Haizhi Wang

In this article we investigate the relation between the options market and price discovery process in the context of mergers and acquisitions (M&A). Using a sample of mergers and acquisitions from 2005 to 2022, we document that the predictive power of the changes in implied volatility (IV) is statistically and economically significant. The results are robust when we adopt an instrumental variable approach to address the potential endogeneity issue. In addition, the risk arbitrage portfolios incorporating the signal derived from the options on target stocks generate annualized risk-adjusted abnormal returns between 4.1% and 5.1%, depending on the threshold of filters for the implied volatility change and the choice of asset pricing models. We find that our results are not explained by common equity risk factors.

Climate change and environmental degradation necessitate green innovation (GI) to provide new solutions for sustainable economic growth. As many firms allocate scarce resources to green innovation, researchers, practitioners, and policymakers are keen to understand information disclosure on green innovation, particularly in company financial statements. This study empirically investigates the relationship between GI and conservative financial reporting. Using a dataset of 8945 unique firms, from 2001 to 2024, we discover a negative relationship between GI and conservative financial reporting. We further document that firms with high exposure to climate change exhibit a more pronounced negative relationship between GI and conservative financial reporting. In addition, we find that the presence of regulatory risks and public awareness, particularly after the adoption of the Paris Agreement, weakens the negative association between GI and conservative financial reporting. Our findings shed further light on information disclosure on green innovation, which is crucial for various stakeholders to utilize such information and make relevant decisions.

Purpose: In this paper, we empirically investigate the effects of unionization on stock options granted to rank-and-file employees. Design/methodology/approach: In this research, we adopt a regression discontinuity approach to address the endogeneity problem and draw causal inferences. In particular, we argue that close-win firms and close-loss firms should have ex-ante similar observable and unobservable characteristics, and therefore, the outcomes of union votes can be treated as randomly assigned. Findings: We find that rank-and-file employees receive more stock options after the union election wins. The positive association is more pronounced when unions have more bargaining power and when free-riding problems are less severe. Further, we provide evidence that employees receive more stock options when chief executive officers (CEOs) are entrenched. Finally, we show that stock options provide risk-taking incentives to rank-and-file employees. Originality/value: Our work extends the understanding of unionization’s impacts and reveals that union bargaining leads to increased stock option grants for rank-and-file employees.

In this study, we focus on managerial incentives provided by debt-like compensation and further investigate whether and to what extent such managerial incentives may affect CEOs’ decisions on risk management. Building on cumulative prospect theory and instrumental stakeholder theory, we propose that CEOs tend to have risk-reduction incentives if they are paid with debt in their own firms, and that firm engagement in corporate social responsibility (CSR) activities can mediate the relationship between debt-like compensation and firm risk taking. In addition, we posit that the mediated relationship between CEO debt-like compensation and firm risk taking is contingent, and we propose environmental dynamism and munificence as two such contingencies that moderate the mediated process. Using a large longitudinal dataset of nonfinancial U.S. firms, we document strong supportive evidence for these hypotheses.

Purpose: We aim to empirically investigate the effect of affiliated banker directors (ABDs) on corporate tax avoidance. Furthermore, we conduct cross-sectional analyses on the impact of ABDs and explore the underlying mechanisms through which ABDs might influence corporate tax avoidance.Design/methodology/approach: Using a large sample between 1999 and 2016, we empirically examine the impact of ABDs on corporate tax avoidance. We address the endogeneity concerns through an instrumental variable approach and robustness tests with alternative measures of ABDs and corporate tax avoidance.Findings: Our results demonstrate that firms with ABDs exhibit lower levels of corporate tax avoidance. This negative association persists after controlling for potential endogeneity issues and is robust to alternative measures. We further document that the negative effect is stronger when firms are more bank-dependent and financially constrained. Our results indicate that ABDs limit corporate tax avoidance by strengthening corporate governance, mitigating information risks and protecting their reputational capital.Originality/value: This research extends the existing literature by exploring the influence of ABDs on corporate accounting policies, particularly tax avoidance. These findings enhance our understanding of how directors’ banking experience bolsters corporate governance, information transparency and reputation, ultimately safeguarding stakeholder interests. This paper offers valuable implications for both financial practitioners and policymakers.

Initial public offerings and mergers and acquisitions represent important opportunities for investors to exit and harvest their entrepreneurial success. Some firms are acquired shortly after their initial public offerings. This exit strategy is known as a double exit. In addition, issuing firms may choose to reincorporate in Delaware during their IPOs. In this study, we use hand-collected data from 1993 to 2020 to investigate whether and to what extent Delaware reincorporation may affect the M&As in the post-IPO stage. We use a Cox proportional hazard model to test the relation between Delaware reincorporation and the likelihood of being acquired for our sample IPOs. Recognizing that Delaware reincorporation is not a random decision, we adopt a Heckman switching regression method to estimate the relation between Delaware reincorporation and takeover premiums and announcement returns. We report that IPO firms choosing to reincorporate in Delaware experience a higher likelihood of being acquired compared to those IPO firms choosing to remain incorporated in their home states. We further document that IPO firms choosing to reincorporate in Delaware receive lower premiums in acquisitions, and experience lower abnormal returns on announcements.

Purpose: The purpose of this paper is to investigate the role of social capital in the issuances of Rule 144A debt. Using a sample of 1,378 debt offerings from 1997 to 2015 in the US, this paper provides empirical evidence on whether and to what extent social capital affects the cost of Rule 144A debt.Design/methodology/approach: This paper employs a county-level measure of social capital and links social capital to the yield spreads of Rule 144A debt. A Heckman selection model is sued to address the sample selection bias, and an instrumental variable approach and propensity score matching methodology are implemented to deal with the potential endogeneity issue. The authors check for robustness using an alternative measure of social capital.Findings: The results of the analysis provide evidence that issuers headquartered in the counties with higher levels of social capital experience lower yield spreads in their Rule 144A debt offerings. The findings are robust to a Heckman selection model, an instrumental variable approach and propensity score matching. Furthermore, the analysis reveals the marginal effect of social capital that the effect of social capital is more pronounced for the issuing firms with higher agency cost of debt and lower institutional ownership. The effect of social capital is more prominent after financial crisis.Originality/value: This paper provides novel evidence of the effect of social capital on the cost of privately placed debt. The issuances of Rule 144A debt are subject to significant information asymmetry and are targeted at sophisticated institutional investors. This paper sheds further light on how institutional investors incorporate the regional social capital in their pricing scheme of private placement of Rule 144A debt.

In this study, we examine whether and to what extent affiliated bankers on board may affect firms’ corporate social performance. Using a propensity score-matched sample from 2002 to 2016, we find that board directors from affiliated banks exert significantly positive influence on firms’ corporate social performance. Furthermore, board of directors from affiliated banks are negatively associated with firm investments in corporate social responsibility (CSR) activities when firms experience financial distress. Finally, we find that the effect of affiliated bankers on board on firms’ CSR performance depends on the affiliated banks’ CSR orientation, as affiliated banker directors from banks with higher CSR orientation have a stronger influence on firms’ investments in CSR activities. The results suggest that improving firm’s CSR performance is consistent with the affiliated banks’ interests.