Skewness Risk Premium: Theory and Empirical Evidence

in International Review of Financial Analysis (2019), 63

Using an equilibrium asset and option pricing model in a simple economy under jump diffusion, we show theoretically that the aggregated excess market returns can be predicted by the skewness risk premium ... [more ▼]

Using an equilibrium asset and option pricing model in a simple economy under jump diffusion, we show theoretically that the aggregated excess market returns can be predicted by the skewness risk premium, which is constructed to be the difference between the physical and the risk-neutral skewness. In an empirical application of the model using more than 20 years of data on S&P500 index options, we find that, in line with theory, risk-averse investors demand risk-compensation for holding stocks when the market skewness risk premium is high. However, when we characterize periods of high and low risk aversion, we show that in line with theory, the relationship only holds when risk aversion is high. In periods of low risk aversion, investors demand lower risk compensation, thus substantially weakening the skewness-risk-premium-return trade off. [less ▲]

Voluntary disclosure, ownership structure, and corporate debt maturity: A study of French listed firms

in International Review of Financial Analysis (2019)

This study examines the effect of voluntary disclosure on corporate debt maturity and explores the role that ownership structure plays in this effect. Using a sample of 440 French listed firms over the ... [more ▼]

This study examines the effect of voluntary disclosure on corporate debt maturity and explores the role that ownership structure plays in this effect. Using a sample of 440 French listed firms over the period 2007-2013, the empirical results indicate that firms with higher voluntary disclosure have more long-term debt, suggesting that companies benefit from extensive disclosure by having greater access to long maturity debt. This is consistent with the evidence that voluntary disclosure provides an efficient monitoring mechanism in firms where long-term debt may insulate firms from lenders’ scrutiny for a long time. Results also show that the positive association between voluntary disclosure and long-term debt is relevant only when control rights of the controlling shareholders are significantly in excess of cash flow rights. This supports the findings of recent work that better disclosure policies are viewed more positively by the market in environments where the risk of wealth expropriation by dominant shareholders is higher. [less ▲]

Geographic Location, Excess Control Rights, and Cash Holdings

in International Review of Financial Analysis (2015), 42

We assess the extent to which remotely-located firms are likely to discretionarily accumulate cash rather than distribute it to shareholders. We consider that these firms are less subject to shareholder ... [more ▼]

We assess the extent to which remotely-located firms are likely to discretionarily accumulate cash rather than distribute it to shareholders. We consider that these firms are less subject to shareholder scrutiny and, thus, will have high agency conflicts as the distance will facilitate the extraction of private benefits. Consistent with our predictions, we find a positive relation between the distance to the main metropolitan area and cash holdings, and this impact is more pronounced when the controlling shareholder has high levels of excess control rights (i.e., separation of cash-flow rights and control rights). Our results hold even after accounting for all control variables, including financial constraints, and suggest that geographic remoteness can be conducive to severe agency problems, particularly when there is a large separation of cash-flow rights and control rights. [less ▲]