The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Fund Manager Use of Public Information: New Evidence on Managerial Skills
Published: 03/20/2007 | DOI: 10.1111/j.1540-6261.2007.01215.x
MARCIN KACPERCZYK, AMIT SERU
We show theoretically that the responsiveness of a fund manager's portfolio allocations to changes in public information decreases in the manager's skill. We go on to estimate this sensitivity (RPI) as the R2 of the regression of changes in a manager's portfolio holdings on changes in public information using a panel of U.S. equity funds. Consistent with RPI containing information related to managerial skills, we find a strong inverse relationship between RPI and various existing measures of performance, and between RPI and fund flows. We also document that both fund‐ and manager‐specific attributes affect RPI.
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.
Selling Failed Banks
Published: 04/06/2017 | DOI: 10.1111/jofi.12512
JOÃO GRANJA, GREGOR MATVOS, AMIT SERU
The average FDIC loss from selling a failed bank is 28% of assets. We document that failed banks are predominantly sold to bidders within the same county, with similar assets business lines, when these bidders are well capitalized. Otherwise, they are acquired by less similar banks located further away. We interpret these facts within a model of auctions with budget constraints, in which poor capitalization of some potential acquirers drives a wedge between their willingness and ability to pay for failed banks. We document that this wedge drives misallocation, and partially explains the FDIC losses from failed bank sales.
Asset Quality Misrepresentation by Financial Intermediaries: Evidence from the RMBS Market
Published: 03/18/2015 | DOI: 10.1111/jofi.12271
TOMASZ PISKORSKI, AMIT SERU, JAMES WITKIN
We document that contractual disclosures by intermediaries during the sale of mortgages contained false information about the borrower's housing equity in 7–14% of loans. The rate of misrepresented loan default was 70% higher than for similar loans. These misrepresentations likely occurred late in the intermediation and exist among securities sold by all reputable intermediaries. Investors—including large institutions—holding securities with misrepresented collateral suffered severe losses due to loan defaults, price declines, and ratings downgrades. Pools with misrepresentations were not issued at a discount. Misrepresentation on another easy‐to‐quantify dimension shows that these effects are a conservative lower bound.
Advertising Expensive Mortgages
Published: 05/20/2016 | DOI: 10.1111/jofi.12423
UMIT G. GURUN, GREGOR MATVOS, AMIT SERU
Using information on advertising and mortgages originated by subprime lenders, we study whether advertising helped consumers find cheaper mortgages. Lenders that advertise more within a region sell more expensive mortgages, measured as the excess rate of a mortgage after accounting for borrower, contract, and regional characteristics. These effects are stronger for mortgages sold to less sophisticated consumers. We exploit regional variation in mortgage advertising induced by the entry of Craigslist and other tests to demonstrate that these findings are not spurious. Analyzing advertising content reveals that initial/introductory rates are frequently advertised in a salient fashion, where reset rates are not.