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Lubomir P. Litov Assistant Professor of Finance Phone: (520) 621-3794 Fellow
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Research Interests
· Corporate finance.
· Corporate governance.
· International corporate finance.
Publications
"Creditor Rights and Corporate Risk-Taking" (with Viral Acharya and Yakov Amihud) PDF, Journal of Financial Economics, 2011, Vol. 63: 1679-1728. Strong creditors have the ability to reduce value-enhancing risk-taking.
"Corporate Strategy, Analyst Coverage, and the Uniqueness Paradox" (wth Todd Zenger and Patrick Moreton) PDF, Management Science, 2012, Vol. 58: 1-19. Unique corporate strategies generate economic rents. Such strategies are difficult to analyze. Paradoxically, firms that pursue such strategies are discounted in financial markets.
"Corporate Governance and Managerial Risk Taking" (with Kose John and Bernard Yeung) PDF and Slides, Journal of Finance, 2008, Vol. 63-1679-1728. Managers skimming corporate resources avoid taking risky (yet value enhancing) projects because perk consumption is a "senior" debt-like claim on the corporate cash flow. We develop and test this hypothesis, finding support for it in a large international panel.
"Earnings Persistence" (with Richard Frankel) PDF, Journal of Accounting and Economics, 2009, Vol. 47: 182-190. Historic earnings variability has predictive power for the persistence of current earnings, however it does not predict stock returns.
"Can Mutual Fund Managers Pick Stocks? Evidence from Their Trades Prior to Earnings Announcements" (with Malcolm Baker, Jessica Wachter, and Jeffrey Wurgler) PDF and Slides, Journal of Financial and Quantitative Analysis, 2010, Vol. 45: 1111-1131. This paper tests whether mutual fund managers' trades predict future earnings announcements returns. This approach gets around the usual "joint hypothesis" problem in mutual fund performance studies.
"Large Investors, Price Manipulation, and Market Breakdown - An Anatomy of Market Corners," (with Franklin Allen and J.P. Mei) PDF and Slides, Review of Finance, 2006, Vol. 63: 645-693. Large investors can impact market returns and liquidity through speculative trading. This paper builds up a model able to generate equilibria with market corners and then reviews historical evidence on the extreme situation of market corners, characterizing their liquidity effects and the circumstances under which corners occur.
"Managerial Entrenchment and Capital Structure: New Evidence," (with Kose John) PDF and Slides, Journal of Empirical Legal Studies, 2010, Vol. 7: 693-792. Corporate governance mechanisms designed to align managers and shareholders have a variety of important effects on financing decisions.
"Lawyers and Fools: Lawyer-Directors in Public Corporations," (with Simone M. Sepe and Charles K. Whitehead) PDF and Slides, Georgetown Law Journal, 2013, Vol. 102. The benefits of lawyer-directors in today's world significantly outweigh the costs. Beyond monitoring, they help manage litigation and regulation, as well as structure compensation to align CEO and shareholder interests. The results have been an average 9.5 percent increase in firm value and an almost doubling in the percentage of public companies iwht lawyer-directors.
Working Papers
"Shared Auditors in Mergers and Acquisitions" (with Dan Dhaliwal, Phillip Lamoreaux, and Jordan Neyland) PDF and Slides
Shared auditors are frequently observed—in a quarter of all public acquisitions—and are associated with
significantly lower deal premiums, lower target event returns, higher acquirer event returns, and higher
deal completion rates. Moreover, targets are likelier to receive a bid from a firm that has the same auditor.
"Escrow Agreements in Mergers and Acquisitions" (with Sandy Klasa and Sanjai Bhagat) PDF and Slides
Escrow agreements are a common mechanisms for acquiring private targets.
"Non-Executive Incentives and Bank Risk Taking" (with Viral Acharya and Simone M. Sepe) PDF and Slides
We
investigate the determinants of non-executive incentives and their
impact on bank risk taking. To this end, we develop a measure of
non-executive compensation incentives based on the elasticity of
bank compensation—net of executive pay—to BHC performance. We find that banks
with higher non-executive compensation elasticity before the financial
crisis exhibited both higher enterprise risk and lower firm vlaue
during the crisis. After disentangling non-executive incentives into
incentives specific to financial industry peer group performance and
individual bank performance, we find that the positive relationship
between non-executives incentives and bank risk is mainly driven by
incentives specific to peer group performance.
"Lead Independent Directors: Good Governance or Window Dressing" (with Phillip Lamoreaux and Landon Mauler) PDF and Slides Lead independent directors are a novel governance mechanism that we find to add value to the firm through better alignment of executive incentives and likelier dismissal in case of underperformance.
"Do Firm Boundaries Affect Financing Policy? Evidence from Non-Financial Conglomerates with Financial Subsidiaries" PDF and Slides Non-financial conglomerates with financial subsidiaries have lower excess leverage, highlighting an important downside of internal capital markets.
"Do Investors Value Uniqueness in Corporate Strategy? Evidence from Mergers and Acquisitions" (wth Todd Zenger) PDF, Paradoxically, acquirers who as an outcome of their acquisitions become less similar to their rivals, receive a significantly negative announcement return, yet, perform better than their rivals in the long term. Moreover, these acquirers are able to purchase targets at substantial discount, indicating support for the resource-based view of the firm.
"Corporate Governance and Financing Policy: New Evidence" (with Kose John) PDF and Slides Corporate governance mechanisms designed to align managers and shareholders have a variety of important effects on financing decisions. The tension between investment policy distortions and financing policy distortions due to agency may results in higher leverage for firms with entrenched managers.
"Financial Account Characteristics and Debt Covenants" (with Richard Frankel) PDF
We
test whether accounting-based covenants are more likely when asymmetric
timeliness is higher and accounting discretion is reduced. Overall, we
find little association between the use of accounting-based covenants
in lending agreements and three financial reporting characteristics.
