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Abstract:
This paper represents the first attempt, to our knowledge, to empirically examine the relationship between the quality of Chief Executive Officer (CEO) education and firm performance. This is an important question as many papers in the management literature have postulated that managers with higher educational attainment will be more adaptive and innovative, and more likely to possess other characteristics that may improve firm performance. We find four results in our analysis. First, using the mean entrance scores as proxies for the prestige of undergraduate and graduate programs, we find no evidence that firms with CEOs from more prestigious schools perform better than firms with CEOs from less prestigious schools. Second, we find that firms managed by CEOs with MBA or law degrees perform no better than firms with CEOs without graduate degrees. Third, we find some limited evidence that firms led by CEOs with non-MBA, non-law graduate degrees have slightly better risk-adjusted market performance than other firms. Fourth, we find that compensation is somewhat higher for CEOs who attended more prestigious schools.

CEO education, MBA, GMAT, Performance

Abstract:
We perform an extensive examination of how the new Morningstar rating system, introduced in June 2002, predicts future fund performance. Specifically, we examine all domestic equity funds that were rated by Morningstar as of June 30, 2002. We then examine the performance of these funds over the next three years, July 2002-June 2005. Using four different performance metrics, adjustments for loads, and three different methodologies for dealing with survivorship bias, we find widespread support for the notion that the new Morningstar rating system can predict future performance, at least within the first three years out-of-sample. Specifically, we find that higher rated funds, for the most part, significantly outperform lower rated funds. Moreover, the effect is relatively monotonic as even the next to lowest rated funds (2-star funds) significantly outperform the lowest rated funds (1-star funds). These results are quite different from those of Blake and Morey (2000) and Morey (2002b) which show that the older Morningstar rating system did not predict future performance well.

Mutual Funds, Morningstar Ratings, Performance

Abstract:
This paper examines the ability of well known mutual fund characteristics, including the expense ratio, turnover, fund size, recent past performance, manager tenure, and Morningstar mutual fund star ratings, to predict emerging market mutual fund performance. We form three separate samples of emerging market mutual funds, adjust the returns for loads, and employ three methods to adjust for survivorship bias. We find that the expense ratio is the only fund characteristic that consistently predicts future fund performance. Specifically, emerging market funds with lower expense ratios predict better future fund performance. We also find some limited evidence that passive management outperforms active management in emerging market funds.

Mutual Funds, Emerging Markets

Abstract:
We investigate the relation between corporate loan spreads and maturity to test whether lenders are compensated for longer maturity loans (tradeoff hypothesis) or limit their exposure by forcing riskier borrowers to take short-term loans (credit-quality hypothesis). Earlier studies reject the tradeoff hypothesis. We use the LPC DealScan database to create a matched sample of pairs of loans to the same borrower on the same day holding credit quality constant. We perform mean of difference tests and cross-sectional and regression analyses, and find evidence supporting both the tradeoff and credit quality hypotheses.

Bank, borrower, loan, contract terms

Abstract:
We investigate the relationship between corporate loan spreads and maturity to test whether lenders are compensated for longer maturity loans (tradeoff hypothesis) or limit their exposure by forcing riskier borrowers to take short-term loans (creditquality hypothesis). Earlier studies reject the tradeoff hypothesis. We use the LPC Deal Scan database to create a matched sample of pairs of loans to the same borrower on the same day holding credit quality constant. We perform mean of difference tests, cross sectional and regression analyses, and find evidence supporting both the tradeoff and credit quality hypotheses.

Abstract:
To our knowledge, this is the first paper to examine the informational efficiency of the equity market as compared to the syndicated bank loan market. The loan market is a private market comprised of financial institutions with access to private information. We test whether this isreflected in informationally efficient price formation in the loan market vis a vis the equity markets, and reject this private information hypothesis. We find support for a liquidity hypothesis, suggesting that equity markets lead loan markets, despite bank lenders access to private information, because of greater liquidity in equity markets. Only when equity markets arerelatively illiquid do we find evidence supporting the private information hypothesis. Finally, we find evidence of abnormal returns if portfolios are constructed using lagged equity returns todesignate investments in the syndicated bank loan market.

Abstract:
The loan market is a hybrid between a public and a private market, comprised of financial institutions with access to private information about borrowing firms. We test whether this is reflected in informationally efficient price formation in the loan market vis a vis the equity markets, and reject this private information hypothesis. We also reject a liquidity hypothesis which suggests that equity markets always lead loan markets, despite bank lenders' access to private information, because of greater liquidity in equity markets. We further test, and reject, an asymmetric price reaction hypothesis that states that loan returns are more sensitive to negative information whereas equity returns respond symmetrically to both positive and negative information. We find evidence most consistent with an integrated markets hypothesis that suggests that both the equity and syndicated bank loan markets are highly integrated such that information flows freely across markets. This is particularly true when the equity market makers are also loan syndicate members.

Informational efficiency, cointegration, Granger Causality, syndicated bank loans, equity

Abstract:
This paper utilizes a new data set from AllianceBernstein that, unlike other corporate governance data, has monthly-updated firm-level governance ratings for 21 emerging markets countries for almost a five year period. With these unique data, we examine how changes in corporate governance ratings impact firm valuation. This type of test largely allows us to overcome the issue of whether better governance causes better valuations, or whether firms with better valuations endogenously choose better governance. Using this test we find evidence that improvements in corporate governance result in significantly higher valuations.

Corporate Governance, Emerging Markets

Abstract:
The relation between corporate loan spreads and the default-free rate is investigated to determine whether lenders of corporate loans influence prices through increasing loan spreads as the default-free rate decreases, exploiting borrowers' rate relief. The Loan Pricing Corporation DealScan database is employed to create large samples of revolving and term loans, which are independently estimated using techniques that overcome simultaneous equation bias. We find evidence to support the contention that lenders of revolving loans influence loan spreads through increasing commitment fees as the default-free rate decreases. We do not find any evidence that lenders of term loans influence loan spreads.

Loan spreads, Market Power, Competition, Loan Pricing Corporation, Syndicated Loans

Abstract:
We document a significant inverse relationship between a firm’s dividend payouts and reliance on bank loan financing. Banks limit dividend payouts to shareholders in order to protect the integrity of their senior claims on the firm’s assets. Moreover, dividend payouts decline in the presence of monitoring by relationship banks, which acts as an effective governance mechanism, thereby reducing the gains from pre-committing to costly dividend payouts. Bank monitoring and corporate governance (insider stake and institutional block holdings) are complementary mechanisms to resolve firm agency problems, both reducing the firm’s reliance on dividend policy.

dividend, bank lending intensity, monitoring, corporate governance

Abstract:
This paper uses a proprietary database of asset-backed securities (ABS) to make two contributions to the literature: A detailed descriptive analysis of the ABS market and an investigation of the factors that influence underwriting fees in the ABS market. Using methodology similar to that used in Livingston and Miller (2000), evidence is provided that that the relation between underwriter prestige and underwriter fees is positive. Further, evidence is provided that the relation between underwriter fees and loyalty is positive, indicating that the more an issuer uses the same underwriter, the higher the fees that the issuer is charged.

ABS, Asset-Backed Securities, Underwriting Fees, Underwriter Prestige

Abstract:
We document a significant inverse relationship between a firm’sdividend payouts and reliance on bank loan financing. Banks limitdividend payouts to shareholders in order to protect the integrity oftheir senior claims on the firm’s assets. Moreover, dividendpayouts decline in the presence of monitoring by relationship banks,which acts as an effective governance mechanism, thereby reducing thegains from pre-committing to costly dividend payouts. Bank monitoringand corporate governance (insider stake and institutional blockholdings) are complementary mechanisms to resolve firm agency problems,both reducing the firm’s reliance on dividend policy.

Abstract:
We examine the impact on market liquidity of the presence of financial intermediaries that are informed and active participants in both the equity and the syndicated bank loan markets. We identify the presence of informationally advantaged lead arrangers of syndicated bank loans that simultaneously act as equity market makers, denoted dual market makers. By employing a two-stage procedure with instrumental variables, we identify the simultaneous equations model of liquidity and dual market maker decisions. We find empirical support for our theoretical model's predictions that the presence of dual market makers improves the liquidity of more competitive equity markets but widens the spread in the less competitive loan market.

syndicated bank loans, joint participation, market liquidity

Abstract:
We investigate the relation between corporate loan spreads and collateralization. We use propensity scoring to create a matched sample of pairs of loan facilities from the Dealscan database. We find that noncollateralized loans are associated with lower spreads even after controlling for risk.

Abstract:
In this paper we develop a CAPM-based model which incorporate liquidity costs. This model implies, that for markets with nontrivial liquidity costs, the measure of systematic risk is based on returns net of bid-ask spread. Another implications of our CAPM-based model is that the relationship between the expected return and the bid-ask spread is positive and convex. This results differs from Amihud and Mendelson's (1986) concave relationship, but is consistent with empirical evidence obtained by Brennan and Subrahmanyam (1996).