The Journal of Finance

Persuading Investors: A Video‐Based Study

Published: 8/14/2025,  Volume: 80,  Issue: 5  |  DOI: 10.1111/jofi.13471  |  Cited by: 31

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.

Firm Age, Investment Opportunities, and Job Creation

Published: 4/13/2017,  Volume: 72,  Issue: 3  |  DOI: 10.1111/jofi.12495  |  Cited by: 196

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.

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: 12

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.

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.

Nonfinancial Firms as Cross‐Market Arbitrageurs

Published: 8/27/2019,  Volume: 74,  Issue: 6  |  DOI: 10.1111/jofi.12837  |  Cited by: 101

YUERAN MA

I demonstrate that nonfinancial corporations act as cross‐market arbitrageurs in their own securities. Firms use one type of security to replace another in response to shifts in relative valuations, inducing negatively correlated financing flows in different markets. Net equity repurchases and net debt issuance both increase when expected excess returns on debt are particularly low, or when expected excess returns on equity are relatively high. Credit valuations affect equity financing as much as equity valuations do, and vice versa. Cross‐market corporate arbitrage is most prevalent among large, unconstrained firms, and helps account for aggregate financing patterns.

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.

A STUDY OF THE PEOPLE'S BANK OF CHINA*

Published: 9/1962,  Volume: 17,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1962.tb04308.x  |  Cited by: 0

James Chao‐seng Ma

THE WEIGHTED AVERAGE COST OF CAPITAL: SOME QUESTIONS ON ITS DEFINITION, INTERPRETATION, AND USE: COMMENT

Published: 6/1975,  Volume: 30,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1975.tb01861.x  |  Cited by: 1

Ted Bloomfield, Ronald Ma

Risk Reduction in Large Portfolios: Why Imposing the Wrong Constraints Helps

Published: 7/15/2003,  Volume: 58,  Issue: 4  |  DOI: 10.1111/1540-6261.00580  |  Cited by: 1220

Ravi Jagannathan, Tongshu Ma

Green and Hollifield (1992) argue that the presence of a dominant factor would result in extreme negative weights in mean‐variance efficient portfolios even in the absence of estimation errors. In that case, imposing no‐short‐sale constraints should hurt, whereas empirical evidence is often to the contrary. We reconcile this apparent contradiction. We explain why constraining portfolio weights to be nonnegative can reduce the risk in estimated optimal portfolios even when the constraints are wrong. Surprisingly, with no‐short‐sale constraints in place, the sample covariance matrix performs as well as covariance matrix estimates based on factor models, shrinkage estimators, and daily data.

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.

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.

Funding Value Adjustments

Published: 12/30/2018,  Volume: 74,  Issue: 1  |  DOI: 10.1111/jofi.12739  |  Cited by: 169

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.

The Causal Effect of Limits to Arbitrage on Asset Pricing Anomalies

Published: 5/29/2020,  Volume: 75,  Issue: 5  |  DOI: 10.1111/jofi.12947  |  Cited by: 151

YONGQIANG CHU, DAVID HIRSHLEIFER, LIANG MA

We examine the causal effect of limits to arbitrage on 11 well‐known asset pricing anomalies using the pilot program of Regulation SHO, which relaxed short‐sale constraints for a quasi‐random set of pilot stocks, as a natural experiment. We find that the anomalies became weaker on portfolios constructed with pilot stocks during the pilot period. The pilot program reduced the combined anomaly long–short portfolio returns by 72 basis points per month, a difference that survives risk adjustment with standard factor models. The effect comes only from the short legs of the anomaly portfolios.

Why Do Firms Evade Taxes? The Role of Information Sharing and Financial Sector Outreach

Published: 3/17/2014,  Volume: 69,  Issue: 2  |  DOI: 10.1111/jofi.12123  |  Cited by: 185

THORSTEN BECK, CHEN LIN, YUE MA

Tax evasion is a widespread phenomenon across the globe and even an important factor in the ongoing sovereign debt crisis. We show that firms in countries with better credit information–sharing systems and higher branch penetration evade taxes to a lesser degree. This effect is stronger for smaller firms, firms in smaller cities and towns, firms in industries relying more on external financing, and firms in industries and countries with greater growth potential. This effect is robust to instrumental variable analysis, controlling for firm fixed effects in a smaller panel data set of countries, and many other robustness tests.

A Note on “Risk Reduction in Large Portfolios: Why Imposing the Wrong Constraints Helps”

Published: 7/2/2019,  Volume: 74,  Issue: 5  |  DOI: 10.1111/jofi.12824  |  Cited by: 1

RAVI JAGANNATHAN, TONGSHU MA, JIAQI ZHANG

This note corrects an error in the proof of Proposition 2 of “Risk Reduction in Large Portfolios: Why Imposing the Wrong Constraint Helps” that appeared in the Journal of Finance, August 2003.

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.

Capital Share Risk in U.S. Asset Pricing

Published: 5/2019,  Volume: 74,  Issue: 4  |  DOI: 10.1111/jofi.12772  |  Cited by: 70

MARTIN LETTAU, SYDNEY C. LUDVIGSON, SAI MA

A single macroeconomic factor based on growth in the capital share of aggregate income exhibits significant explanatory power for expected returns across a range of equity characteristic portfolios and nonequity asset classes, with risk price estimates that are of the same sign and similar in magnitude. Positive exposure to capital share risk earns a positive risk premium, commensurate with recent asset pricing models in which redistributive shocks shift the share of income between the wealthy, who finance consumption primarily out of asset ownership, and workers, who finance consumption primarily out of wages and salaries.

In the Red: Overdrafts, Payday Lending, and the Underbanked

Published: 3/31/2025,  Volume: 80,  Issue: 3  |  DOI: 10.1111/jofi.13447  |  Cited by: 2

MARCO DI MAGGIO, ANGELA MA, EMILY WILLIAMS

The reordering of transactions from “high‐to‐low” is a controversial bank practice thought to maximize fees paid by low‐income customers on overdrawn accounts. We exploit a series of class‐action lawsuits that mandated that some banks cease the practice. Using alternative credit bureau data, we find that after banks cease high‐to‐low reordering, low‐income individuals reduce payday borrowing, increase consumption, realize long‐term improvements in financial health, and gain access to lower‐cost loans in the traditional financial system. These findings suggest that aggressive bank practices can create demand for alternative financial services and highlight an important link between the traditional and alternative financial systems.

Portfolio Manager Compensation in the U.S. Mutual Fund Industry

Published: 1/17/2019,  Volume: 74,  Issue: 2  |  DOI: 10.1111/jofi.12749  |  Cited by: 201

LINLIN MA, YUEHUA TANG, JUAN‐PEDRO GÓMEZ

We study compensation contracts of individual portfolio managers using hand‐collected data of over 4,500 U.S. mutual funds. Variations in the compensation structures are broadly consistent with an optimal contracting equilibrium. The likelihood of explicit performance‐based incentives is positively correlated with the intensity of agency conflicts, as proxied by the advisor's clientele dispersion, its affiliations in the financial industry, and its ownership structure. Investor sophistication and the threat of dismissal in outsourced funds serve as substitutes for explicit performance‐based incentives. Finally, we find little evidence of differences in future performance associated with any particular compensation arrangement.

Regulatory Arbitrage and International Bank Flows

Published: 9/12/2012,  Volume: 67,  Issue: 5  |  DOI: 10.1111/j.1540-6261.2012.01774.x  |  Cited by: 308

JOEL F. HOUSTON, CHEN LIN, YUE MA

We study whether cross‐country differences in regulations have affected international bank flows. We find strong evidence that banks have transferred funds to markets with fewer regulations. This form of regulatory arbitrage suggests there may be a destructive “race to the bottom” in global regulations, which restricts domestic regulators’ ability to limit bank risk‐taking. However, we also find that the links between regulation differences and bank flows are significantly stronger if the recipient country is a developed country with strong property rights and creditor rights. This suggests that, while differences in regulations have important influences, without a strong institutional environment, lax regulations are not enough to encourage massive capital flows.

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: 23

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.

Market Uncertainty and the Least‐Cost Offering Method of Public Utility Debt: A Note

Published: 9/1988,  Volume: 43,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1988.tb02620.x  |  Cited by: 1

FRANK J. FABOZZI, EILEEN MORAN, CHRISTOPHER K. MA

The Real and Financial Implications of Corporate Hedging

Published: 9/21/2011,  Volume: 66,  Issue: 5  |  DOI: 10.1111/j.1540-6261.2011.01683.x  |  Cited by: 336

MURILLO CAMPELLO, CHEN LIN, YUE MA, HONG ZOU

We study the implications of hedging for corporate financing and investment. We do so using an extensive, hand‐collected data set on corporate hedging activities. Hedging can lower the odds of negative realizations, thereby reducing the expected costs of financial distress. In theory, this should ease a firm's access to credit. Using a tax‐based instrumental variable approach, we show that hedgers pay lower interest spreads and are less likely to have capital expenditure restrictions in their loan agreements. These favorable financing terms, in turn, allow hedgers to invest more. Our tests characterize two exact channels—cost of borrowing and investment restrictions—through which hedging affects corporate outcomes. The analysis shows that hedging has a first‐order effect on firm financing and investment, and provides new insights into how hedging affects corporate value. More broadly, our study contributes novel evidence on the real consequences of financial contracting.

The Legal Origins of Financial Development: Evidence from the Shanghai Concessions

Published: 10/13/2023,  Volume: 78,  Issue: 6  |  DOI: 10.1111/jofi.13284  |  Cited by: 29

ROSS LEVINE, CHEN LIN, CHICHENG MA, YUCHEN XU

The primary challenge to assessing the legal origins view of comparative financial development is identifying exogenous changes in legal systems. We assemble new data on Shanghai's British and French concessions between 1845 and 1936. Two regime changes altered British and French legal jurisdiction over their respective concessions. By examining the changing application of different legal traditions to adjacent neighborhoods within the same city and controlling for military, economic, and political characteristics, we offer new evidence consistent with the legal origins view: the financial development advantage in the British concession widened after Western legal jurisdiction intensified and narrowed after it abated.

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.

Duration of Executive Compensation

Published: 11/10/2014,  Volume: 69,  Issue: 6  |  DOI: 10.1111/jofi.12085  |  Cited by: 317

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.

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: 97

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.

Holiday Trading in Futures Markets

Published: 3/1994,  Volume: 49,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1994.tb04432.x  |  Cited by: 45

FRANK J. FABOZZI, CHRISTOPHER K. MA, JAMES E. BRILEY

In this paper, we find significantly higher preholiday returns in futures contracts compared to nonholiday returns. The findings are consistent with the inventory adjustment hypothesis, since higher preholiday returns associated with lower trading volume are most pronounced for exchange‐closed holidays. There is evidence of positive postholiday returns associated with higher trading volume for exchange‐open holidays. This is consistent with positive holiday sentiments. The holiday effect is uniquely independent: The magnitude of excess holiday returns is the largest among all seasonal variations.

The Resiliency of the High‐Yield Bond Market: The LTV Default

Published: 9/1989,  Volume: 44,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1989.tb02641.x  |  Cited by: 1

CHRISTOPHER K. MA, RAMESH P. RAO, RICHARD L. PETERSON

This paper investigates the resiliency of the new‐issue high‐yield bond market by examining the changes in implied default rates of such bonds before and after the largest high‐yield bond default, i.e., the LTV bankruptcy. Specifically, the paper compares implied default probabilities of high‐yield bonds during the post‐LTV period calculated from actual new‐issue yields with instrumental default probabilities calculated on the assumption that the default had not occurred. A comparison of these probabilities reveals that the market's perception of default on the high risk segment of the bond market increased significantly after the LTV bankruptcy. However, the effect was transitory, lasting only six months. Thus, the market was resilient to a major default.