Roni Michaely - Profile on Academia.edu (original) (raw)

Papers by Roni Michaely

Washington Policy Analysts and the Propagation of Political Information

Management Science

Washington policy research analysts (WAs) monitor political developments and produce research to ... more Washington policy research analysts (WAs) monitor political developments and produce research to interpret the impact of these events. We find institutional clients channel more commissions to brokerages providing policy research and commission-allocating institutional clients generate superior returns on their politically sensitive trades. We find that WA policy research reports are associated with significant price and volume reactions. Finally, we find sell-side analysts with access to WA issue superior stock recommendations on politically sensitive stocks. These effects are particularly acute during periods of high political uncertainty. Overall, we uncover a unique and an important conduit through which political information filters into asset prices. This paper was accepted by David Sraer, finance. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2023.4919 .

Management Science, Mar 7, 2023

Social Science Research Network, 2017

Contrary to the central prediction of signaling models, changes in profits do not empirically fol... more Contrary to the central prediction of signaling models, changes in profits do not empirically follow changes in dividends. We show both theoretically and empirically that dividends signal safer, rather than higher, future profits. Using the Campbell (1991) decomposition, we are able to estimate expected cash flows from data on stock returns. Consistent with our model's predictions, cash-flow volatility changes in the opposite direction from that of dividend changes and larger changes in volatility come with larger announcement returns. We find similar results for share repurchases. Crucially, the data supports the prediction -unique to our model -that the cost of the signal is foregone investment opportunities. We conclude that payout policy conveys information about future cash flow volatility. Our methodology can be applied more generally to overcoming empirical problems in testing theories of corporate financing. JEL-Codes: G350.

Cybersecurity Risk

Review of Financial Studies, May 14, 2022

Based on textual analysis and a comparison of cybersecurity risk disclosures of firms that were h... more Based on textual analysis and a comparison of cybersecurity risk disclosures of firms that were hacked to others that were not, we propose a novel firm-level measure of cybersecurity risk for all U.S.-listed firms. We then examine whether cybersecurity risk is priced in the cross-section of stock returns. Portfolios of firms with high exposure to cybersecurity risk outperform other firms, on average, by up to 8.3$\%$ per year. Yet, high-exposure firms perform poorly in periods of high cybersecurity risk. Reassuringly, the measure is higher in information-technology industries, correlates with characteristics linked to firms hit by cyberattacks, and predicts future cyberattacks. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online

Journal of Financial and Quantitative Analysis, Sep 11, 2020

Social Science Research Network, 2000

Previous research showed that the dividend price ratio process changed remarkably during the 1980... more Previous research showed that the dividend price ratio process changed remarkably during the 1980's and 1990's, but that the total payout ratio (dividends plus repurchases over price) changed very little. We investigate implications of this difference for asset pricing models. In particular, the widely documented decline in the predictive power of dividends for excess stock returns in time series regressions in recent data is vastly overstated. Statistically and economically significant predictability is found at both short and long horizons when total payout yield is used instead of dividend yield. We also provide evidence that total payout yield has information in the cross-section for expected stock returns exceeding that of dividend yield and that the high minus low payout yield portfolio is a priced factor. The evidence throughout is shown to be robust to the method of measuring total payouts.

The Journal of Finance, 2008

ABSTRACTWe find that the majority of variation in leverage ratios is driven by an unobserved time... more ABSTRACTWe find that the majority of variation in leverage ratios is driven by an unobserved time‐invariant effect that generates surprisingly stable capital structures: High (low) levered firms tend to remain as such for over two decades. This feature of leverage is largely unexplained by previously identified determinants, is robust to firm exit, and is present prior to the IPO, suggesting that variation in capital structures is primarily determined by factors that remain stable for long periods of time. We then show that these results have important implications for empirical analysis attempting to understand capital structure heterogeneity.

Social Science Research Network, 2012

This paper empirically investigates the relationship between institutional holdings and capital s... more This paper empirically investigates the relationship between institutional holdings and capital structure. Institutions may affect capital structure through their monitoring and information-gathering roles. At the same time, institutions may gravitate toward firms with specific capital structures, forming leverage-based investment clienteles. Using implied trades generated from mutual fund outflows as an instrument for institutional holdings, and a semi-natural experiment in which addition to the S&P 500 Index provides an exogenous shock to institutional holdings, we find that institutional holdings are a significant determinant of firms' capital structures: A change in institutional holdings causes an opposite change in leverage. Moreover, using dynamic panel estimation, we find that while institutions affect capital structure decisions, changes in leverage do not affect institutional holdings, and there is no evidence of a clientele effect. Finally, we find that firms lower their leverage in response to increased institutional holdings by becoming more likely to issue equity, and less likely to increase debt. While our findings are consistent with models in which institutions substitute for debt by monitoring and reducing information asymmetry problems, further evidence suggests that the effect on asymmetric information dominates.

Taxation and Dividend Policy: The Muting Effect of Agency Issues and Shareholder Conflicts

Review of Financial Studies, May 31, 2017

Social Science Research Network, 2014

Policymakers frequently try to use dividend tax changes to affect payout policy. However, empiric... more Policymakers frequently try to use dividend tax changes to affect payout policy. However, empirical evidence finds the effect to be much smaller than theory implies. Using identification strategy that exploits a large exogenous shock to dividend taxation and comprehensive proprietary data on ownership structure and owners' tax preference, we show that absent of conflicting objectives between managers and owners, dividend taxation has a large effect on payouts. The impact becomes insignificant as the number of owners increases. Differential tax preferences across owners is one factor. However, even when owners have the same tax preferences, disperse ownership significantly reduces the impact of dividend taxation; plausibly due to coordination problems across owners and conflicting objectives of owners and managers. Our results explain why previous evidence on the impact of dividend taxation has been so elusive. Taxation has a first order impact on payout policy, but disperse ownership mutes its impact substantially.

National Tax Journal, Sep 1, 2008

We analyze the impact of the May 2003 dividend tax cut on corporate dividend policy. First, we fi... more We analyze the impact of the May 2003 dividend tax cut on corporate dividend policy. First, we find that while there was a temporary increase in dividend initiations, this increase was not long-lasting. While dividend payments were increased right after the tax change, there was a larger and more pronounced increase in repurchases during the same time period. Second, we survey 328 financial executives to determine the effects of the May 2003 dividend tax cut. We find that the tax cut led to initiations and dividend increases at some firms. However, executives say that among the factors that affect dividend policy, the tax rate reduction is less important than the stability of future cash flows, cash holdings, and the historic level of dividends. Tax effects have roughly the same importance as attracting institutional investors and the availability of profitable investments. We also find that press releases only occasionally mention the dividend tax cut as the reason for an initiation. Overall we conclude that the dividend tax reduction had only a second-order impact of payout policy.

Journal of Public Economics, Jul 1, 2017

We test whether dividend taxes affect corporate investments. We exploit Sweden's 2006 dividend ta... more We test whether dividend taxes affect corporate investments. We exploit Sweden's 2006 dividend tax cut of 10 percentage points for closely held corporations and five percentage points for widely held corporations. Using rich administrative panel data and triple-difference estimators, we find that this dividend tax cut affects allocation of corporate investment. Cashconstrained firms increase investment after the dividend tax cut relative to cash-rich firms. Reallocation is stronger among closely held firms that experience a larger tax cut. This result is explained by higher nominal equity in cash-constrained firms and by higher dividends in cash-rich firms after the tax cut. The heterogeneous investment responses imply that the dividend tax cut raises efficiency by improving allocation of investment.

Financial Management, Dec 1, 2008

We survey 328 financial executives to determine the effects of the May 2003 dividend tax cut. We ... more We survey 328 financial executives to determine the effects of the May 2003 dividend tax cut. We find that the tax cut led to initiations and dividend increases at some firms. However, executives say that among the factors that affect dividend policy, the tax rate reduction is less important than the stability of future cash flows, cash holdings, and the historic level of dividends. Tax effects have roughly the same importance as attracting institutional investors and the availability of profitable investments. We also find that press releases only occasionally mention the dividend tax cut as the reason for an initiation.

Social Science Research Network, 2017

While consumers nominally pay the consumption tax, theoretical and empirical evidence is mixed on... more While consumers nominally pay the consumption tax, theoretical and empirical evidence is mixed on whether corporations partly shoulder this burden, thereby, affecting corporate investment. Using a quasi-natural experiment, we show that consumption taxes decrease investment. Firms facing more elastic demand decrease investment more strongly because they bear more of the consumption tax. We corroborate the validity of our findings using 86 consumption tax changes in a crosscountry panel. We document two mechanisms underlying the investment response: reduced firms' profitability and lower aggregate consumption. Importantly, the magnitude of the investment response to consumption taxes is similar to that of corporate taxes.

Payout Policy in the 21th Century: The Data

Social Science Research Network, 2005

Abstract: In early 2002, we surveyed 384 financial executives, to determine the factors that driv... more Abstract: In early 2002, we surveyed 384 financial executives, to determine the factors that drive dividend and share repurchase decisions. Our survey was supplemented by in-depth interviews with an additional 23 executives. The survey consisted of 11 main questions, most with subparts-over 100 questions in total. Although the survey was anonymous, we also collected information on 20 characteristics of the firms and management. We asked questions about firm size, number of employees, industry, CEO education, age of the CEO ...

Review of Financial Studies, Jul 1, 2000

We investigate the effect of asymmetric information on prices and liquidity by analyzing trades, ... more We investigate the effect of asymmetric information on prices and liquidity by analyzing trades, quotes, spreads and depths. Information content should increase with trade size and the degree of information asymmetry of the trading period. Results show that price and liquidity effects are significantly associated with information content as measured by both trade size and the timing of the trade relative to information events. Results are stronger for purchases than sales. Quoted prices are better measures of information effects than transaction prices, because they control for bid-ask bounce. Finally, trades that are known a priori not to contain information have no impact on prices and liquidity, even when they are very large in size.

Journal of Finance, Nov 7, 2003

By the end of January 2001, all NYSE stocks had converted their price quotations from 1/8s and 1/... more By the end of January 2001, all NYSE stocks had converted their price quotations from 1/8s and 1/16s to decimals. This study examines the e¡ect of this change in price quotations on ex-dividend day activity. We ¢nd that abnormal ex-dividend day returns increase in the 1/16 and decimal pricing eras, relative to the 1/8 era, which is inconsistent with microstructure explanations of exday price movements.We also ¢nd that abnormal returns increase in conjunction with a May 1997 reduction in the capital gains tax rate, as they should if relative taxation of dividends and capital gains a¡ects ex-day pricing. IF CAPITAL MARKETS WERE PERFECT, a stock's price would fall by the amount of the dividend on the ex-day. Instead, the ratio of price drop to dividend, known as the ex-day premium, has been consistently below one for decades (e.g., Elton and Gruber (1970), Michaely (1991), or Eades, Hess and Kim (1994)). Several lines of reasoning have developed to explain the ex-day phenomenon: (1) di¡erential taxation between dividends and capital gains, (2) the interaction of taxes and transactions costs to trading stocks, and (3) price discreteness and bid-ask bounce. U.S. markets during the past half-dozen years o¡er a natural experiment to test these hypotheses. During this time, price discreteness and bid-ask spreads fell dramatically, allowing us to test the microstructure-based explanations. At the same time, the capital gains tax rate dropped from 28% to 20%, which permits examination of the tax hypothesis. The most signi¢cant change during the time period of this study is the reduction in the minimum tick size from 1/8 to 1/16 to decimals. This change allows us to directly test several microstructure explanations for why the average ex-divi

Spillover Effects of the Opioid Epidemic on Labor and Innovation

Social Science Research Network, 2022

SSRN Electronic Journal, 2020

We gratefully acknowledge valuable comments from several seminar and conference participants. Web... more We gratefully acknowledge valuable comments from several seminar and conference participants. Weber also gratefully acknowledges financial support from the University of Chicago Booth School of Business and the Fama Research Fund.

Washington Policy Analysts and the Propagation of Political Information

Management Science

Washington policy research analysts (WAs) monitor political developments and produce research to ... more Washington policy research analysts (WAs) monitor political developments and produce research to interpret the impact of these events. We find institutional clients channel more commissions to brokerages providing policy research and commission-allocating institutional clients generate superior returns on their politically sensitive trades. We find that WA policy research reports are associated with significant price and volume reactions. Finally, we find sell-side analysts with access to WA issue superior stock recommendations on politically sensitive stocks. These effects are particularly acute during periods of high political uncertainty. Overall, we uncover a unique and an important conduit through which political information filters into asset prices. This paper was accepted by David Sraer, finance. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2023.4919 .

Management Science, Mar 7, 2023

Social Science Research Network, 2017

Contrary to the central prediction of signaling models, changes in profits do not empirically fol... more Contrary to the central prediction of signaling models, changes in profits do not empirically follow changes in dividends. We show both theoretically and empirically that dividends signal safer, rather than higher, future profits. Using the Campbell (1991) decomposition, we are able to estimate expected cash flows from data on stock returns. Consistent with our model's predictions, cash-flow volatility changes in the opposite direction from that of dividend changes and larger changes in volatility come with larger announcement returns. We find similar results for share repurchases. Crucially, the data supports the prediction -unique to our model -that the cost of the signal is foregone investment opportunities. We conclude that payout policy conveys information about future cash flow volatility. Our methodology can be applied more generally to overcoming empirical problems in testing theories of corporate financing. JEL-Codes: G350.

Cybersecurity Risk

Review of Financial Studies, May 14, 2022

Based on textual analysis and a comparison of cybersecurity risk disclosures of firms that were h... more Based on textual analysis and a comparison of cybersecurity risk disclosures of firms that were hacked to others that were not, we propose a novel firm-level measure of cybersecurity risk for all U.S.-listed firms. We then examine whether cybersecurity risk is priced in the cross-section of stock returns. Portfolios of firms with high exposure to cybersecurity risk outperform other firms, on average, by up to 8.3$\%$ per year. Yet, high-exposure firms perform poorly in periods of high cybersecurity risk. Reassuringly, the measure is higher in information-technology industries, correlates with characteristics linked to firms hit by cyberattacks, and predicts future cyberattacks. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online

Journal of Financial and Quantitative Analysis, Sep 11, 2020

Social Science Research Network, 2000

Previous research showed that the dividend price ratio process changed remarkably during the 1980... more Previous research showed that the dividend price ratio process changed remarkably during the 1980's and 1990's, but that the total payout ratio (dividends plus repurchases over price) changed very little. We investigate implications of this difference for asset pricing models. In particular, the widely documented decline in the predictive power of dividends for excess stock returns in time series regressions in recent data is vastly overstated. Statistically and economically significant predictability is found at both short and long horizons when total payout yield is used instead of dividend yield. We also provide evidence that total payout yield has information in the cross-section for expected stock returns exceeding that of dividend yield and that the high minus low payout yield portfolio is a priced factor. The evidence throughout is shown to be robust to the method of measuring total payouts.

The Journal of Finance, 2008

ABSTRACTWe find that the majority of variation in leverage ratios is driven by an unobserved time... more ABSTRACTWe find that the majority of variation in leverage ratios is driven by an unobserved time‐invariant effect that generates surprisingly stable capital structures: High (low) levered firms tend to remain as such for over two decades. This feature of leverage is largely unexplained by previously identified determinants, is robust to firm exit, and is present prior to the IPO, suggesting that variation in capital structures is primarily determined by factors that remain stable for long periods of time. We then show that these results have important implications for empirical analysis attempting to understand capital structure heterogeneity.

Social Science Research Network, 2012

This paper empirically investigates the relationship between institutional holdings and capital s... more This paper empirically investigates the relationship between institutional holdings and capital structure. Institutions may affect capital structure through their monitoring and information-gathering roles. At the same time, institutions may gravitate toward firms with specific capital structures, forming leverage-based investment clienteles. Using implied trades generated from mutual fund outflows as an instrument for institutional holdings, and a semi-natural experiment in which addition to the S&P 500 Index provides an exogenous shock to institutional holdings, we find that institutional holdings are a significant determinant of firms' capital structures: A change in institutional holdings causes an opposite change in leverage. Moreover, using dynamic panel estimation, we find that while institutions affect capital structure decisions, changes in leverage do not affect institutional holdings, and there is no evidence of a clientele effect. Finally, we find that firms lower their leverage in response to increased institutional holdings by becoming more likely to issue equity, and less likely to increase debt. While our findings are consistent with models in which institutions substitute for debt by monitoring and reducing information asymmetry problems, further evidence suggests that the effect on asymmetric information dominates.

Taxation and Dividend Policy: The Muting Effect of Agency Issues and Shareholder Conflicts

Review of Financial Studies, May 31, 2017

Social Science Research Network, 2014

Policymakers frequently try to use dividend tax changes to affect payout policy. However, empiric... more Policymakers frequently try to use dividend tax changes to affect payout policy. However, empirical evidence finds the effect to be much smaller than theory implies. Using identification strategy that exploits a large exogenous shock to dividend taxation and comprehensive proprietary data on ownership structure and owners' tax preference, we show that absent of conflicting objectives between managers and owners, dividend taxation has a large effect on payouts. The impact becomes insignificant as the number of owners increases. Differential tax preferences across owners is one factor. However, even when owners have the same tax preferences, disperse ownership significantly reduces the impact of dividend taxation; plausibly due to coordination problems across owners and conflicting objectives of owners and managers. Our results explain why previous evidence on the impact of dividend taxation has been so elusive. Taxation has a first order impact on payout policy, but disperse ownership mutes its impact substantially.

National Tax Journal, Sep 1, 2008

We analyze the impact of the May 2003 dividend tax cut on corporate dividend policy. First, we fi... more We analyze the impact of the May 2003 dividend tax cut on corporate dividend policy. First, we find that while there was a temporary increase in dividend initiations, this increase was not long-lasting. While dividend payments were increased right after the tax change, there was a larger and more pronounced increase in repurchases during the same time period. Second, we survey 328 financial executives to determine the effects of the May 2003 dividend tax cut. We find that the tax cut led to initiations and dividend increases at some firms. However, executives say that among the factors that affect dividend policy, the tax rate reduction is less important than the stability of future cash flows, cash holdings, and the historic level of dividends. Tax effects have roughly the same importance as attracting institutional investors and the availability of profitable investments. We also find that press releases only occasionally mention the dividend tax cut as the reason for an initiation. Overall we conclude that the dividend tax reduction had only a second-order impact of payout policy.

Journal of Public Economics, Jul 1, 2017

We test whether dividend taxes affect corporate investments. We exploit Sweden's 2006 dividend ta... more We test whether dividend taxes affect corporate investments. We exploit Sweden's 2006 dividend tax cut of 10 percentage points for closely held corporations and five percentage points for widely held corporations. Using rich administrative panel data and triple-difference estimators, we find that this dividend tax cut affects allocation of corporate investment. Cashconstrained firms increase investment after the dividend tax cut relative to cash-rich firms. Reallocation is stronger among closely held firms that experience a larger tax cut. This result is explained by higher nominal equity in cash-constrained firms and by higher dividends in cash-rich firms after the tax cut. The heterogeneous investment responses imply that the dividend tax cut raises efficiency by improving allocation of investment.

Financial Management, Dec 1, 2008

We survey 328 financial executives to determine the effects of the May 2003 dividend tax cut. We ... more We survey 328 financial executives to determine the effects of the May 2003 dividend tax cut. We find that the tax cut led to initiations and dividend increases at some firms. However, executives say that among the factors that affect dividend policy, the tax rate reduction is less important than the stability of future cash flows, cash holdings, and the historic level of dividends. Tax effects have roughly the same importance as attracting institutional investors and the availability of profitable investments. We also find that press releases only occasionally mention the dividend tax cut as the reason for an initiation.

Social Science Research Network, 2017

While consumers nominally pay the consumption tax, theoretical and empirical evidence is mixed on... more While consumers nominally pay the consumption tax, theoretical and empirical evidence is mixed on whether corporations partly shoulder this burden, thereby, affecting corporate investment. Using a quasi-natural experiment, we show that consumption taxes decrease investment. Firms facing more elastic demand decrease investment more strongly because they bear more of the consumption tax. We corroborate the validity of our findings using 86 consumption tax changes in a crosscountry panel. We document two mechanisms underlying the investment response: reduced firms' profitability and lower aggregate consumption. Importantly, the magnitude of the investment response to consumption taxes is similar to that of corporate taxes.

Payout Policy in the 21th Century: The Data

Social Science Research Network, 2005

Abstract: In early 2002, we surveyed 384 financial executives, to determine the factors that driv... more Abstract: In early 2002, we surveyed 384 financial executives, to determine the factors that drive dividend and share repurchase decisions. Our survey was supplemented by in-depth interviews with an additional 23 executives. The survey consisted of 11 main questions, most with subparts-over 100 questions in total. Although the survey was anonymous, we also collected information on 20 characteristics of the firms and management. We asked questions about firm size, number of employees, industry, CEO education, age of the CEO ...

Review of Financial Studies, Jul 1, 2000

We investigate the effect of asymmetric information on prices and liquidity by analyzing trades, ... more We investigate the effect of asymmetric information on prices and liquidity by analyzing trades, quotes, spreads and depths. Information content should increase with trade size and the degree of information asymmetry of the trading period. Results show that price and liquidity effects are significantly associated with information content as measured by both trade size and the timing of the trade relative to information events. Results are stronger for purchases than sales. Quoted prices are better measures of information effects than transaction prices, because they control for bid-ask bounce. Finally, trades that are known a priori not to contain information have no impact on prices and liquidity, even when they are very large in size.

Journal of Finance, Nov 7, 2003

By the end of January 2001, all NYSE stocks had converted their price quotations from 1/8s and 1/... more By the end of January 2001, all NYSE stocks had converted their price quotations from 1/8s and 1/16s to decimals. This study examines the e¡ect of this change in price quotations on ex-dividend day activity. We ¢nd that abnormal ex-dividend day returns increase in the 1/16 and decimal pricing eras, relative to the 1/8 era, which is inconsistent with microstructure explanations of exday price movements.We also ¢nd that abnormal returns increase in conjunction with a May 1997 reduction in the capital gains tax rate, as they should if relative taxation of dividends and capital gains a¡ects ex-day pricing. IF CAPITAL MARKETS WERE PERFECT, a stock's price would fall by the amount of the dividend on the ex-day. Instead, the ratio of price drop to dividend, known as the ex-day premium, has been consistently below one for decades (e.g., Elton and Gruber (1970), Michaely (1991), or Eades, Hess and Kim (1994)). Several lines of reasoning have developed to explain the ex-day phenomenon: (1) di¡erential taxation between dividends and capital gains, (2) the interaction of taxes and transactions costs to trading stocks, and (3) price discreteness and bid-ask bounce. U.S. markets during the past half-dozen years o¡er a natural experiment to test these hypotheses. During this time, price discreteness and bid-ask spreads fell dramatically, allowing us to test the microstructure-based explanations. At the same time, the capital gains tax rate dropped from 28% to 20%, which permits examination of the tax hypothesis. The most signi¢cant change during the time period of this study is the reduction in the minimum tick size from 1/8 to 1/16 to decimals. This change allows us to directly test several microstructure explanations for why the average ex-divi

Spillover Effects of the Opioid Epidemic on Labor and Innovation

Social Science Research Network, 2022

SSRN Electronic Journal, 2020

We gratefully acknowledge valuable comments from several seminar and conference participants. Web... more We gratefully acknowledge valuable comments from several seminar and conference participants. Weber also gratefully acknowledges financial support from the University of Chicago Booth School of Business and the Fama Research Fund.