- "Can Restructuring Gains Be Sustained Without Ownership Changes? Evidence from Withdrawn Privatizations", 2018. With William L. Megginson. Journal of Financial and Quantitative Analysis, Forthcoming.
Abstract: By employing a novel, hand-collected sample of withdrawn and completed share issue privatizations (SIPs) we show that both groups undergo comparable restructuring processes over the three years preceding the event. We employ a matching procedure to explicitly control for the identified restructuring effect, isolating the ultimate consequences of the ownership transfer from political to private investors on corporate policies and performance. We find that, absent the ownership transfer, most of the gains realized during the restructuring process are re-absorbed over the post-treatment period. Results are robust to the use of instrumental variables, indicating that the transition from state to private ownership represents a necessary condition for the long-term success of privatization programs.
- "International Relations and Sovereign Wealth Funds' Political Value: Evidence from a Quasi-Natural Experiment", 2017. With William L. Megginson. Wake Forest Law Review (52), pp: 857-888.
Abstract: This paper exploits the 2016 American presidential election as an exogenous shock to international political relations to study whether Sovereign Wealth Funds (SWFs) are investments vehicles used by foreign governments to influence the American political system. By combining an event study with cross-sectional analyses we identify weak support for international political relations being priced in the market through SWFs’ investments. These findings are consistent with and might explain the SWF discount identified in Bortolotti, Fotak and Megginson (2015). All in all, these results cast further doubts concerning SWFs’ absolute and unconditional political disinvolvment, calling for further research aimed to identify whether or not these funds pursue political goals.
Selected Working Papers
Abstract: We construct and validate a text-based metric capturing firms’ ex-ante exposure to cybersecurity risk, and we document that the rise of cyber threats is redesigning corporate innovation strategies. As firms’ exposure to cybersecurity risk increases, managers’ reliance on trade-secrets declines, as they seek to protect their firm’s intellectual capital under patent and intellectual property laws. Beside increasing their patenting activity, we document that firms exposed to cyber threats file for simpler patents to accelerate their innovation cycle. Finally, we show that this strategic adjustment is not costless, as it causes firms’ returns to R&D investments to decline significantly.
Abstract: The US listing gap - an abnormal decline in the number of stock market listings relative to other countries - is often interpreted as a warning sign for the US public equity markets. We show that, over the same period that the US listing gap expands, the US economy has experienced abnormally high aggregate stock market valuations, merger activity, and private equity (PE) investments. We investigate the relations among these dimensions and document a transition in the US equity financing model. Our revised estimation shows that the US listing gap is created in two distinct waves, the timing of which suggests a negative role for the regulation of listed firms. The US listing gap is virtually fully explained by the rise of mergers and acquisitions activity, as the leading factor, and PE investments since the mid-1990s. Finally, we document that this phenomenon is emerging in other developed economies, with a few years of delay.
- "The Persistence and Valuation Effects of Classification Shifting", 2019. With Wayne B. Thomas.
Abstract: Classification shifting is defined in the literature as managers’ intentional classification of certain core expenses as income-decreasing special items with the intent to inflate reported core performance. We show that firms’ propensity to engage in this reporting strategy is persistent over time and relates to its use by peer firms. We also find that this strategy is associated with higher year-ahead firm value and stock returns. As one possible channel through which this valuation effect originates, we find that classification shifting allows firms to increase their debt capacity, consistent with firms shifting risks from shareholders to debtholders. Our tests are implemented using a new firm-year measure of classification shifting that can be broadly applied in many other research settings.
- "The Worst of Both Worlds: Megamergers are Anticompetitive and Inefficient", 2019. With Alexander Butler and Gustavo Grullon.
Abstract: There is no consensus in the literature regarding the financial consequences of megamergers in part due to the difficulty in establishing a good counterfactual. By comparing the performance of these deals to the performance of synthetic mergers constructed using a novel matching procedure, we find no significant changes in return on assets after megamergers. This apparent non-result is driven by merged firms subsidizing their increased operating inefficiencies with higher markups. We show that this cross-subsidization effect is stronger in larger deals and in more concentrated industries, suggesting that our findings are driven by market power and quiet life considerations.
Abstract: We develop a novel metric of corporate social responsibility (CSR) rivalry to capture the environmental sustainability engagements of a firm relative to its “green” and “toxic” peers. We document that our measure has superior predictive power about firms’ future pollution levels when compared to alternative unitary CSR scores. Firms with superior relative CSR performance exhibit higher sales growth, profitability, corporate valuation, and future stock returns. Our results suggest that firms compete for CSR ratings and that relative – in addition to unitary – CSR metrics are linked to financial performance.
Data Availability: Link to Relative Social Responsibility Score.
This dataset contains the Relative Social Responsibility Score for the period 1998 to 2018 for all firms included in the KLD dataset. Conditions for the use of this dataset are as follows:
1) Please, reference the following paper which contains details on the construction and usage of the data.
"Does Competing Through Corporate Social Responsibility Engagements Lead to Superior Financial Performance?", with Lubomir P. Litov, Working Paper 2019.
2) Data may be used for non-commercial purposes free of charge. For all other uses, please contact Gabriele Lattanzio or Lubomir P. Litov.
Job Market Paper
Abstract: Competition in the asset management industry acts as a counter-balancing force preventing the materialization of anti-competitive effects of common ownership. Since institutional investors compete on relative performance, the distribution of these anti-competitive rents plays a crucial role at determining their long-term sustainability. Managers of funds benefiting the least from these anti-competitive rents would indeed put pressure on firms’ managers to aggressively compete against their rivals, as re-establishing a competitive equilibrium would save them from being perceived as an underperforming fund. That is, while common ownership might cause temporary anti-competitive effects, competition in the asset management industry undermines their long-term sustainability.