The Journal of Finance

The Information Value of Bond Ratings

Published: 12/2000,  Volume: 55,  Issue: 6  |  DOI: 10.1111/0022-1082.00311  |  Cited by: 297

Doron Kliger, Oded Sarig

We test whether bond ratings contain pricing‐relevant information by examining security price reactions to Moody's refinement of its rating system, which was not accompanied by any fundamental change in issuers' risks, was not preceded by any announcement, and was carried simultaneously for all bonds. We find that rating information does not affect firm value, but that debt value increases (decreases) and equity value falls (rises) when Moody's announces better‐ (worse‐) than‐expected ratings. We also find that when Moody's announces better‐ (worse‐) than‐expected ratings, the volatilities implied by prices of options on the fine‐rated issuers' shares decline (rise).

Words Speak Louder without Actions

Published: 8/6/2019,  Volume: 75,  Issue: 1  |  DOI: 10.1111/jofi.12834  |  Cited by: 22

DORON LEVIT

Information and control rights are central aspects of leadership, management, and corporate governance. This paper studies a principal‐agent model that features both communication and intervention as alternative means to exert influence. The main result shows that a principal's power to intervene in an agent's decision limits the ability of the principal to effectively communicate her private information. The perverse effect of intervention on communication can harm the principal, especially when the cost of intervention is low or the underlying agency problem is severe. These novel results are applied to managerial leadership, corporate boards, private equity, and shareholder activism.

Nonbinding Voting for Shareholder Proposals

Published: 9/21/2011,  Volume: 66,  Issue: 5  |  DOI: 10.1111/j.1540-6261.2011.01682.x  |  Cited by: 137

DORON LEVIT, NADYA MALENKO

Shareholder proposals are a common form of shareholder activism. Voting for shareholder proposals, however, is nonbinding since management has the authority to reject the proposal even if it received majority support from shareholders. We analyze whether nonbinding voting is an effective mechanism for conveying shareholder expectations. We show that, unlike binding voting, nonbinding voting generally fails to convey shareholder views when manager and shareholder interests are not aligned. Surprisingly, the presence of an activist investor who can discipline the manager may enhance the advisory role of nonbinding voting only if conflicts of interest between shareholders and the activist are substantial.

Valuation of the Debt Tax Shield

Published: 10/2002,  Volume: 57,  Issue: 5  |  DOI: 10.1111/0022-1082.00488  |  Cited by: 111

Deen Kemsley, Doron Nissim

In this study, we use cross‐sectional regressions to estimate the value of the debt tax shield. Recognizing that debt is correlated with the value of operations along nontax dimensions, we estimate reverse regressions in which we regress future profitability on firm value and debt rather than regressing firm value on debt and profitability. Reversing the regressions mitigates bias and facilitates the use of market information to control for differences in risk and expected growth. Our estimated value for the debt tax shield is approximately 40 percent (10 percent) of debt balances (firm value), net of the personal tax disadvantage of debt.

Dividend Changes and Future Profitability

Published: 12/2001,  Volume: 56,  Issue: 6  |  DOI: 10.1111/0022-1082.00400  |  Cited by: 371

Doron Nissim, Amir Ziv

We investigate the relation between dividend changes and future profitability, measured in terms of either future earnings or future abnormal earnings. Supporting “the information content of dividends hypothesis,” we find that dividend changes provide information about the level of profitability in subsequent years, incremental to market and accounting data. We also document that dividend changes are positively related to earnings changes in each of the two years after the dividend change.

The Labor Market for Directors and Externalities in Corporate Governance

Published: 3/18/2016,  Volume: 71,  Issue: 2  |  DOI: 10.1111/jofi.12287  |  Cited by: 140

DORON LEVIT, NADYA MALENKO

This paper studies how directors' reputational concerns affect board structure, corporate governance, and firm value. In our setting, directors affect their firms' governance, and governance in turn affects firms' demand for new directors. Whether the labor market rewards a shareholder‐friendly or management‐friendly reputation is determined in equilibrium and depends on aggregate governance. We show that directors' desire to be invited to other boards creates strategic complementarity of corporate governance across firms. Directors' reputational concerns amplify the governance system: strong systems become stronger and weak systems become weaker. We derive implications for multiple directorships, board size, transparency, and board independence.

Liquidity and Autocorrelations in Individual Stock Returns

Published: 9/19/2006,  Volume: 61,  Issue: 5  |  DOI: 10.1111/j.1540-6261.2006.01060.x  |  Cited by: 402

DORON AVRAMOV, TARUN CHORDIA, AMIT GOYAL

This paper documents a strong relationship between short‐run reversals and stock illiquidity, even after controlling for trading volume. The largest reversals and the potential contrarian trading strategy profits occur in high turnover, low liquidity stocks, as the price pressures caused by non‐informational demands for immediacy are accommodated. However, the contrarian trading strategy profits are smaller than the likely transactions costs. This lack of profitability and the fact that the overall findings are consistent with rational equilibrium paradigms suggest that the violation of the efficient market hypothesis due to short‐term reversals is not so egregious after all.

The Voting Premium

Published: 3/30/2026,  Volume: 81,  Issue: 3  |  DOI: 10.1111/jofi.70037  |  Cited by: 8

DORON LEVIT, NADYA MALENKO, ERNST MAUG

We develop a unified theory of blockholder governance and the voting premium in a setting without takeovers or controlling shareholders. A voting premium emerges when a minority blockholder can influence shareholder composition by accumulating votes and buying shares from dissenting shareholders. Our theory reconciles conflicting empirical findings by showing that standard measures of the voting premium often misrepresent the true value of voting rights, increased conflicts between the blockholder and small shareholders do not necessarily raise the voting premium, and the voting premium can even turn negative when small shareholders free‐ride on the blockholder's trades.

Trading and Shareholder Democracy

Published: 11/21/2023,  Volume: 79,  Issue: 1  |  DOI: 10.1111/jofi.13289  |  Cited by: 71

DORON LEVIT, NADYA MALENKO, ERNST MAUG

We study shareholder voting in a model in which trading affects the composition of the shareholder base. Trading and voting are complementary, which gives rise to self‐fulfilling expectations about proposal acceptance and multiple equilibria. Prices and shareholder welfare can move in opposite directions, so the former may be an invalid proxy for the latter. Relaxing trading frictions can reduce welfare because it allows extreme shareholders to gain more weight in voting. Delegating decision‐making to the board can help overcome collective action problems at the voting stage. We also analyze the role of index investors and social concerns of shareholders.

Momentum and Credit Rating

Published: 9/4/2007,  Volume: 62,  Issue: 5  |  DOI: 10.1111/j.1540-6261.2007.01282.x  |  Cited by: 324

DORON AVRAMOV, TARUN CHORDIA, GERGANA JOSTOVA, ALEXANDER PHILIPOV

This paper establishes a robust link between momentum and credit rating. Momentum profitability is large and significant among low‐grade firms, but it is nonexistent among high‐grade firms. The momentum payoffs documented in the literature are generated by low‐grade firms that account for less than 4% of the overall market capitalization of rated firms. The momentum payoff differential across credit rating groups is unexplained by firm size, firm age, analyst forecast dispersion, leverage, return volatility, and cash flow volatility.

Integrating Factor Models

Published: 4/4/2023,  Volume: 78,  Issue: 3  |  DOI: 10.1111/jofi.13226  |  Cited by: 35

DORON AVRAMOV, SI CHENG, LIOR METZKER, STEFAN VOIGT

This paper develops a comprehensive framework to address uncertainty about the correct factor model. Asset pricing inferences draw on a composite model that integrates over competing factor models weighted by posterior probabilities. Evidence shows that unconditional models record near‐zero probabilities, while postearnings announcement drift, quality‐minus‐junk, and intermediary capital are potent factors in conditional asset pricing. Out‐of‐sample, the integrated model performs well, tilting away from subsequently underperforming factors. Model uncertainty makes equities appear considerably riskier, while model disagreement about expected returns spikes during crash episodes. Disagreement spans all return components involving mispricing, factor loadings, and risk premia.