<p>Analyst coverage and earnings management</p><p>Fang (Frank) Yu</p><p>Abstract:What is the role of information intermediaries in corporate governance? This paper examines equity analysts’ influence<br/>on managers’ earnings management decisions. Do analysts serve as external monitors to managers, or do they put<br/>excessive pressure on managers? Using multiple measures of earnings management, I find that firms followed by more<br/>analysts manage their earnings less. To address the potential endogeneity problem of analyst coverage, I use two<br/>instrumental variables based on change in broker size and on firm’s inclusion in the Standard &amp; Poor’s 500 index, and I<br/>find that the results are robust. Finally, given the number of covering analysts, analysts from top brokers and more<br/>experienced analysts have stronger effects against earnings management.</p><p></p><p>Trading imbalances, predictable reversals,and cross-stock price pressure</p><p>Sandro C. Andradea, Charles Changb, Mark S. Seasholes</p><p>Abstract<br/>We test the implications of a multi-asset equilibrium model in which a finite number of risk-averse liquidity providers<br/>accommodate non-informational trading imbalances. These imbalances generate predictable reversals in stock returns. An<br/>imbalance in one stock also affects the prices of other stocks. The magnitude of the cross-stock price pressure depends on<br/>the correlations of the stocks’ underlying cash flows. The model implies that non-informational trading increases the<br/>volatility of stock returns. We confirm the model’s implications using data from the Taiwan Stock Exchange.</p><p>Decomposing swap spreads Peter Feldhu¨ tter, David Lando</p><p>Abstract<br/>We analyze a six-factor model for Treasury bonds, corporate bonds, and swap rates and decompose swap spreads into<br/>three components: a convenience yield from holding Treasuries, a credit risk element from the underlying LIBOR rate, and<br/>a factor specific to the swap market. The convenience yield is by far the largest component of spreads. There is a discernible<br/>contribution from credit risk as well as from a swap-specific factor with higher variability which in certain periods is related<br/>to hedging activity in the mortgage-backed security market. The model also sheds light on the relation between AA hazard<br/>rates and the spread between LIBOR rates and General Collateral repo rates and on the level of the riskless rate compared<br/>to swap and Treasury rates.</p><p><br/>The consequences to managers for financial misrepresentation$<br/>Jonathan M. Karpoffa,, D. Scott Leeb, Gerald S. Martin</p><p>Abstract<br/>We track the fortunes of all 2,206 individuals identified as responsible parties for all 788 Securities and Exchange<br/>Commission (SEC) and Department of Justice (DOJ) enforcement actions for financial misrepresentation from January 1,<br/>1978 through September 30, 2006. Fully 93% lose their jobs by the end of the regulatory enforcement period. Most are<br/>explicitly fired. The likelihood of ouster increases with the cost of the misconduct to shareholders and the quality of the<br/>firm’s governance. Culpable managers also bear substantial financial losses through restrictions on their future<br/>employment, their shareholdings in the firm, and SEC fines. A sizeable minority (28%) face criminal charges and penalties,<br/>including jail sentences that average 4.3 years. These results indicate that the individual perpetrators of financial<br/>misconduct face significant disciplinary action..</p><p>Ex-dividend day trading: Who, how, and why? Evidence from the Finnish market$<br/>Elias Rantapuska</p><p>Abstract<br/>This study examines the ex-dividend day trading behavior of all investors in the Finnish stock market. Consistent with<br/>dynamic dividend clientele theories, investors with a preference for dividend income buy shares cum-dividend and sell<br/>ex-dividend; the reverse is true for investors with the opposite preference. Investors also engage in overnight arbitrage,<br/>earning on average a 2% overnight return on their invested capital. Trades at the investor-level reveal that idiosyncratic<br/>risk is an important determinant in the choice of stock for short-term ex-day trading. Furthermore, transaction costs and<br/>dividend yield jointly determine whether the volume of short-term trading activity is nonzero</p><p>Latent liquidity: A new measure of liquidity, with an application to corporate bonds Sriketan Mahantia, Amrut Nashikkarc, Marti Subrahmanyamc,,<br/>George Chackod, Gaurav Mallik</p><p>Abstract<br/>We present a new measure of liquidity known as ‘‘latent liquidity’’ and apply it to a unique corporate bond database.<br/>Latent liquidity is defined as the weighted average turnover of investors who hold a bond, in which the weights are the<br/>fractional investor holdings. It can be used to measure liquidity in markets with sparse transactions data. For bonds that<br/>trade frequently, our measure has predictive power for both transaction costs and the price impact of trading, over and<br/>above trading activity and bond-specific characteristics thought to be related to liquidity. Additionally, this measure<br/>exhibits relationships with bond characteristics similar to those of other trade-based measures</p><p>Dumb money: Mutual fund flows and the cross-section of stock returns</p><p>Andrea Frazzinia,, Owen A. Lamont</p><p>Abstract<br/>We use mutual fund flows as a measure of individual investor sentiment for different stocks, and find that high sentiment<br/>predicts low future returns. Fund flows are dumb money–by reallocating across different mutual funds, retail investors<br/>reduce their wealth in the long run. This dumb money effect is related to the value effect: high sentiment stocks tend to be<br/>growth stocks. High sentiment also is associated with high corporate issuance, interpretable as companies increasing the<br/>supply of shares in response to investor demand.</p><p><br/>Decomposing swap spreads</p><p>Peter Feldhu¨ tter, David Lando</p><p>Abstract<br/>We analyze a six-factor model for Treasury bonds, corporate bonds, and swap rates and decompose swap spreads into<br/>three components: a convenience yield from holding Treasuries, a credit risk element from the underlying LIBOR rate, and<br/>a factor specific to the swap market. The convenience yield is by far the largest component of spreads. There is a discernible<br/>contribution from credit risk as well as from a swap-specific factor with higher variability which in certain periods is related<br/>to hedging activity in the mortgage-backed security market. The model also sheds light on the relation between AA hazard<br/>rates and the spread between LIBOR rates and General Collateral repo rates and on the level of the riskless rate compared<br/>to swap and Treasury rates.</p><p><br/>Financial expertise of directors</p><p>A. Burak Gu¨ nera, Ulrike Malmendierb,, Geoffrey Tate</p><p>Abstract<br/>We analyze how directors with financial expertise affect corporate decisions. Using a novel panel data set, we find that<br/>financial experts exert significant influence, though not necessarily in the interest of shareholders. When commercial<br/>bankers join boards, external funding increases and investment-cash flow sensitivity decreases. However, the increased<br/>financing flows to firms with good credit but poor investment opportunities. Similarly, investment bankers on boards are<br/>associated with larger bond issues but worse acquisitions. We find little evidence that financial experts affect compensation<br/>policy. The results suggest that increasing financial expertise on boards may not benefit shareholders if conflicting interests<br/>(e.g., bank profits) are neglected.</p><p><br/><br/></p>

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