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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Search results: 4.
How Do Quasi‐Random Option Grants Affect CEO Risk‐Taking?
Published: 08/01/2017 | DOI: 10.1111/jofi.12545
KELLY SHUE, RICHARD R. TOWNSEND
We examine how an increase in stock option grants affects CEO risk‐taking. The overall net effect of option grants is theoretically ambiguous for risk‐averse CEOs. To overcome the endogeneity of option grants, we exploit institutional features of multiyear compensation plans, which generate two distinct types of variation in the timing of when large increases in new at‐the‐money options are granted. We find that, given average grant levels during our sample period, a 10% increase in new options granted leads to a 2.8% to 4.2% increase in equity volatility. This increase in risk is driven largely by increased leverage.
Can the Market Multiply and Divide? Non‐Proportional Thinking in Financial Markets
Published: 05/28/2021 | DOI: 10.1111/jofi.13059
KELLY SHUE, RICHARD R. TOWNSEND
We hypothesize that investors partially think about stock price changes in dollar rather than percentage units, leading to more extreme return responses to news for lower‐priced stocks. Consistent with such non‐proportional thinking, we find a doubling in price is associated with a 20% to 30% decline in volatility and beta (controlling for size/liquidity). To identify a causal price effect, we show that volatility jumps following stock splits and drops following reverse splits. Lower‐priced stocks also respond more strongly to firm‐specific news. Non‐proportional thinking helps explain asset pricing patterns such as the size‐volatility/beta relation, the leverage effect puzzle, and return drift and reversals.
The Impact of Venture Capital Monitoring
Published: 10/13/2015 | DOI: 10.1111/jofi.12370
SHAI BERNSTEIN, XAVIER GIROUD, RICHARD R. TOWNSEND
We show that venture capitalists' (VCs) on‐site involvement with their portfolio companies leads to an increase in both innovation and the likelihood of a successful exit. We rule out selection effects by exploiting an exogenous source of variation in VC involvement: the introduction of new airline routes that reduce VCs' travel times to their existing portfolio companies. We confirm the importance of this channel by conducting a large‐scale survey of VCs, of whom almost 90% indicate that direct flights increase their interaction with their portfolio companies and management, and help them better understand companies' activities.
Do Household Wealth Shocks Affect Productivity? Evidence from Innovative Workers During the Great Recession
Published: 09/24/2020 | DOI: 10.1111/jofi.12976
SHAI BERNSTEIN, TIMOTHY MCQUADE, RICHARD R. TOWNSEND
We investigate how the deterioration of household balance sheets affects worker productivity, and in turn economic downturns. Specifically, we compare the output of innovative workers who experienced differential declines in housing wealth during the financial crisis but were employed at the same firm and lived in the same metropolitan area. We find that, following a negative wealth shock, innovative workers become less productive and generate lower economic value for their firms. The reduction in innovative output is not driven by workers switching to less innovative firms or positions. These effects are more pronounced among workers at greater risk of financial distress.