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Raghavendra Rau

Raghavendra Rau

Working papers

Executive compensation
Performance for pay? The relation between CEO incentive compensation and future stock price performance

Expropriation
How much do firms pay as bribes and what benefits do they get? Evidence from corruption cases worldwide

Hedge fund performance
Do hedge fund managers manage beta risk?

 

Published papers

Law and corporate governance
Tunneling, Propping and Expropriation: Evidence from connected party transactions in Hong Kong, JFE
Helping Hand or Grabbing Hand? Central Vs. Local Government Shareholders in Chinese Listed Firms , Review of Finance
Tunneling and propping up: An analysis of related party transactions by Chinese listed companies, PBFJ
Buy high, sell low: How listed firms price asset transfers in related party transactions, JBF
Expropriation, Unification and Corporate Governance in Italy, JCF.

Executive compensation
How do ex-ante severance pay contracts fit into optimal executive incentive schemes?, JAR

Name changes
Changing names with style: Mutual Fund name changes and their effects on fund flows, JF
Managerial actions in response to a market downturn: Valuation effects of name changes in the dot.com decline, JCF
A rose.com by any other name, JF

Mutual Funds
Changing names with style: Mutual Fund name changes and their effects on fund flows, JF
Good stewards, cheap talkers, or family men? The impact of mutual fund closures on fund managers, flows, fees, and performance, RFS
Past performance may be an illusion: Performance, flows, and fees in mutual funds, Critical Finance Review.
Detecting superior mutual fund managers: Evidence from copycats, RAPS.

Market Efficiency
Investor Reaction to Corporate Event Announcements: Under-reaction or Over-reaction, JB
Glamour, Value and the Post-Acquisition Performance of Acquiring Firms, JFE
Patterns in the timing of corporate event waves, JFQA

Share repurchases
Regulation, Taxes, and Share Repurchases in the U.K., JB

Mergers and acquisitions
Investment Bank Market Share, Contingent Fee Payments and the Performance of Acquiring Firms , JFE
Glamour, Value and the Post-Acquisition Performance of Acquiring Firms, JFE

Analyst behavior
Is there life after the complete loss of analyst coverage?, TAR
The impact of all-star analyst job changes on their coverage choices and investment banking deal flow, JFE
Independents' Day? Analyst behavior surrounding the Global Settlement, Annals of Finance  


The impact of all-star analyst job changes on their coverage choices and investment banking deal flow
Journal of Financial Economics, 84, 713-737, 2007

In this paper, we examine if analyst stock coverage is influenced by investment banking relationships between the bank and the firms the analyst covers. Why is this a problem? We argue that current papers do not capture the endogeneity of the analysts decision to work for a particular investment bank. By focusing on a sample of all-star analyst turnover and examining the analyst coverage decision immediately around the turnover decision, we can document that analyst coverage significantly influences deal flow to the investment bank he is employed at.

Good stewards, cheap talkers, or family men? The impact of mutual fund closures on fund managers, flows, fees, and performance with Arturo Bris, Huseyin Gulen and Padma Kadiyala
Yale and IMD, Virginia Tech and Pace University
Review of Financial Studies, 20, 953-982, 2007.

We examine a sample of 125 equity mutual funds that closed to new investment between 1993 and 2004. We find that funds close following a period of superior performance and abnormal fund inflows. Fund managers raise their fees when they close to compensate managers for losses in income due to the restrictions in size imposed by the fund closure decision. Managers reopen when fund size declines. However, they do not earn superior returns after re-opening, suggesting that the fund closure decision does not provide information about superior fund managers.

Tunneling, Propping and Expropriation: Evidence from connected party transactions in Hong Kong
with Yan-Leung Cheung and Aris Stouraitis
City University of Hong Kong
Journal of Financial Economics, 82, 343-386, 2006.

In this paper, we examine "connected transactions" between Hong Kong listed companies and their controlling shareholders. We try to find out what types of connected transactions are likely to lead to expropriation of minority shareholders. Which firms are more likely to expropriate? Does the market anticipate the expropriation?

Changing names with style: Mutual Fund name changes and their effects on fund flows
with Michael J. Cooper and Huseyin Gulen
Krannert School of Management, Purdue University, and Virginia Tech
Journal of Finance, 60, 2825-2858, 2005.

In this paper, we investigate the effects of conditional name changes in the mutual fund industry. Specifically, we examine if mutual funds change their names to take advantage of the current "hot" investment styles, and what effects these name changes have on the flows in and out of the funds, and the to funds' subsequent returns. We find that name changes tend to occur in waves; funds tend to change their name to be associated with the current high return style and to disassociate themselves from the current low return styles. The year before a fund changes its name to reflect a current hot style or to move away from a current "cold" style, the fund experiences an average excess outflow of approximately -4%. The year after the name change these funds earn average cumulative excess flows of 28% and experience no increase in performance compared to their pre-name change performance. The increase in flows is similar across funds that change their underlying investment style and those that do not, suggesting that investors are "irrationally" influenced by cosmetic effects.

Managerial actions in response to a market downturn: Valuation effects of name changes in the dot.com decline
with Michael J. Cooper, Igor Osobov, Ajay Khorana, and Ajay Patel
Krannert School of Management, Purdue University, Georgia Institute of Technology and Wake Forest University
Journal of Corporate Finance, 11, 319-335, 2005.

In this paper, we investigate investor reactions to internet related name changes in a market downturn. Why is this important? One reason is because most studies of investor irrationality investigate corporate actions when market sentiment is up. When sentiment turns down, firms can't make negative actions - they cannot make negative IPOs for example, they just stop making IPOs. In other words, the dataset is censored at zero. Firms can't make share repurchases either because of capital constraints. One positive - and costless - signal firms can make is to change their name and they do ... we find that during the Internet boom period, there is a surge of dot.com additions while in the bust period, there is a dramatic reduction in the pace of dot.com additions accompanied by a rapid increase in dot.com name deletion activity. After the end of the dotcom bubble, investors react positively to name changes for firms that remove dot.com from their name. This dot.com deletion effect produces cumulative abnormal returns on the order of 70 percent for the sixty days surrounding the announcement day.

Investor Reaction to Corporate Event Announcements: Under-reaction or Over-reaction?
with Padma Kadiyala
Krannert School of Management, Purdue University
Journal of Business, 77, 357-386, 2004.

Quite a few papers (including my own ) have found long-run abnormal performance for firms undertaking different types of corporate events - SEOs, IPOs, mergers, tender offers, share repurchases etc. Is there any specific way in which investors consistently react which accounts for this anomalous long-run performance, which seems to run counter to market efficiency?

Regulation, Taxes, and Share Repurchases in the U.K.
with Theo Vermaelen
INSEAD, Boulevard de Constance, Fontainebleau, France
Journal of Business, 75, 245-282, 2002.

In this paper, we investigate whether the abnormal returns earned by firms repurchasing their own shares in the U.S. translates to the UK environment. Surprisingly, it does not, mainly because of the peculiarities of the UK tax code.

A Rose.Com By Any Other Name
with Michael J. Cooper and Orlin Dimitrov
Krannert School of Management, Purdue University
Journal of Finance, 56, 2371-2388, 2001.

In this paper, we document a striking positive stock price reaction to the announcement of corporate name changes to Internet related dotcom names. This "dotcom" effect produces cumulative abnormal returns on the order of 74% for the ten days surrounding the announcement day. The effect does not appear to be transitory; there is no evidence of a post announcement negative drift. The announcement day effect is also similar across all firms, regardless of the firm's level of involvement with the Internet. A mere association with the Internet seems enough to provide a firm with a large and permanent value increase.

Investment Bank Market Share, Contingent Fee Payments and the Performance of Acquiring Firms
Journal of Financial Economics, 56, 293-324, 2000.

In this paper, I investigate the determinants of the market share of investment banks acting as advisors in mergers and tender offers. While it is commonly believed that investment banks play a significant role in mergers and acquisitions, evidence on the exact role is mixed. This study extends the literature on the role of investment banks in mergers and acquisitions. Second, this study adds to the growing literature that examines the degree to which the market share for a financial intermediary is correlated with the "success" of the transactions it advises. Empirical evidence on this subject is inconclusive, with some studies finding a strong correlation and others finding no relation.

This relationship between market share and success is especially interesting in the case of mergers and tender offers because the fee structure faced by investment banks in these transactions is, in many cases, biased towards completing the deal, and it has been shown that this fee structure can lead to significant conflicts of interest between the investment bank and its client and bias the bank's advice in favour of completing the deal even when not completing the deal would leave the acquiror firm's shareholders better off. Does anything prevent the bank from indulging in such opportunistic behavior? That is the subject of this paper.

Glamour, Value and the Post-Acquisition Performance of Acquiring Firms
with Theo Vermaelen
INSEAD, Boulevard de Constance, Fontainebleau, France
Journal of Financial Economics, 49, 223-253, 1998.

This paper uses a methodology robust to recent criticisms of standard long-horizon event study tests to show that bidders in mergers underperform while bidders in tender offers overperform in the three years after the acquisition. However, the long-term underperformance of acquiring firms in mergers is predominantly caused by the poor post-acquisition performance of low book-to-market "glamour" firms. We interpret this finding as evidence that both the market and the management overextrapolate the bidder's past performance (as reflected in the bidder's book-to-market ratio) when they assess the desirability of an acquisition.