increase immediately after positive and decrease following negative ESG news events relative to sales of matched products. Consumer response to the ESG news events are not driven by prices. Furthermore, the responses are short-lived and ultimately disappear eight weeks after the news. Consumer responses steadily increase in magnitude over our sample period, are stronger for environmental news than social news, are mainly driven by products that share their name with the firm, and are concentrated among