studies

golfAcademics Lee Bickerstaff (Miami University), David C. Cicero (Univ. of Alabama) and Andy Puckett (Univ. of Tennessee, Knoxville) analyzed data from a variety of sources to demonstrate that “CEOs that golf frequently (i.e., those in the top quartile of golf play, who play at least 22 rounds per year) are associated with firms that have lower operating performance and firm values. Numerous tests accounting for the possible endogenous nature of these relations support a conclusion that CEO shirking causes lower firm performance. We find that boards are more likely to replace CEOs who shirk, but CEOs with longer tenures or weaker governance environments appear to avoid disciplinary consequences.” […] James Cayne, the former CEO of Bear Stearns, is a classic example of the golf-shirking CEO. The Wall Street Journal reported that Cayne played golf or bridge on 10 of 21 working days in July 200, which was the month that two Bear Sterns hedge funds collapsed (Kelly, 2007) and the financial crisis began in earnest. [ValueWalk]

Researchers from Harvard Business School, Wharton, and the MIT Sloan School of Management have determined that venture capitalists like their pitches wrapped up in pretty packaging. If you’ve got a great idea but sense you’re not Adonis, consider hiring a male model to do the talking. Also of note, don’t even think about letting a woman make your presentation. Read more »

Two economists say their study shows that investors assign higher share values to companies run by attractive chief executives, that these chiefs are paid more than less-appealing counterparts and that the better looking the C.E.O.’s, the better they are at undertaking financially successful deals. The conclusion of the unusual academic study — a sort of corporate version of “Hot or Not” — is that shareholders are as easily swayed by the glint in the eye of a chief executive as they are by a company’s actual numbers, at least in the short term. [Dealbook]

There is an inverse relationship between penis size and hedge fund performance, one study of a nine-month period shows. Read more »

What do you think of the big HFT study? It’s this big HFT study that CFTC chief economist Andrei Kirilenko conducted on S&P 500 e-mini futures at the CME, and it’s already inspired a metaphor from CFTC commissioner and all-purpose spinner of metaphors Bart Chilton:

Mr. Chilton said that the study would make it easier for regulators “to put forth regulations in a streamlined fashion. It’s a key step in the process and it should fuel-inject the regulatory effort going forward.”

Not his best effort, fine. Anyway, the study: I’m not sure I’ve earned the right to have an opinion, both because (1) that, generally, and (2) my model of high frequency traders as micro-mini-market-makers is a bit upended by the fact that the bulk of the HFTs in this study seem to be taking, rather than providing, liquidity.1 It’s possible that the e-mini market is not the best place to measure the overall effects of HFT, either for fundamental reasons (its use for hedging etc.) or more crassly because it lacks the liquidity rebates that drive a lot of HFT in other markets.

That said what I like about this study is that instead of measuring transaction costs in naive ways like “bid/ask spread,” it measures transaction costs in sensible ways like “in a series of zero-sum transactions, how much money do HFTs suck out in profits.” Though the measure of profitability is sort of kooky:

The profits calculated in Table 3 are the implied short-term profits: we calculate the marked-to-market profits of each trader on 1 minute frequencies2 and reset the inventory position of each trader to zero after each of these 1 minute intervals. Then, we sum up all the 1 minute interval profits to get a measure of daily profits. Therefore, we capture the short-term profits of traders and not gains and losses from longer-term holdings.

What this means is that if your model of market-making is “buy at 99.9, wait five minutes, and sell at 100.1,” then your profits might end up showing as 0.2 or -0.2 or zero or something else on that calculation.3 So regular old market making may look bad, while HFT market making – designed to move quickly – looks much better. And so you get this table: Read more »

  • 08 Nov 2012 at 3:16 PM
  • M&A

M&A Is Just Too Easy

A useful though debatable proposition is that much complexity in the financial world is due to the fact that the people running that world like complexity. It’s good for business. If raising money or doing mergers is super complicated, you need to hire expert advisors to do it. If structured products are opaque, you end up paying your dealer more than they’re worth. Good times.

But this sort of sucks for the people working for the people running the financial world. I mean, sort of sucks: they get to be employed! They get to be paid lots of money for, like, connecting boxes and arrows in CDOs and drafting environmental reps in underwriting agreements.1 But then they have to do that. It’s often unpleasant. And it leads to the cognitive dissonance of analysts updating comp sets in M&A board books at 4am while bitching that the board wants to sell and no one will ever look at the appendix full of comps. Those analysts are wasting precious hours of their young lives doing a pointless thing, and are naturally furious. But the alternative is just not having anyone do that pointless thing, and then what will the analysts do? Get a real job?

Also: M&A lawyers. I was an M&A lawyer once, briefly, and it was awesome and exciting and you get on calls and yell “how can you ask us to schedule these exceptions to our representation about ERISA plans, I’ll show you where you can put your ERISA plans!,” and then you sit at your desk and re-draft reps and warranties until 4am and you’re like, VALUE ADDED.2 Or not: Read more »

So let’s say you’re a bank and, redundantly, you are in trouble with the SEC. And you want to hire a new lawyer to get you out of that trouble, because your old lawyers got you into it. You decide, sensibly, to hire a lawyer directly from the SEC, both because those lawyers have valuable experience and contacts and because they lawyers are paid so much less than your other lawyers that they’re a bargain. Who would you rather hire:
(1) An SEC lawyer who has always been nice to you, settled cases easily, not pushed too hard on investigations, and waived collateral consequences of your repeated securities fraud, or
(2) A lawyer who has always been a huge dick to you, litigated everything to the death, made your life difficult, and taken unreasonable positions?

If you chose option (1), you probably don’t work at a bank.

This study of the SEC revolving door is actually pretty neat, though suspect for reasons Yves Smith points out.* The most important conclusion is that the prospect of leaving the SEC to go represent companies doesn’t make SEC lawyers nicer to the companies: in fact, SEC lawyers who later leave to represent clients before the SEC seem to litigate more aggressively than those who don’t. But that’s actually pretty obvious, isn’t it?

For one thing, aggressiveness correlates with ability and intelligence and hard work and the general facepunching ethos required to succeed in private industry. The SEC lawyer who goes home at five o’clock after a relaxing day of ignoring financial fraud probably won’t fit in at a bank with a fast-paced culture of committing financial fraud. Read more »