The Journal of Finance

Information Control, Career Concerns, and Corporate Governance

Published: 8/2006,  Volume: 61,  Issue: 4  |  DOI: 10.1111/j.1540-6261.2006.00891.x  |  Cited by: 190

FENGHUA SONG, ANJAN V. THAKOR

We examine corporate governance effectiveness when the CEO generates project ideas and the board of directors screens these ideas for approval. However, the precision of the board's screening information is controlled by the CEO. Moreover, both the CEO and the board have career concerns that interact. The board's career concerns cause it to distort its investment recommendation procyclically, whereas the CEO's career concerns cause her to sometimes reduce the precision of the board's information. Moreover, the CEO sometimes prefers a less able board, and this happens only during economic upturns, suggesting that corporate governance will be weaker during economic upturns.

Duration of Executive Compensation

Published: 11/10/2014,  Volume: 69,  Issue: 6  |  DOI: 10.1111/jofi.12085  |  Cited by: 314

RADHAKRISHNAN GOPALAN, TODD MILBOURN, FENGHUA SONG, ANJAN V. THAKOR

Extensive discussions on the inefficiencies of “short‐termism” in executive compensation notwithstanding, little is known empirically about the extent of such short‐termism. We develop a novel measure of executive pay duration that reflects the vesting periods of different pay components, thereby quantifying the extent to which compensation is short‐term. We calculate pay duration in various industries and document its correlation with firm characteristics. Pay duration is longer in firms with more growth opportunities, more long‐term assets, greater R&D intensity, lower risk, and better recent stock performance. Longer CEO pay duration is negatively related to the extent of earnings‐increasing accruals.

The Mismatch Between Mutual Fund Scale and Skill

Published: 6/4/2020,  Volume: 75,  Issue: 5  |  DOI: 10.1111/jofi.12950  |  Cited by: 100

YANG SONG

I demonstrate that skill and scale are mismatched among actively managed equity mutual funds. Many mutual fund investors confuse the effects of fund exposures to common systematic factors with managerial skill when allocating capital among funds. Active mutual funds with positive factor‐related past returns thus accumulate assets to the point that they significantly underperform. I also show that the negative aggregate benchmark‐adjusted performance of active equity mutual funds is driven mainly by these oversized funds.

Competition and Coalition among Underwriters: The Decision to Join a Syndicate

Published: 10/2004,  Volume: 59,  Issue: 5  |  DOI: 10.1111/j.1540-6261.2004.00704.x  |  Cited by: 56

WEI‐LING SONG

This paper studies the decision of lead investment banks to organize hybrid syndicates (commercial banks participating as co‐managers) versus pure investment bank syndicates. The findings show that hybrid underwriting issues are more challenging to float. Compared to pure investment bank syndicates, hybrid syndicates serve clients that are smaller, have lower common stock rankings and less prior access to the capital markets, rely more on bank loans, and invest less capital but issue larger amounts, which indicates that commercial banks' participation enhances hybrid services. Moreover, lead investment banks tend to invite banks' participation when clients exhibit higher loyalty in reusing their services.

Persuading Investors: A Video‐Based Study

Published: 8/14/2025,  Volume: 80,  Issue: 5  |  DOI: 10.1111/jofi.13471  |  Cited by: 30

ALLEN HU, SONG MA

Persuasive communication functions through not only content but also delivery—facial expression, tone of voice, and diction. This paper examines the persuasiveness of delivery in startup pitches. Using machine learning algorithms to process full pitch videos, we quantify persuasion in visual, vocal, and verbal dimensions. We find that positive (i.e., passionate, warm) pitches increase funding probability. However, conditional on funding, startups with higher levels of pitch positivity underperform. Women are more heavily judged on delivery when evaluated in single‐gender teams, but they are neglected when copitching in mixed‐gender teams. Using an experiment, we show that persuasion delivery works mainly through leading investors to form inaccurate beliefs.

Liquidity in a Market for Unique Assets: Specified Pool and To‐Be‐Announced Trading in the Mortgage‐Backed Securities Market

Published: 4/13/2017,  Volume: 72,  Issue: 3  |  DOI: 10.1111/jofi.12496  |  Cited by: 48

PENGJIE GAO, PAUL SCHULTZ, ZHAOGANG SONG

Agency mortgage‐backed securities (MBS) trade simultaneously in a market for specified pools (SPs) and in the to‐be‐announced (TBA) forward market. TBA trading creates liquidity by allowing thousands of different MBS to be traded in a handful of TBA contracts. SPs that are eligible to be traded as TBAs have significantly lower trading costs than other SPs. We present evidence that TBA eligibility, in addition to characteristics of TBA‐eligible SPs, lowers trading costs. We show that dealers hedge SP inventory with TBA trades, and they are more likely to prearrange trades in SPs that are difficult to hedge.

Firm Age, Investment Opportunities, and Job Creation

Published: 4/13/2017,  Volume: 72,  Issue: 3  |  DOI: 10.1111/jofi.12495  |  Cited by: 195

MANUEL ADELINO, SONG MA, DAVID ROBINSON

New firms are an important source of job creation, but the underlying economic mechanisms for why this is so are not well understood. Using an identification strategy that links shocks to local income to job creation in the nontradable sector, we ask whether job creation arises more through new firm creation or through the expansion of existing firms. We find that new firms account for the bulk of net employment creation in response to local investment opportunities. We also find significant gross job creation and destruction by existing firms, suggesting that positive local shocks accelerate churn.

Funding Value Adjustments

Published: 12/30/2018,  Volume: 74,  Issue: 1  |  DOI: 10.1111/jofi.12739  |  Cited by: 165

LEIF ANDERSEN, DARRELL DUFFIE, YANG SONG

In this paper, we demonstrate that the funding value adjustments (FVAs) of major dealers are debt overhang costs to their shareholders. To maximize shareholder value, dealer quotations therefore adjust for FVAs. Our case studies include interest‐rate swap FVAs and violations of covered interest parity. Contrary to current valuation practice, FVAs are not themselves components of the market values of the positions being financed. Current dealer practice does, however, align incentives between trading desks and shareholders. We also establish a pecking order for preferred asset financing strategies and provide a new interpretation of the standard debit value adjustment.

Do Buyouts (Still) Create Value?

Published: 3/21/2011,  Volume: 66,  Issue: 2  |  DOI: 10.1111/j.1540-6261.2010.01640.x  |  Cited by: 362

SHOURUN GUO, EDITH S. HOTCHKISS, WEIHONG SONG

We examine how leveraged buyouts from the most recent wave of public to private transactions created value. Buyouts completed between 1990 and 2006 are more conservatively priced and less levered than their predecessors from the 1980s. For deals with post‐buyout data available, median market‐ and risk‐adjusted returns to pre‐ (post‐) buyout capital invested are 72.5% (40.9%). In contrast, gains in operating performance are either comparable to or slightly exceed those observed for benchmark firms. Increases in industry valuation multiples and realized tax benefits from increasing leverage, while private, are each economically as important as operating gains in explaining realized returns.

Private Equity and Financial Stability: Evidence from Failed‐Bank Resolution in the Crisis

Published: 11/27/2024,  Volume: 80,  Issue: 1  |  DOI: 10.1111/jofi.13399  |  Cited by: 11

EMILY JOHNSTON‐ROSS, SONG MA, MANJU PURI

This paper investigates the role of private equity (PE) in failed‐bank resolutions after the 2008 financial crisis, using proprietary Federal Deposit Insurance Corporation failed‐bank acquisition data. PE investors made substantial investments in underperforming and riskier failed banks, particularly in geographies where local banks were also distressed, filling the gap created by a weak, undercapitalized banking sector. Using a quasi‐random empirical design based on detailed bidding information, we show that PE‐acquired banks performed better ex post, with positive real effects for the local economy. Overall, PE investors played a positive role in stabilizing the financial system through their involvement in failed‐bank resolution.

Asset Pricing with Cohort‐Based Trading in MBS Markets

Published: 10/6/2022,  Volume: 77,  Issue: 6  |  DOI: 10.1111/jofi.13180  |  Cited by: 16

NICOLA FUSARI, WEI LI, HAOYANG LIU, ZHAOGANG SONG

Agency mortgage‐backed securities (MBSs) with diverse characteristics are traded in parallel through individualized specified pool (SP) contracts and standardized to‐be‐announced (TBA) contracts with delivery flexibility. This parallel trading environment generates distinctive effects on MBS pricing and trading: (i) Although cheapest‐to‐deliver (CTD) issues are present in TBA trading and absent from SP trading by design, MBS heterogeneity associated with CTD discounts affects SP yields positively, with the effect stronger for lower‐value SPs; (ii) high selling pressure amplifies the effects of MBS heterogeneity on SP yields; and (iii) greater MBS heterogeneity dampens SP and TBA trading activities but increases their ratio.

The Term Structure of Covered Interest Rate Parity Violations

Published: 3/31/2024,  Volume: 79,  Issue: 3  |  DOI: 10.1111/jofi.13336  |  Cited by: 19

PATRICK AUGUSTIN, MIKHAIL CHERNOV, LUKAS SCHMID, DONGHO SONG

We quantify the impact of risk‐based and nonrisk‐based intermediary constraints (IC) on the term structure of covered interest rate parity (CIP) violations. Using a stochastic discount factor (SDF) inferred from interest rate swaps, we value currency derivatives. The wedge between model‐implied and observed derivative prices reflects the impact of nonrisk‐based IC because our SDF incorporates risk‐based IC. There is no wedge at short horizons, while the wedge accounts for 40% of long‐term CIP violations. Consistent with IC theory, the wedge correlates with the shadow cost of intermediary capital, and the SDF‐implied interest rate is a weighted average of collateralized and uncollateralized interest rates.

The Distribution of Target Ownership and the Division of Gains in Successful Takeovers

Published: 7/1990,  Volume: 45,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1990.tb05107.x  |  Cited by: 142

RENÉ M. STULZ, RALPH A. WALKLING, MOON H. SONG

This paper presents evidence that the distribution of target ownership is related to the division of the takeover gain between the target and the bidder for a sample of successful tender offers. In the whole sample, the target's gain is negatively related to bidder and institutional ownership. In the sample of multiple‐bidder contests, the target's gain increases with managerial ownership and falls with institutional ownership.

Bad Credit, No Problem? Credit and Labor Market Consequences of Bad Credit Reports

Published: 6/25/2020,  Volume: 75,  Issue: 5  |  DOI: 10.1111/jofi.12954  |  Cited by: 95

WILL DOBBIE, PAUL GOLDSMITH‐PINKHAM, NEALE MAHONEY, JAE SONG

We study the financial and labor market impacts of bad credit reports. Using difference‐in‐differences variation from the staggered removal of bankruptcy flags, we show that bankruptcy flag removal leads to economically large increases in credit limits and borrowing. Using administrative tax records linked to personal bankruptcy records, we estimate economically small effects of flag removal on employment and earnings outcomes. We rationalize these contrasting results by showing that, conditional on basic observables, “hidden” bankruptcy flags are strongly correlated with adverse credit market outcomes but have no predictive power for measures of job performance.