Heitor Almeida What is new in Corporate Finance? (and some tips for PhD students)
Is corporate finance dead? Some researchers believe that there are no new topics in Corporate Finance Research seems to be moving towards household finance (see for example a typical program for the NBER corporate finance meetings)
Exciting times for corporate finance Is there something wrong with firms and industries? Politicians have been busy proposing new regulations to change corporate finance Stakeholder governance (Warren) Ban share repurchases (Sanders) Trump tax plan
Facts and potential explanations Gutierrez and Philippon (2016) Low investment relative to profits and Q Explanations Concentration Short termism Repurchases
Concentration What explains the increase in concentration? M&A Globalization Technology shocks
Short termism Does short termism help explain the decline in investment and productivity growth? Have companies become more short termist? Does short termism even exist? If so what are its sources?
Possible sources of short termism Vesting equity ( Edmans, Fang and Lewellen, 2017 ) Lower growth in R&D/capex when equity vests Compensation targets ( Bennett et al. 2016 ) Short-term performance clusters at targets Investor activism ( Gutierrez and Philippon, 2016 ) No evidence of short-termism (Brav, Jiang and Kim, 2015) Analyst EPS forecasts Lower R&D growth for firms that “just meet” targets (Terry, 2017) Stock repurchases that allow firms to meet EPS targets (Almeida et al. 2015)
Short termism – missing evidence LT Short term Investment consequences ? incentives Example: investor activism ( Gutierrez and Philippon, 2016 ) Increase in (average) long-term productivity (Brav, Jiang and Kim, 2015) I have a new working paper looking at the EPS/repurchase channel
Repurchases Is the increase in repurchases a cause or symptom of the problem (or neither?) Gutierrez and Philippon suggest answer may be yes Rise in activism (causes) firms to increase repurchases at the expense of investments Holes in this argument Brav et al. reject short termism driven by activists Increase in repurchases is driven by “unconstrained firms”
Repurchases Almeida, Fos and Kronlund (2015) find that EPS-driven repurchases do seem to lead to reductions in investment and employment Almeida et al. (2019) find that frictions in labor market (unions) may reduce downsizing efficiency (for example firms scale down their most productive investments) Why are firms trading off repurchases and investment? EPS-driven repurchases are at most 37% of total amount
Tax plan Major overhaul in the corporate tax code Lower tax rate More uniform distribution of tax rates Higher deductions for Capex Did it help increase investment? Many other questions Changes in multinational taxation Limits on deductability of interest payments
Key tips for PhD students Tip 1 See Lasse Pedersen’s presentation!
Highlights (e.g., my tips) One paper = one idea Don’t start projects that have no hopes for a top journal What is the figure of the paper? Be attuned to the world Co-author Use mock abstracts Pay attention to rejections Use your advisor or senior colleagues to help with R&R Network
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