The Journal of Finance

Information Disclosure, Cognitive Biases, and Payday Borrowing

Published: 11/14/2011   |   DOI: 10.1111/j.1540-6261.2011.01698.x

MARIANNE BERTRAND, ADAIR MORSE

Can psychology‐guided information disclosure induce borrowers to lower their use of high‐cost debt? In a field experiment at payday stores, we find that information that makes people think less narrowly (over time) about finance costs results in less borrowing. In particular, reinforcing the adding‐up dollar fees incurred when rolling over loans reduces the take‐up of future payday loans by 11% in the subsequent 4 months. Although we remain agnostic as to the overall sufficiency of better disclosure policy to “remedy” payday borrowing, we cast the 11% reduction in borrowing in light of the relative low cost of this policy.

Who Blows the Whistle on Corporate Fraud?

Published: 11/09/2010   |   DOI: 10.1111/j.1540-6261.2010.01614.x

ALEXANDER DYCK, ADAIR MORSE, LUIGI ZINGALES

To identify the most effective mechanisms for detecting corporate fraud, we study all reported fraud cases in large U.S. companies between 1996 and 2004. We find that fraud detection does not rely on standard corporate governance actors (investors, SEC, and auditors), but rather takes a village, including several nontraditional players (employees, media, and industry regulators). Differences in access to information, as well as monetary and reputational incentives, help to explain this pattern. In‐depth analyses suggest that reputational incentives in general are weak, except for journalists in large cases. By contrast, monetary incentives help explain employee whistleblowing.

Are Incentive Contracts Rigged by Powerful CEOs?

Published: 09/21/2011   |   DOI: 10.1111/j.1540-6261.2011.01687.x

ADAIR MORSE, VIKRAM NANDA, AMIT SERU

We argue that some powerful CEOs induce boards to shift the weight on performance measures toward the better performing measures, thereby rigging incentive pay. A simple model formalizes this intuition and gives an explicit structural form on the rigged incentive portion of CEO wage function. Using U.S. data, we find support for the model's predictions: rigging accounts for at least 10% of the compensation to performance sensitivity and it increases with CEO human capital and firm volatility. Moreover, a firm with rigged incentive pay that is one standard deviation above the mean faces a subsequent decrease of 4.8% in firm value and 7.5% in operating return on assets.

Asset Managers: Institutional Performance and Factor Exposures

Published: 04/15/2021   |   DOI: 10.1111/jofi.13026

JOSEPH GERAKOS, JUHANI T. LINNAINMAA, ADAIR MORSE

Using data on $18 trillion of assets under management, we show that actively managed institutional accounts outperformed strategy benchmarks by 75 (31) bps on a gross (net) basis during the period 2000 to 2012. Estimates from a Sharpe model imply that asset managers' outperformance came from factor exposures. If institutions had instead implemented mean‐variance efficient portfolios using index and institutional mutual funds available during the sample period, they would not have earned higher Sharpe ratios. Our results are consistent with the average asset manager having skill, managers competing for institutional capital, and institutions engaging in costly search to identify skilled managers.

Stock Returns over the FOMC Cycle

Published: 05/31/2019   |   DOI: 10.1111/jofi.12818

ANNA CIESLAK, ADAIR MORSE, ANNETTE VISSING‐JORGENSEN

We document that since 1994, the equity premium is earned entirely in weeks 0, 2, 4, and 6 in Federal Open Market Committee (FOMC) cycle time, that is, even weeks starting from the last FOMC meeting. We causally tie this fact to the Fed by studying intermeeting target changes, Fed funds futures, and internal Board of Governors meetings. The Fed has affected the stock market via unexpectedly accommodating policy, leading to large reductions in the equity premium. Evidence suggests systematic informal communication of Fed officials with the media and financial sector as a channel through which news about monetary policy has reached the market.

What Explains Differences in Finance Research Productivity during the Pandemic?

Published: 04/13/2021   |   DOI: 10.1111/jofi.13028

BRAD M. BARBER, WEI JIANG, ADAIR MORSE, MANJU PURI, HEATHER TOOKES, INGRID M. WERNER

Based on a survey of American Finance Association members, we analyze how demographics, time allocation, production mechanisms, and institutional factors affect research production during the pandemic. Consistent with the literature, research productivity falls more for women and faculty with young children. Independently, and novel, extra time spent on teaching (much more likely for women) negatively affects research productivity. Also novel, concerns about feedback, isolation, and health have large negative research effects, which disproportionately affect junior faculty and PhD students. Finally, faculty who express greater concerns about employers’ finances report larger negative research effects and more concerns about feedback, isolation, and health.