JLFA 2017 Annual Conference

JLFA 2017 Annual Conference

  • 17 November 2017
  • London

*** This event is by invitation only***

 

The Journal of Law, Finance, and Accounting (JLFA) is pleased to announce its sixth conference, to be held at the London Business School, Sussex Place Regents Park, Friday November 17th and Saturday November 18th, 2017, ending by mid-afternoon on Saturday. This conference is being organized in conjunction with the European Corporate Governance Institute (ECGI).

JLFA is an interdisciplinary journal sponsored by the NYU Stern School of Business and the NYU School of Law.  It seeks to publish top-quality empirical, theoretical, and policy-oriented scholarship at the intersection of law, finance and accounting.  The JLFA conference is sponsored by KPMG.  Prior JLFA conferences have been held at NYU (2014), Hong Kong Polytechnic University (2015, 2017), Harvard (2015) and Northwestern University (2016).

Information

Address:
London Business School, Sussex Place, Regent’s Park, London NW1, UK
Contact:
Elaine McPartlan
European Corporate Governance Institute

Friday, 17 November

09:00

Registration at the Ratcliffe Reception Welcome Desk

09:30

Welcome - John Armour (Oxford University) & Julian Franks (London Business School)

09:40
- 12:40

Chair: Joshua Ronen (New York University, Stern School of Business)

09:40

The SEC's Enforcement Record against Auditors

Speakers:
Shiva Rajgopal
Discussant:
Lakshmanan Shivakumar
Back to full programme

The SEC's Enforcement Record against Auditors

Time:
09:40h

Transparency has two dimensions that financial economists and accounting experts tend to analyse separately even though they are closely related. The first dimension concerns the process of security trading: a security market is transparent insofar as its participants are aware of each others' behaviour (e.g. know current bid and ask quotes or recent transaction prices). The second dimension of transparency instead depends on the disclosure decisions of companies: it concerns how much information investors have about company 'fundamentals'. In most cases, both forms of transparency lower transaction costs, and ultimately benefit firms via lower cost of capital and/or better access to external finance. But they may also impose some costs on firms which in some cases may opt for a degree of transparency that is socially inefficient, This in turn could create a rationale for regulatory intervention. Moreover, the two types of transparency are not independent of each other: for instance, if markets are very transparent, firms may want to be less transparent.

Speakers

Shiva Rajgopal

Discussants

Conference Documents

10:30
- 11:00

Coffee in R1 Lounge

11:00

Textual Disclosure in SEC Filings and Litigation Risk

Speakers:
Arup Ganguly
Discussant:
TBA
Back to full programme

Textual Disclosure in SEC Filings and Litigation Risk

Time:
11:00h

Prior studies are quite ambivalent on the relation between disclosure and litigation risk since greater disclosure can be perceived as either ex ante deterrent or ex post misleading. I hypothesize that more information is disclosed in the non-numerical narratives in SEC filings than that has been analyzed in the extant literature. Using a comprehensive hand-collected data on federal securities class action lawsuits spanning nearly two decades, propensity-score matched sample, and widely used measures in natural language processing (NLP) that capture degree, readability and sentiments in textual disclosures, I find results consistent with the theoretical view that argues that more and difficult to comprehend disclosure is often perceived as ex post misleading, hence, precipitating litigations. After controlling for other numerical variables, these results are robust to various empirical specifications using difference-in-differences (DiD) and principal component analysis (PCA). Such findings indicate that there is a need to distinguish between more versus better disclosure.

Speakers

Arup Ganguly

Discussants

Conference Documents

11:50

Dark Trading at the Midpoint: Does SEC Enforcement Policy Encourage Stale Quote Arbitrage?

Speakers:
Bobby Bartlett
Discussant:
Nicholas Hirschey
Back to full programme

Dark Trading at the Midpoint: Does SEC Enforcement Policy Encourage Stale Quote Arbitrage?

Time:
11:50h

Prevailing research posits that liquidity providers bypass long queue lines on exchanges by offering liquidity in dark venues with de minimis sub-penny price improvement, thus exploiting an exception to the penny quote rule. We show that (a) the SEC enforces the quote rule to prevent sub-penny queue-jumping in dark pools unless trades are “pegged” to the NBBO midpoint and (b) the documented increase in dark trading due to investor queue-jumping stems from increased midpoint trading. Although encouraging pegged orders can subject traders to stale quote arbitrage, we show it could have affected no more than 5% of our sample midpoint trades.

Speakers

Bobby Bartlett

Discussants

Conference Documents

12:40
- 14:00

Lunch in Park Restaurant Suite 1

14:00
- 17:40

Chair: Bernard Black (Northwestern University Law School)

14:00

Common Ownership, Competition, and Top Management Incentives

Speakers:
Miguel Anton
Discussant:
Rui Silva
Back to full programme

Common Ownership, Competition, and Top Management Incentives

Time:
14:00h

We show that managers have stronger financial incentives to compete against rivals when an industry’s firms tend to be controlled by shareholders with concentrated stakes in the firm, and relatively few holdings in competitors. Conversely, wealth-performance sensitivities are reduced when there is more common ownership. We exploit quasi-exogenous variation in common ownership from a mutual fund trading scandal to support a causal interpretation. These findings inform a debate about the objective function of the firm.

Speakers

Miguel Anton

Discussants

Conference Documents

14:50

Debt Contract Terms and Creditor Control

Speakers:
Adam Badawi
Discussant:
Vikrant Vig
Back to full programme

Debt Contract Terms and Creditor Control

Time:
14:50h

The law and finance literature characterizes debt covenants as a means to manage agency conflicts between creditors and shareholders. While both banks and bondholders make use of these covenants, they do so in quite different ways. Banks typically monitor their debtors closely and rely on financial maintenance covenants to protect their interests. When these covenants get triggered, banks can use the leverage of accelerating the loan to achieve their governance goals. This ability to monitor and renegotiate suggests that tailoring precise ex ante contract restrictions is not of paramount importance because a bank and a debtor can negotiate around those restrictions based on ex post contract conditions. Bond holders, in contrast, generally do not monitor and renegotiate with their debtors because these bond holders tend to be large groups of passive investors who face substantial collective action problems. As a consequence, ex ante restrictive terms in the contract are likely to be the primary means through which bondholders can address potential conflicts with shareholders. These differences in contracting technologies suggest that the restrictions in bond contracts are more likely to be responsive to changes in background legal rules. This paper tests this theory by treating two Delaware decisions that limited the default duties that the directors of Delaware corporations owe to their creditors as a shock to the contracting conditions for Delaware firms. Difference-in-difference and triple difference tests suggest that restrictive terms in bond contracts for Delaware firms increased in reaction to this change, while there was not a detectable shift in the strictness of loan agreements.

Speakers

Adam Badawi

Discussants

15:40
- 16:00

Coffee in R1 Lounge

16:00

What Drives Financial Reform? Economics and Politics of the State-Level Adoption of Municipal Bankruptcy Laws

Speakers:
Discussant:
Barry Adler
Back to full programme

What Drives Financial Reform? Economics and Politics of the State-Level Adoption of Municipal Bankruptcy Laws

Time:
16:00h

We investigate drivers of financial reform by examining state-level adoption of municipal bankruptcy laws (Chapter 9). To guide empirical work, we present a new model where municipal bankruptcy law destroys labor union rents and expands local firms’ ability to invest. Consistent with theory, we find that the relative strength of unions vis-à-vis bondholders, courts’ efficiency, and trust in local government explain Chapter 9 adoptions over 1980-2012; similar factors explain congressional voting on municipal bankruptcy law; after adoptions, municipal bond spreads decrease, local firms invest more and perform better. Our results highlight a novel spillover channel from public to private sectors.

Speakers

Discussants

Conference Documents

16:50

Color and Credit: Race, Regulation, and the Quality of Financial Services

Speakers:
Taylor Begley
Discussant:
Oren Sussman
Back to full programme

Color and Credit: Race, Regulation, and the Quality of Financial Services

Time:
16:50h

We investigate drivers of financial reform by examining state-level adoption of municipal bankruptcy laws (Chapter 9). To guide empirical work, we present a new model where municipal bankruptcy law destroys labor union rents and expands local firms’ ability to invest. Consistent with theory, we find that the relative strength of unions vis-à-vis bondholders, courts’ efficiency, and trust in local government explain Chapter 9 adoptions over 1980-2012; similar factors explain congressional voting on municipal bankruptcy law; after adoptions, municipal bond spreads decrease, local firms invest more and perform better. Our results highlight a novel spillover channel from public to private sectors.

Speakers

Taylor Begley

Discussants

Professor
Oren Sussman

Conference Documents

17:40

Session Close

19:00

Dinner at Park Restaurant Suite 1 - Keynote speaker: Franklin Allen (Imperial Business School, Brevan Howard Centre for Financial Analysis)

Saturaday, 18 November

09:00

Coffee in R1 Lounge

09:30
- 13:10

Chair: John Armour (University of Oxford, Faculty of Law)

Back to full programme

Government Intervention, Ownership Structure and Firm Value: The Case of the German Tax Reduction Act

Time:
09:30h

This paper provides causal evidence on the effect of ownership structure on firm value and on the impact of large tax incentives on the divestiture decision of equity blockholders by exploiting a quasi-experimental policy change in Germany. The 2000 Tax Reduction Act repealed corporate shareholders from capital gains taxation, whereas individual shareholders experienced only minor tax reductions. We show that stronger tax incentives to dispose shares do not necessarily reduce ownership concentration in the presence of strategic value premia as we find an increase in ownership concentration in firms controlled by a (tax exempt) corporate investor in response to the tax repeal. As the general policy of the German government was aiming at a more active market for corporate control via a more dispersed ownership structure, this result is not in line with the intentions of the policy makers. With respect to the relation between ownership structure and firm value the results from our difference-in-differences estimation suggest that the tax repeal was effective in removing market frictions and allowing for a more efficient shareholder structure: we find a positive relationship between ownership concentration and firm value.

Speakers

Discussants

Conference Documents

10:20

Organizational Complexity and Bank Loan Spreads

Speakers:
Anywhere (Siko) Sikochi
Discussant:
Back to full programme

Organizational Complexity and Bank Loan Spreads

Time:
10:20h

This study examines whether and how organizational complexity arising from the legal fragmentation of the firm into multiple entities affects the interest spread charged on bank loans and the design of loan contracts. The legal fragmentation of the firm is bound to be a consideration lenders make in determining the pricing of debt and design of contract terms because, for instance, lenders can only enter into legally enforceable agreements with specific legal entities. I document that organizational complexity is associated with higher loan spreads and the use of debt covenants and other loan terms. The relation between complexity and loan spreads is more pronounced for loan characteristics that reflects higher risk, but is attenuated by contracting mechanisms. Yet, contracts in the sample do not always include terms that mitigate contracting risks from organizational complexity. Subsequent tests are suggestive of potential channels related to credit quality and control rights.

Speakers

Anywhere (Siko) Sikochi

Discussants

Conference Documents

11:10
- 11:30

Coffee in R1 Lounge

11:30

Rise of Bank Competition: Evidence from Banking Deregulation in China

Speakers:
Hong Ru
Discussant:
Back to full programme

Rise of Bank Competition: Evidence from Banking Deregulation in China

Time:
11:30h

Using proprietary loan-level data and detailed bank branch data in China, this paper investigates the effects of the 2009 bank branch deregulation on competition dynamics between new and incumbent banks and on real economic activities. Tracing out each of the loans firms borrowed, we find that new entrant banks tend to target different firms than incumbent banks (e.g., more efficient firms). Increased interbank competition leads to more relationship bank lending than transaction lending. Loans from new banks have longer maturity, better internal ratings, more third party guarantees, and lower delinquency rates. When competition pressure is higher, incumbent banks provide better loan terms, lower loan-screening standards, and have higher delinquency rates. Overall, increased interbank competition leads to increases in firm investments, employments, sales, and efficiency, especially for private firms. Moreover, interbank competition leads to greater added value of bank loans for firms which depend mainly on transaction lending than for firms which mainly borrow relationship loans.

Speakers

Hong Ru

Discussants

Conference Documents

Back to full programme

TBA

Time:
12:20h

Speakers

Eric Talley

Discussants

13:10

Lunch at Park Restaurant Suite 1

Speakers

Presentations

The SEC's Enforcement Record against Auditors

Shiva Rajgopal
Back to all presentations

The SEC's Enforcement Record against Auditors

Time:
09:40h

Transparency has two dimensions that financial economists and accounting experts tend to analyse separately even though they are closely related. The first dimension concerns the process of security trading: a security market is transparent insofar as its participants are aware of each others' behaviour (e.g. know current bid and ask quotes or recent transaction prices). The second dimension of transparency instead depends on the disclosure decisions of companies: it concerns how much information investors have about company 'fundamentals'. In most cases, both forms of transparency lower transaction costs, and ultimately benefit firms via lower cost of capital and/or better access to external finance. But they may also impose some costs on firms which in some cases may opt for a degree of transparency that is socially inefficient, This in turn could create a rationale for regulatory intervention. Moreover, the two types of transparency are not independent of each other: for instance, if markets are very transparent, firms may want to be less transparent.

Discussants

Lakshmanan Shivakumar

Conference Documents

Textual Disclosure in SEC Filings and Litigation Risk

Arup Ganguly
Back to all presentations

Textual Disclosure in SEC Filings and Litigation Risk

Time:
11:00h

Prior studies are quite ambivalent on the relation between disclosure and litigation risk since greater disclosure can be perceived as either ex ante deterrent or ex post misleading. I hypothesize that more information is disclosed in the non-numerical narratives in SEC filings than that has been analyzed in the extant literature. Using a comprehensive hand-collected data on federal securities class action lawsuits spanning nearly two decades, propensity-score matched sample, and widely used measures in natural language processing (NLP) that capture degree, readability and sentiments in textual disclosures, I find results consistent with the theoretical view that argues that more and difficult to comprehend disclosure is often perceived as ex post misleading, hence, precipitating litigations. After controlling for other numerical variables, these results are robust to various empirical specifications using difference-in-differences (DiD) and principal component analysis (PCA). Such findings indicate that there is a need to distinguish between more versus better disclosure.

Discussants

TBA

Conference Documents

Dark Trading at the Midpoint: Does SEC Enforcement Policy Encourage Stale Quote Arbitrage?

Bobby Bartlett
Back to all presentations

Dark Trading at the Midpoint: Does SEC Enforcement Policy Encourage Stale Quote Arbitrage?

Time:
11:50h

Prevailing research posits that liquidity providers bypass long queue lines on exchanges by offering liquidity in dark venues with de minimis sub-penny price improvement, thus exploiting an exception to the penny quote rule. We show that (a) the SEC enforces the quote rule to prevent sub-penny queue-jumping in dark pools unless trades are “pegged” to the NBBO midpoint and (b) the documented increase in dark trading due to investor queue-jumping stems from increased midpoint trading. Although encouraging pegged orders can subject traders to stale quote arbitrage, we show it could have affected no more than 5% of our sample midpoint trades.

Discussants

Nicholas Hirschey

Conference Documents

Common Ownership, Competition, and Top Management Incentives

Miguel Anton
Back to all presentations

Common Ownership, Competition, and Top Management Incentives

Time:
14:00h

We show that managers have stronger financial incentives to compete against rivals when an industry’s firms tend to be controlled by shareholders with concentrated stakes in the firm, and relatively few holdings in competitors. Conversely, wealth-performance sensitivities are reduced when there is more common ownership. We exploit quasi-exogenous variation in common ownership from a mutual fund trading scandal to support a causal interpretation. These findings inform a debate about the objective function of the firm.

Discussants

Rui Silva

Conference Documents

Debt Contract Terms and Creditor Control

Adam Badawi
Back to all presentations

Debt Contract Terms and Creditor Control

Time:
14:50h

The law and finance literature characterizes debt covenants as a means to manage agency conflicts between creditors and shareholders. While both banks and bondholders make use of these covenants, they do so in quite different ways. Banks typically monitor their debtors closely and rely on financial maintenance covenants to protect their interests. When these covenants get triggered, banks can use the leverage of accelerating the loan to achieve their governance goals. This ability to monitor and renegotiate suggests that tailoring precise ex ante contract restrictions is not of paramount importance because a bank and a debtor can negotiate around those restrictions based on ex post contract conditions. Bond holders, in contrast, generally do not monitor and renegotiate with their debtors because these bond holders tend to be large groups of passive investors who face substantial collective action problems. As a consequence, ex ante restrictive terms in the contract are likely to be the primary means through which bondholders can address potential conflicts with shareholders. These differences in contracting technologies suggest that the restrictions in bond contracts are more likely to be responsive to changes in background legal rules. This paper tests this theory by treating two Delaware decisions that limited the default duties that the directors of Delaware corporations owe to their creditors as a shock to the contracting conditions for Delaware firms. Difference-in-difference and triple difference tests suggest that restrictive terms in bond contracts for Delaware firms increased in reaction to this change, while there was not a detectable shift in the strictness of loan agreements.

Discussants

Vikrant Vig

What Drives Financial Reform? Economics and Politics of the State-Level Adoption of Municipal Bankruptcy Laws

Back to all presentations

What Drives Financial Reform? Economics and Politics of the State-Level Adoption of Municipal Bankruptcy Laws

Time:
16:00h

We investigate drivers of financial reform by examining state-level adoption of municipal bankruptcy laws (Chapter 9). To guide empirical work, we present a new model where municipal bankruptcy law destroys labor union rents and expands local firms’ ability to invest. Consistent with theory, we find that the relative strength of unions vis-à-vis bondholders, courts’ efficiency, and trust in local government explain Chapter 9 adoptions over 1980-2012; similar factors explain congressional voting on municipal bankruptcy law; after adoptions, municipal bond spreads decrease, local firms invest more and perform better. Our results highlight a novel spillover channel from public to private sectors.

Speakers

Discussants

Barry Adler

Conference Documents

Color and Credit: Race, Regulation, and the Quality of Financial Services

Taylor Begley
Back to all presentations

Color and Credit: Race, Regulation, and the Quality of Financial Services

Time:
16:50h

We investigate drivers of financial reform by examining state-level adoption of municipal bankruptcy laws (Chapter 9). To guide empirical work, we present a new model where municipal bankruptcy law destroys labor union rents and expands local firms’ ability to invest. Consistent with theory, we find that the relative strength of unions vis-à-vis bondholders, courts’ efficiency, and trust in local government explain Chapter 9 adoptions over 1980-2012; similar factors explain congressional voting on municipal bankruptcy law; after adoptions, municipal bond spreads decrease, local firms invest more and perform better. Our results highlight a novel spillover channel from public to private sectors.

Discussants

Professor
Oren Sussman

Conference Documents

Government Intervention, Ownership Structure and Firm Value: The Case of the German Tax Reduction Act

Back to all presentations

Government Intervention, Ownership Structure and Firm Value: The Case of the German Tax Reduction Act

Time:
09:30h

This paper provides causal evidence on the effect of ownership structure on firm value and on the impact of large tax incentives on the divestiture decision of equity blockholders by exploiting a quasi-experimental policy change in Germany. The 2000 Tax Reduction Act repealed corporate shareholders from capital gains taxation, whereas individual shareholders experienced only minor tax reductions. We show that stronger tax incentives to dispose shares do not necessarily reduce ownership concentration in the presence of strategic value premia as we find an increase in ownership concentration in firms controlled by a (tax exempt) corporate investor in response to the tax repeal. As the general policy of the German government was aiming at a more active market for corporate control via a more dispersed ownership structure, this result is not in line with the intentions of the policy makers. With respect to the relation between ownership structure and firm value the results from our difference-in-differences estimation suggest that the tax repeal was effective in removing market frictions and allowing for a more efficient shareholder structure: we find a positive relationship between ownership concentration and firm value.

Speakers

Discussants

Conference Documents

Organizational Complexity and Bank Loan Spreads

Anywhere (Siko) Sikochi
Back to all presentations

Organizational Complexity and Bank Loan Spreads

Time:
10:20h

This study examines whether and how organizational complexity arising from the legal fragmentation of the firm into multiple entities affects the interest spread charged on bank loans and the design of loan contracts. The legal fragmentation of the firm is bound to be a consideration lenders make in determining the pricing of debt and design of contract terms because, for instance, lenders can only enter into legally enforceable agreements with specific legal entities. I document that organizational complexity is associated with higher loan spreads and the use of debt covenants and other loan terms. The relation between complexity and loan spreads is more pronounced for loan characteristics that reflects higher risk, but is attenuated by contracting mechanisms. Yet, contracts in the sample do not always include terms that mitigate contracting risks from organizational complexity. Subsequent tests are suggestive of potential channels related to credit quality and control rights.

Discussants

Conference Documents

Rise of Bank Competition: Evidence from Banking Deregulation in China

Hong Ru
Back to all presentations

Rise of Bank Competition: Evidence from Banking Deregulation in China

Time:
11:30h

Using proprietary loan-level data and detailed bank branch data in China, this paper investigates the effects of the 2009 bank branch deregulation on competition dynamics between new and incumbent banks and on real economic activities. Tracing out each of the loans firms borrowed, we find that new entrant banks tend to target different firms than incumbent banks (e.g., more efficient firms). Increased interbank competition leads to more relationship bank lending than transaction lending. Loans from new banks have longer maturity, better internal ratings, more third party guarantees, and lower delinquency rates. When competition pressure is higher, incumbent banks provide better loan terms, lower loan-screening standards, and have higher delinquency rates. Overall, increased interbank competition leads to increases in firm investments, employments, sales, and efficiency, especially for private firms. Moreover, interbank competition leads to greater added value of bank loans for firms which depend mainly on transaction lending than for firms which mainly borrow relationship loans.

Discussants

Conference Documents

TBA

Eric Talley
Back to all presentations

TBA

Time:
12:20h

Discussants