Ajay Patel - Academia.edu (original) (raw)

Papers by Ajay Patel

Working Paper, Purdue …, 2004

Corresponding author Department of Finance, Krannert Graduate School of Management Purdue Univer... more Corresponding author Department of Finance, Krannert Graduate School of Management Purdue University, MGMT, KRAN, 403 West State Street West Lafayette, IN 47907-2056, USA Tel: 1 (765) 494 4488 Fax: 1 (765) 494 9658 Email: rau@mgmt.purdue.edu

SSRN Electronic Journal, 2016

Prior research suggests that the media plays an important information intermediary role in capita... more Prior research suggests that the media plays an important information intermediary role in capital markets. We investigate the role of the media in influencing firms' engagement in corporate social responsibility (CSR) activities. Using a large sample of 4,396 unique firms from 42 countries over the period 2003 to 2012, we find strong evidence that firms engage in more CSR activities if located in countries where the media has more freedom. This relation is robust to using various proxies for media freedom, an alternative source of CSR data, and to applying the instrumental variables approach to address endogeneity. In additional analyses, we find that the positive relation between media freedom and CSR engagement is stronger for better governed firms and for larger firms. Since the media have the ability to impact reputational capital, we conclude that media freedom affects firms' incentives to engage in costly CSR activities.

Agency theory specifies that conflicts of interest are primarily driven by the pursuit of self-in... more Agency theory specifies that conflicts of interest are primarily driven by the pursuit of self-interest. However, agency theory does not explicitly consider how norms and values impact one’s pursuit of self-interest, which then affects the conflicts of interest within a transaction. We propose that understanding differences in national culture helps us to better understand how conflicts of interest (and the resultant contracting costs) may vary across nations. We specifically consider how cultural attributes may affect decisions regarding the hiring of CEOs. Our empirical analysis seeks to identify why some firms are more willing to hire CEOs from another culture while other firms appear more comfortable hiring CEOs of the same culture. We find that firms from countries with cultures more tolerant of uncertainty are more willing to accept CEOs from a different culture. Also, firms from countries with cultures that embrace individualism are more willing to hire a CEO from a differen...

SSRN Electronic Journal, 2006

The primary objective of this study is to better understand the time-series and cross-sectional v... more The primary objective of this study is to better understand the time-series and cross-sectional variation in the structure of executive compensation for non-U.S. firms. That is, has the globalization of labor markets for senior management led non-U.S. firms to design compensation contracts similar to those of U.S. firms or, are there country-specific factors that may cause compensation structures to differ? Using data from 36 non-U.S. countries over 1996-2004, we document significant cross-country differences in compensation structure (i.e., relative use of equity-based and cash-based compensation). The primary determinants of this cross-sectional variation are institutional factors related to the legal environment in each country. Specifically, firms use more equity-based compensation in countries that provide stronger protection of shareholder's rights or have English common-law legal origins. Similarly, firms in countries providing strict enforcement of the rule of law use more equity-based compensation. In addition to these institutional determinants, we find some evidence that the relative use of equity-based compensation is also affected by the firm's agency costs of debt and equity. The data indicate that non-U.S. firms with higher growth opportunities (and the resultant larger agency costs of equity) use relatively more equity-based compensation. We also find that larger firms and firms with lower free cash flow use more equity-based compensation. These findings are consistent with those documented by Yermack (1995) and Bryan et al. (2000) for U.S. firms. However, unlike in the U.S., our data indicate that the agency problems of debt have only a limited effect on compensation structure. Therefore, while the agency theory tested with U.S. compensation data is broadly portable to other markets, the explanatory power is not as significant when applied to non-U.S. firms. We also track compensation structures throughout the time period and seek to identify and explain relative differences between compensation polices of U.S. and non-U.S. firms. The data allow us to test whether compensation structure has converged (as would be suggested by the globalization of financial markets). Alternatively, cross-country institutional differences would suggest a continued divergence in compensation policies across nations. The data provide no evidence of international convergence of compensation structures. Our empirical analysis attributes these pervasive differences to institutional factors. That is, despite the substantial changes in capital market conditions throughout the sample period, institutional factors remain as significant determinants of compensation structure and appear to contribute to consistent cross-country differences in compensation structure.

SSRN Electronic Journal, 2000

This study was partially supported by the Babcock Research Program at Wake Forest University. I w... more This study was partially supported by the Babcock Research Program at Wake Forest University. I would like to thank Stephen Bryan, Rick Carter, Ajay Khorana, Gabriel Ramirez, and participants at the annual meetings of the Financial Management Association ...

The Journal of Business, 2003

One of the major premises of efficient market theory is that the market quickly impounds any publ... more One of the major premises of efficient market theory is that the market quickly impounds any publicly available information, including macroeconomic information, that might be used to predict stock prices. It is only new-and especially new and unpredictable-information that moves prices, and yet many studies examine only announcements that have a predictable component. Researchers typically select a proxy for the anticipated portion of the news announcement and then test the market's reaction to the unanticipated portion of the announcement. However, the process of separating the anticipated and unanticipated portions of news announcements is critical to conclusions that can be drawn about price changes, the speed of adjustment, and trading activities. We avoid this separation problem by looking at fully unanticipated events. * We would like to thank Laura Starks and an anonymous referee for helpful suggestions, Ron Howren for computer support, Eric Schuster and Bob Hebert for gathering the sample, and Sandra Sizer Moore for editorial assistance. Ajay Patel thanks the Research Fellowship Program at Wake Forest University's Babcock Graduate School of Management for partial support of this project. Tie Su acknowledges financial support from the Research Council, University of Miami. The usual disclaimer applies.

Journal of Financial Economics, 2007

Using a sample of all-star analysts who switch investment banks, we examine (1) whether analyst b... more Using a sample of all-star analysts who switch investment banks, we examine (1) whether analyst behavior is influenced by banking relationships and (2) whether analyst behavior affects investment banking deal flow. Although the stock coverage decision depends on the relationship with the client firms, we find no evidence that analysts change their optimism or recommendation levels when joining a new firm. Investment banking deal flow is related to analyst reputation only for equity transactions. For debt and M&A transactions, analyst reputation does not matter. There is no evidence that issuing optimistic earnings forecasts or recommendations affects investment banking deal flow.

SSRN Electronic Journal, 2002

Abstract: Why do firms from some countries use no equity in the compensation mix, while others us... more Abstract: Why do firms from some countries use no equity in the compensation mix, while others use amounts equivalent to that observed in the US? We examine this issue by investigating compensation data from 317 firms in 43 countries over the 1996 to 2000 ...

Journal of Corporate Finance, 2015

Financial Management

The ability to mitigate econometric problems arising from endogenous explanatory variables is cri... more The ability to mitigate econometric problems arising from endogenous explanatory variables is critical to overcoming the concerns of spurious correlation that may afflict studies vulnerable to omitted correlated variables bias or reverse causality. While instrumental variables analysis may be used to address these types of endogeneity issues, a more pressing empirical challenge may involve the selection of appropriate instruments. In this paper, we identify the instruments used in the "culture and finance" literature, describe how to convincingly justify the use of the instruments, and document where to locate the data to form the actual instruments. Overall, we design this study to help future authors weigh the "pros" and "cons" of using specific instruments and to better inform empirical strategies for addressing endogeneity concerns.

Journal of Financial Stability

This article is organized as follows: Section II presents a literature review. Section III descri... more This article is organized as follows: Section II presents a literature review. Section III describes our data, sample, and variables. Section IV outlines the research procedures. Section V discusses the results. The last section summarizes and concludes

Journal of Financial Research, 1993

In this paper we examine the long-term performance of publicly traded firms that issue straight d... more In this paper we examine the long-term performance of publicly traded firms that issue straight debt, convertible debt, or common stock. Declines in firm performance following issuance are consistent with declines in firm value at announcement and issuance, and suggest that ...

We examine variation in relative use of equity-based compensation (equity mix) across firms from ... more We examine variation in relative use of equity-based compensation (equity mix) across firms from different legal environments by studying 381 non-U.S. firms from 43 countries during the 1996-2000 period. These firms are from countries that provide varying degrees of legal protection for shareholders. The data indicate association between equity mix and the degree of legal protection of shareholder rights. Specifically, firms use relatively more equity-based compensation if in a legal environment where shareholder rights are more strongly protected and where laws are more effectively enforced. These findings add to the literature demonstrating a relationship between institutional factors and financial decisions.

The Journal of Finance, 1997

This study examines the initial-day and aftermarket price performance of corporate straight debt ... more This study examines the initial-day and aftermarket price performance of corporate straight debt IPOs. We find that IPOs of speculative grade debt are underpriced like equity IPOs, while those rated investment grade are overpriced. IPOs of investment grade debt are typically issued by firms listed on the major exchanges and underwritten by prestigious underwriters. In contrast, junk bond IPOs are more likely to be handled by less prestigious underwriters and are typically issued by OTC firms. Our analysis also reveals that bond rating, market listing of the firm, and investment banker quality are significant determinants of bond IPO returns.

The Journal of Finance, 2000

Debt initial public offerings~IPOs! represent a major shift in a firm's financing policy by both ... more Debt initial public offerings~IPOs! represent a major shift in a firm's financing policy by both extending debt maturity and altering the public-private debt mix. In contrast to findings for seasoned debt offerings, we document a significantly negative stock price response to debt IPO announcements. This result is consistent with debt maturity and debt ownership structure theories. The equity wealth effect is negatively related to the offer's maturity, and positively related to the degree of bank monitoring. We find that firms with less information asymmetry and firms with higher growth opportunities experience a less adverse stock price response.

Review of Quantitative Finance and Accounting, 1996

This study reexamines the international linkage of e~-ante real interest rates using the theory o... more This study reexamines the international linkage of e~-ante real interest rates using the theory of cointegrated processes. The univariate unit root tests suggest the existence of a nonstationary real interest rate in the United States, Canada, and (the former) West Germany. An ex-ante real interest rate is obtained by subtracting estimates of inflation from the nominal intew.st rate. The expected inflation rates are oblained by modeling changes in monthly CPI values as autoregressive moving average (ARMA) processes. A multivariate test for unit roots indicates that there are two cointegrating vectors, or one common stochastic trend, for the system of three nonstationary real interest rates. In addition, the log-likelihood ratio test fidls to reject the null hypothesis that, in the long run, real interest rates in the United States are equal to those in Canada and West Germany.

Review of Quantitative Finance and Accounting, 1995

... CHARLES J. CORRADO 214 Middlebush Hall, University of Missouri, Columbia, MO 65201 AJAY PATEL... more ... CHARLES J. CORRADO 214 Middlebush Hall, University of Missouri, Columbia, MO 65201 AJAY PATEL Babcock School of Management, Wake Forest University ... from a range of convertible debt issue terms, and that managers are aware that the choice of issue terms will, in ...

Review of Financial Economics, 2000

We examine the relationship between the degree of informational asymmetry surrounding a firm and ... more We examine the relationship between the degree of informational asymmetry surrounding a firm and the equity market's reaction to a firm's announcement to sell seasoned securities. We use the adverse-selection component of the bid ±ask spread as a proxy for the informational asymmetry of a firm. For equity offers, we find that the greater the change in information asymmetry at announcement, the greater the decline in wealth. In addition, the largest decline in wealth for seasoned equity announcements is observed for firms with the largest level of pre-event adverse-selection components. For debt offers, the wealth decline is only significant for firms with the largest pre-event levels of asymmetric information.

Journal of Financial Economics, 1999

We examine whether the existence of a bank/firm relationship lowers the cost of public debt finan... more We examine whether the existence of a bank/firm relationship lowers the cost of public debt financing. Using a sample of first public straight debt offers, we test the crossmonitoring effect of bank debt and Diamond's (1991, Journal of Political Economy, 99, 689-721) reputation-building argument. We find that the existence of bank debt lowers the at-issue yield spreads for first public straight bond offers by about 68 basis points, on average. Consistent with Diamond's reputation-building argument, we document that firm reputation is negatively related to the at-issue yield spread for initial public debt offers.