VTechWorks Repository :: Browsing by Author "Singal, Vijay"

Browsing by Author "Singal, Vijay"

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Does Firm Life Cycle Stage Affect Investor Perceptions? Evidence from Earnings Announcement Reactions
Fodor, Andy; Bergsma Lovelace, Kelley; Singal, Vijay; Tayal, Jitendra (2021-08-06)
This paper argues that firms in certain life stages may be more subjectively valued by individual investors, leading to an overoptimistic bias in stock prices that is subsequently corrected upon the release of earnings news. Using a cash flow-based life stage classification, introduction and decline stage companies exhibit three-day cumulative abnormal returns (CARs) around earnings announcements that are at least 112 bps lower than firms in growth, maturity, and shake-out stages. Specifically, introduction and decline stage stocks exhibit less positive reactions to positive earnings surprises and more negative reactions to negative earnings surprises relative to companies in other life stages. Lottery stocks’ excess returns around earnings announcements (Liu, Wang, Yu, and Zhao 2020) also vary based on firm life stage. Our findings suggest that individual investors’ overoptimistic expectations for introduction and decline stage stocks are met with disappointment when value-relevant earnings news is released. This study demonstrates that firm life stage has real implications for stock price reactions to earnings announcements in financial markets.
The Effects of Executive Compensation and Auditor Industry Specialization on Financial Reporting Executives\' Decision-Making during a Potential Restatement That Will Lead to a "Clawback"
Pyzoha, Jonathan Stanley (Virginia Tech, 2013-05-01)
In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the Securities and Exchange Commission is required to propose and adopt clawback rules. After a financial statement restatement, a clawback is utilized to recover incentive compensation that was previously paid out to a manager based on the misstatement. My study investigates financial reporting executives' (FREs) decision-making after the external auditors have proposed a restatement that will lead to a clawback. I performed a web-based experiment that was electronically distributed to sixty FRE participants (i.e., CFOs, controllers, and treasurers) and manipulated executive compensation structure (i.e., a higher percentage of total compensation based on incentives or a lower percentage of total compensation based on incentives) and auditor industry specialization (i.e., industry-specialist or non-industry specialist) in a clawback environment. I hypothesized that higher incentives or the presence of a non-specialist auditor would cause FREs to be less likely to agree with an auditor's proposed restatement, more likely to involve the external auditor's national office, and more likely to request termination of the external auditors. Further, I posited that the two factors would interact for each of the three dependent variables. As predicted, my results reveal that FREs are less likely to agree with the restatement due to loss aversion when a higher proportion of their pay is incentive-based; however, auditor specialization does act to mitigate the influence of loss aversion by increasing their likelihood to accept the restatement. Additionally, I find that FREs are highly likely to request the involvement of the national office and very unlikely to request termination of the auditors across all conditions. In consideration of the upcoming clawback rules, this is a timely study that makes important contributions. First, I find an unintended negative consequence of clawback regulation, as my results indicate that clawbacks may exacerbate aggressive financial reporting decisions by FREs during a restatement negotiation. Further, I find that specialist auditors can act as effective monitors of FREs' behaviors in a clawback environment. Last, my results provide evidence for firms regarding the influence of executive compensation structures on FREs' decision-making in a clawback setting.
Indexing and Stock Price Efficiency
Qin, Nan; Singal, Vijay (Wiley, 2015-07-28)
Indexing has experienced substantial growth over the last two decades because it is an effective way of holding a diversified portfolio while minimizing trading costs and taxes. In this article, we focus on one negative externality of indexing: the effect on the efficiency of stock prices. Based on a sample of large and liquid US stocks, we find that greater indexing leads to less efficient stock prices, as indicated by stronger post‐earnings‐announcement drift and greater deviations of stock prices from the random walk. We conjecture that reduced incentives for information acquisition and arbitrage induced by indexing and passive trading are probably the main causes for degradation in price efficiency.
Investment Cash Flow Sensitivity: International Evidence
Islam, Saiyid S. (Virginia Tech, 2002-05-17)
Several research studies in finance have investigated the effect of financial factors on investment decisions of firms. More recently, researchers have extended conventional models of firm-investment by incorporating a role for financing constraints in determining the firm's investment decision. Empirical work points to overwhelming evidence that in the presence of market imperfections, firm investments become sensitive to the availability of internal cash flows. However, the evidence regarding the patterns of these observed investment-cash flow sensitivities has been ambiguous. In this study we examine the impact of financial development on the sensitivity of firm-level investment to internal cash flow. Using international data from 31 countries over the 1987-1997 period, we find that after controlling for growth opportunities (as measured by Tobin's Q), investment is more sensitive to cash flow for firms in less financially developed countries, indicating higher costs of information problems and lower availability of external capital in such countries. The results are robust to six different measures of financial development. We also find a strong negative relationship between investment cash-flow sensitivity and size (as measured by log of total assets) across countries, though our results are mixed when we investigate this size effect within 6 OECD countries. Overall, these findings are consistent with the notion that smaller firms face greater information costs and are therefore more dependent on internally generated capital for making their investment outlays. Furthermore, we establish a direct connection between the investment cash flow sensitivity studies and a parallel literature on the allocational efficiency of capital markets. We also document important distortionary impacts of using log specifications in the empirical estimation, and of including negative cash flow observations in the sample, which explain the qualitative difference between our results and those of some earlier studies. Finally, our results have important policy implications. Firms that are based in countries with poor standards of financial accounting and information disclosure are found to face greater challenges in accessing external capital markets. These firms are likely to experience high under-investment costs that, at a macro level, would translate into slower economic growth for the country.
Return Predictability Conditional on the Characteristics of Information Signals
Pritamani, Mahesh (Virginia Tech, 1999-04-12)
This dissertation examines whether simultaneously conditioning on the multidimensional characteristics of information signals can help predict returns that are of economic significance. We use large price changes, public announcements, and large volume increases to proxy for the magnitude, dissemination, and precision of information signals. Abnormal returns following large price change events are found to be unimportant. As we condition on other characteristics of information signals, the abnormal returns become large. Large price change events accompanied by both a public announcement and an increase in volume have a 20-day abnormal return of almost 2% for positive events and -1.68% for negative events. The type of news provides further refinement. If the news relates to earnings announcements, management earnings forecasts, or analyst recommendations then the 20-day abnormal returns becomes much larger: ranging from 3% to 4% for positive events and about -2.25% for negative events. For these news events, we also find that the underreaction is greater for positive (negative) event firms that underperformed (overperformed) the market in the prior period, earning 20-day post-event abnormal returns of 4.85% (-3.50%). This evidence is consistent with the Barberis, Shleifer, and Vishny (1998) model of investor sentiment that suggests that investors are slow to change their beliefs. The evidence from our sample does not provide much support for strategic trading models under information asymmetry. Finally, an out-of-sample trading strategy generates 20-day post-event statistically significant abnormal return of 2.18% for positive events and -2.40% for negative events. Net of transaction costs, the abnormal returns are a statistically significant 1.04% for positive events and a statistically significant -1.51% for negative events.
Returns around Earnings Announcements for Companies with Seasonality in Earnings
Dokania, Ritika (Virginia Tech, 2018-07-02)
This thesis examines returns around earnings announcements for companies with seasonality in earnings. Earnrank is used as a measure of seasonality where earnrank for a company is calculated quarterly by taking last five years of earnings data, ranking them and taking the average of the ranks for the respective quarter. For seasonal firms, we find robust evidence that abnormal returns are created when such firms announce their earnings for the highest seasonality quarter as measured by their earnrank. Additionally, the results were consistent for different time periods and abnormal returns were found to increase over time. We also performed the analysis industry-wise and found significant difference in returns for most and least seasonal firms in Manufacturing, Financial and Construction sectors. The results for Construction sector is in conflict to our hypothesis and require further exploration. We also study which kind of firms exhibit seasonality and found evidence for high seasonality in large firms, value firms, old firms, firms with lower turnover and firms with lower accruals. Lastly, we studied factors determining abnormal returns relative to the four-factor model and found size to be a significant explanatory variable. The long-short portfolio based on seasonality generated an alpha of 62 basis points per month.
Selling Winners, Holding Losers: Effect on Mutual Fund Performance and Flows
Xu, Zhaojin (Virginia Tech, 2007-05-10)
In this dissertation, we examine whether the disposition effect, the tendency to sell winners and hold losers, exists among U.S. equity mutual funds and how the disposition effect influences fund performance and particularly flows. We find that a significant fraction (32%) of all funds exhibit some degree of disposition behavior. These funds underperform funds that are not disposition prone by 4-6% per year. Moreover, we find that the disposition effect has a significant impact on future fund flows. Without controlling for performance, disposition-prone funds experience 2-3% less flows each quarter than other funds. The difference in flows is probably due to poor performance of such funds. However, even after controlling for performance and other factors that potentially influence flows, funds with a high disposition effect experience 0.7-2% less flows than funds without such behavior. Past research has found that funds with low tax overhang garner larger inflows. Though disposition-prone funds are likely to have a lower tax overhang because they sell their winners quickly, we find that fund flows to disposition-prone funds are smaller than flows to non-disposition oriented funds after controlling for tax overhang. These results suggest that performance and tax efficiency as well as tax overhang are all important to mutual fund investors.
Stock market openings: Experience of emerging economies
Kim, E. Han; Singal, Vijay (University of Chicago Press, 2000-01)
This article is an exploratory examination of the benefits and risks associated with opening of stock markets. Specifically, we estimate changes in the level and volatility of stock returns, inflation, and exchange rates around market openings. We find that stock returns increase immediately after market opening without a concomitant increase in volatility. Stock markets become more efficient as determined by testing the random walk hypothesis. We find no evidence of an increase in inflation or an appreciation of exchange rates. If anything, inflation seems to decrease after market opening as do the volatility of inflation and volatility of exchange rates.
Three Essays on Market Efficiency and Limits to Arbitrage
Tayal, Jitendra (Virginia Tech, 2016-03-28)
This dissertation consists of three essays. The first essay focuses on idiosyncratic volatility as a primary arbitrage cost for short sellers. Previous studies document (i) negative abnormal returns for high relative short interest (RSI) stocks, and (ii) positive abnormal returns for low RSI stocks. We examine whether these market inefficiencies can be explained by arbitrage limitations, especially firms' idiosyncratic risk. Consistent with limits to arbitrage hypothesis, we document an abnormal return of -1.74% per month for high RSI stocks (>=95th percentile) with high idiosyncratic volatility. However, for similar level of high RSI, abnormal returns are economically and statistically insignificant for stocks with low idiosyncratic volatility. For stocks with low RSI, the returns are positively related to idiosyncratic volatility. These results imply that idiosyncratic risk is a potential reason for the inability of arbitrageurs to extract returns from high and low RSI portfolios. The second essay investigates market efficiency in the absence of limits to arbitrage on short selling. Theoretical predictions and empirical results are ambiguous about the effect of short sale constraints on security prices. Since these constraints cannot be eliminated in equity markets, we use trades from futures markets where there is no distinction between short and long positions. With no external constraints on short positions, we document a weekend effect in futures markets which is a result of asymmetric risk between long and short positions around weekends. The premium is higher in periods of high volatility when short sellers are unwilling to accept higher levels of risk. On the other hand, riskiness of long positions does not seem to have a similar impact on prices. The third essay studies investor behaviors that generate mispricing by examining relationship between stock price and future returns. Based on traditional finance theory, valuation should not depend on nominal stock prices. However, recent literature documents that preference of retail investors for low price stocks results in their overvaluation. Motivated by this preference, we re-examine the relationship between stock price and expected return for the entire U.S. stock market. We find that stock price and expected returns are positively related if price is not confounded with size. Results in this paper show that, controlled for size, high price stocks significantly outperform low price stocks by an abnormal 0.40% per month. This return premium is attributed to individual investors' preference for low price stocks. Consistent with costly arbitrage, the return differential between high and low price stocks is highest for the stocks which are difficulty to arbitrage. The results are robust to price cut-off of $5, and in different sub-periods.
Three essays on mispricing and market efficiency
Qin, Nan (Virginia Tech, 2014-07-23)
This dissertation consists of three essays. The first essay studies the impact of indexing on stock price efficiency. Indexing has experienced substantial growth over the last two decades because it is an effective way of holding a diversified portfolio while minimizing trading costs and taxes. In this paper, we focus on one negative externality of indexing: the effect on efficiency of stock prices. Based on a sample of large and liquid U.S. stocks, we find that greater indexing leads to less efficient stock prices, as indicated by stronger post-earnings-announcement drift, greater deviations of stock prices from the random walk and greater return predictability from lagged order imbalances. We conjecture that reduced incentives for information acquisition and arbitrage induced by indexing are probably the main cause of the degradation in price efficiency, but we find no evidence supporting a direct impact from passive trading or any effect through liquidity. The second essay investigates the effect of price inefficiency on idiosyncratic risk and stock returns. I finds that price inefficiency in individual stocks contributes to expected idiosyncratic volatility. If idiosyncratic risk is priced, greater price inefficiency could be associated with higher expected returns. Consistent with this hypothesis, this paper then finds a positive relation between price inefficiency and future stock returns. This return premium of price inefficiency is not explained by traditional risk factors, illiquidity, or transactions costs. It is also evidently different from the return bias related to Jensen's inequality. This paper thus provides new insights about the determinants of expected stock returns, and new supporting evidence that idiosyncratic risk is priced. The third essay examines whether the upward return bias generated by Jensen's inequality could lead to better performance of equally-weighted (EW) indexes than value-weighted (VW) index when stock prices are not fully efficient. We find that, for a wide range of U.S. stock indexes, EW indexes deliver better four-factor adjusted returns than VW ones do even after deducting transaction costs. Consistent with our hypothesis that the outperformance of EW indexes comes from mispricing, we find that this outperformance concentrates in stocks with greater mispricing, as measured by deviation of stock prices from random walk. Findings in this essay not only imply a potentially winning investment strategy, but also provide new insight into a long-term debate on causes of the outperformance of the EW indexes.
The timing of initial public offerings and the role of investment banks
Lee, Cheulho (Virginia Tech, 1996-04-05)
This study comprises an investigation of the timing of initial public offerings (IPOs) and the role therein, of investment banks, in taking firms public. Most prior studies of IPOs and seasoned equity offerings (SEOs) investigate timing with respect to firm-specific or economy-wide conditions. Also, the vast majority of prior studies have apparently ignored the role of market timing often ascribed to underwriters by practitioners. The analysis in this study elucidates the matter of the long-run post-issue performance of IPOs documented in the literature. Evidence is provided here about the timing of IPO firms relative to market conditions before and after their offerings. It is shown that firms are, on average, more likely to go public when the market valuation of comparable stocks in the same industry is at its peak relative to the entire market. No evidence is found of a pattern of IPO firms timing their offerings with respect to market-wide conditions. Further, this study shows that IPO timing is a function of the reputation of investment banks who have expertise in the financial market. It is found that the more reputable investment banks possess a greater proficiency than their lesser known counterparts, in taking companies public when the market valuation of comparable stocks in the same industry is high. These results are found to be invariant with regard to several statistical tests and alternative explanations.
A Treatise on Downside Risk
Artavanis, Nikolaos (Virginia Tech, 2013-04-24)
This dissertation is comprised of two papers. The first paper (Chapter 1) provides the theoretical foundation for the estimation of systematic downside risk. Using a new approach, I derive a measure of downside systematic risk, downside beta, that is free of the endogeneity problem and thus straightforward to calculate. Since there is no consensus in the literature regarding the appropriate method for the estimation of downside beta, I review the alternative specifications proposed in the past. I explicitly show that the derived formula here is more efficient in capturing downside risk on both theoretical grounds and in terms of empirical results. Using this efficient specification of systematic downside risk, I show that downside beta has increased explanatory power towards the cross-section of equity returns as compared to unconditional beta. In particular, downside beta predicts larger and more significant future premia, insignificant intercepts in portfolio cross-section tests and cannot be subsumed by additional risk factors proposed in the past literature. I attribute this superior performance to the ability of downside risk to capture distress risk and to the fact that it does not penalize (reward) good (bad) events in good states. In the second paper (Chapter 2) that is co-authored with my advisor, Gregory Kadlec, we exploit the notion of downside risk to explain a long-withstanding market anomaly; the long-term stock return reversals. We show that downside betas of past losers are significantly greater than downside betas of past winners, and the inclusion of downside beta in Fama-Macbeth regressions subsumes the reversal effect.
Two Essays on Competition, Corporate Investments, and Corporate Earnings
Amini Moghadam, Shahram (Virginia Tech, 2018-04-19)
The general focus of my dissertation, which consists of two essays, is on how changes in the financial and economic environment surrounding a firm affect managerial incentives and firm policies regarding investment in physical capital, innovation, equity offerings, and repurchases. The first essay in my dissertation examines how product market competition affects firms' investment decisions. While competition among firms benefits consumers via lower prices, greater product variety, higher product quality, and greater innovation, recent studies provide evidence that competition has been declining in the U.S. economy over the past decade. The evidence shows that American firms' profits are at near-record levels relative to GDP and are persistent. Industries have become more concentrated as a result of mergers and acquisitions, and barriers to entry have risen and the rate of new entry has been declining for decades. Taking these findings at face value, we examine empirically whether companies feel less compelled to invest in physical capital and in research and development because they face fewer threats from rival firms. Using both traditional proxies and recently developed text-based measures of industry concentration, we show that firms operating in competitive industries invest significantly more in both physical capital and research and development relative to their peers in concentrated industries. We also report that the propensity to invest less by managers of monopolistic firms is partially mitigated by superior corporate governance that reduces the agency problem, and by certain product market characteristics such as low pricing power and low product differentiation/entry barriers. However, after accounting for all these mitigating factors, the negative association between industry concentration and investment persists. Our results are robust to including various control variables and exclusion of firms from industries that face significant competition from imports. The results are also robust to controlling for endogeneity caused by missing time-invariant and time-varying industry level factors that could potentially be related to both the level of concentration and investments. Overall, our results are consistent with the notion that firms in competitive industries have a greater incentive to invest and innovate to survive and thrive in a competitive environment relative to the managers of the firms in more concentrated industries whose incentive to invest and innovate is to maintain their monopoly rents. Our findings have obvious policy implications in that investment and hence economic growth is being adversely affected in the current era of increasing industry concentration and declining competition. The second essay in my dissertation investigates whether information contained in equity issues and buybacks is fully incorporated into prices such that the market reaction to subsequent earnings announcements is unrelated to those corporate actions. Korajczyk at al. (1991) argue that firms prefer to issue equity when the market is most informed about the quality of the firm to prevent adverse selection costs associated with new equity issues. This implies that equity issues tend to follow credible information releases contained in earnings announcements. However, analyzing a sample of 19,466 SEO pricing dates between 1970 and 2015 and 15,106 buyback announcements between 1994 and 2015 shows that a considerable number of equity offerings and repurchase announcements take place before the announcement of earnings. About 28% of buybacks and 32% of SEO pricings are made in the three weeks prior to an earnings announcement. Given these statistics, we examine whether these corporate actions provide information about upcoming earnings announcements (earnings predictability) to the extent that new information has not been fully incorporated into prices by market participants. We find evidence of earnings predictability: the market reaction to earnings following buyback announcements is higher by 5.1% than the reaction to earnings following equity issues over the (-1,+30) window when four-factor abnormal returns are used; the difference is 2.2% when unadjusted returns are considered. The results are robust to several alternate sample construction methodologies. There are at least two puzzling effects of earnings predictability that are difficult to reconcile with the market efficiency hypothesis. First, there is an incomplete adjustment to SEO pricings and buyback announcements that results in residual market reaction to earnings announcements. Second, prices continue to drift after earnings announcements: upward for buybacks and downward for SEO pricings. Unlike post-earnings announcement drift, the drift documented here does not depend on the market reaction to earnings announcement. We test several reasons for this anomalous behavior including prior returns, price, size of buyback or SEO, analyst forecast errors, and bid-ask spread. We find that information asymmetry proxies partially explain the persistence of earnings predictability following SEO pricings and buyback announcements.
Two Essays on Corporate Governance
Zhu, Ruiyao (Virginia Tech, 2022-06-08)
The first essay shows that academic directors significantly increase firms' innovation. Following an academic director's death and relative to a non-academic director's death, the average firm reduces the number of citation-weighted patent applications by 30.7%. The number of patent applications also increases when an academic director becomes less busy after another company she holds directorship is acquired. Consistent with an advising channel, academic directors in STEM disciplines are particularly pro-innovation. In line with monitoring channels, firms with academic directors tend to dismiss CEOs who do not innovate and restrict real earnings management that waste financial resources. The relation between academic directors and innovation is not driven by PhD CEOs or non-academic PhD directors. Academic directors are associated with higher firm value at firms where innovation is more important but not at other firms. Overall, our results highlight the vital advising and monitoring roles academic directors play in corporate innovation. The second essay finds that pre-existing professional ties with a firm's board significantly increase a CEO candidate's probability of being hired by the firm. Considering all CEOs hired this year as potential candidates, a board-connection corresponds to a 152% increase in the probability the candidate is selected as CEO. Consistent with the hypothesis that boards select connected candidates to increase shareholder value, we find significantly greater firm performance improvement after CEO turnovers for firms hiring connected CEOs than those hiring unconnected CEOs. Further, the performance increases are significant only among firms with severe information asymmetry, large CEO termination risk, and high coordination costs. We also find that connected CEOs make better acquisitions than unconnected CEOs. These results suggest connected hiring increases firm performance because it reduces information asymmetry, CEO termination risk, and CEO-board coordination costs. Inconsistent with boards rendering favors to friends, connected CEOs are not awarded a larger pay package when they assume office. Overall, our results suggest that it pays for a firm to hire a CEO with pre-existing ties to the board.
Two Essays on Mutual Fund Herding
Sonaer, Gokhan (Virginia Tech, 2011-04-15)
This dissertation consists of two chapters. First chapter examines whether herding by actively managed equity funds affects their performance. For this purpose, first the effect of herding on stock returns is reexamined and evidence is found that, during the herding quarter, stocks bought intensely by herds outperform stocks sold intensely by herds. Controlling for subsequent quarter herding, this performance difference reverses, an indication that herding drives prices away from their fundamental values. It is also shown that herding funds benefit from this activity during the quarter in which they herd. The evidence is provided that herded stocks positively contribute to the herding funds' trade portfolio returns in the following quarter, but no association is found between the extent to which funds herd and their holding-based and subsequent quarter net returns. Introducing the concept of leader and follower funds this study shows that the subsequent quarter performance of funds that lead the herd is superior to that of follower funds. However, because leader and follower funds do not strongly retain their status overtime, they exhibit similar long-run performances. Second chapter examines whether mutual funds herd in industries and the extent to which such herding impacts industry valuations and fund performance. Using two herding measures proposed by Lakonishok, Shleifer, and Vishny (1992) and Sias (2004) it is documented that mutual funds herd in industries beyond what would be expected by chance. It is shown that industry herding is not driven by investor flows and that it is not a manifestation of individual stock herding. The evidence suggests that, during the herding quarter(s), industries that experience strong buy herding by mutual funds outperform industries that experience strong sell herding. Industries that are subjected to strong herding by mutual funds exhibit no return reversals indicating that this activity does not destabilize industry values. Using a modified Grinblatt, Titman and Wermers' (1995) fund herding measure that quantifies the degree to which a fund joins the herd during a given quarter, no compelling evidence is found that industry herding affects the subsequent performance of herding funds.
Two essays on political influence and the regulation of financial markets
Eckel, Doug (Virginia Tech, 1996-05-05)
I examine two potential instances of rent-seeking in financial markets in the 1980s. In the first essay I test whether managers engage in political activity designed to influence federal regulation of the market for corporate control. In the second, I examine whether firms in the financial services sector attempt to affect bank deregulation. Using Federal Election Commission data, I find campaign contributions by corporate political action committees (PACs) are negatively related to levels of inside ownership, my main proxy for managerial vulnerability to hostile tender offers. Contribution patterns for firms with less than 20% insider ownership are relatively highly correlated, and differ from those of firms with greater than 20% inside ownership. Low inside ownership firms have slightly higher levels of contributions to legislators on particular House and Senate committees proposing relevant legislation. However, when I analyze the impact of contributions on legislator support for regulation I find no statistical support for a theory of vote-buying. I conclude that corporate political behavior is tied to levels of inside ownership, and comprises an alternate index of manager-shareholder conflict. Using a similar approach to analyse the financial services industry, I also find significant patterns in political action committee (PAC) campaign contributions for depository (commercial bank and thrift) and non-depository (brokerage and insurance) sectors of the financial services industry during the 98th Congress (1983-84). Contributions by depository firm PACs appear not only to purchase access to legislators serving on important banking committees crucial to their interests, but are also a significant determinant of votes for repealing sections of the Glass-Steagall Act. Nondepository contributions do not appear to influence votes directly, even though the brokerage and insurance sectors effectively lobbied House Banking Committee chairman Fernand St Germain to enforce the regulatory status quo. When I measure the rents at stake in the legislation using a two-factor market model event study approach, I find that the passage of legislation in the Senate had a positive affect on depository firm returns, implying the sector's lobbying effort was justified. However non-depository PACs lobbied just as extensively, and did not experience significant abnormal returns over the same event period, even though this round of deregulation should have been a zero-sum game between the affected sectors of the industry. I then measure the correlation between the market value impacts of new legislation and contribution amounts for individual firms within the sectors. I find rents are correlated with political activity, even for firms in the non-depository sectors.

Browsing by Author "Singal, Vijay"

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