Felix Meschke

Corporate Political Donations: Investment or Agency?

We examine corporate donations to political candidates for federal offices in the United States from 1991 to 2004. Firms that donate have operating characteristics consistent with the existence of a free cash flow problem, and donations are negatively correlated with returns. A

CEO Interviews on CNBC

10,000 increase in donations is associated with a reduction in annual excess returns of 7.4 basis points. Worse corporate governance is associated with larger donations. Even after controlling for corporate governance, donations are associated with lower returns. Donating firms engage in more acquisitions and their acquisitions have significantly lower cumulative abnormal announcement returns than non-donating firms. We find virtually no support for the hypothesis that donations represent an investment in political capital. Instead, political donations are symptomatic of agency problems within firms. Our results are particularly useful in light of the Citizens United ruling, which is likely to greatly increase the use of corporate funds for political donations.

An Empirical Examination of Mutual Fund Boards

This paper examines price and volume reactions to CEO interviews broadcast on CNBC between 1999 and 2001. Since interviews per se are nonevents, an analysis of the market response can be viewed as a simple test of the conjecture that enthusiastic public attention alone may move stock prices away from fundamentals. I document a significant mean price increase of 1.65 percent accompanied by higher trading volume on the day of the interview. Prices exhibit strong mean reversion of minus 2.78 percent during the 10 trading days following the interview. These price dynamics suggest that the financial news media is able to generate transitory buying pressure by catching the attention of enthusiastic investors.

The Rise and Fall of Portfolio Pumping Among U.S. Mutual Funds

This paper examines how board independence and director incentives in the mutual fund industry affect fund expenses, performance, and compliance. It is based on a hand-collected panel dataset of mutual fund governance characteristics from 1995 through 2004, which covers about 60% of assets listed in the CRSP mutual fund database. The results show that funds overseen by an independent chair charge fees that are 12 basis points lower and that the fraction of independent directors is associated with higher fees during the earlier part of the sample and with lower fees during the latter part. Both measures of board independence are associated with lower fund performance, although funds with higher director ownership and lower unexplained compensation charge lower fees and deliver higher returns. Fund board characteristics do not seem to affect the likelihood of litigation by regulators and shareholders. These results suggest that fund investors do not necessarily benefit from greater board independence if boards negotiate low fees without closely evaluating fund performance. In contrast, higher director ownership and relatively low compensation seem to align incentives between fund boards and investors.

Sentiment and Stock Returns: The SAD Anomaly Revisited

This study examines how increased regulatory attention to portfolio pumping affects the trading behavior of U.S. mutual funds. Attention by regulators should increase the likelihood of fines and reputational damage, raising the cost of such last-minute price manipulation. Consistent with this assertion, we find that last-minute price spikes in aggregate fund indices, in fund holdings and in institutional trading around quarter-ends declined, the declines are largest around year-ends, for small-cap and better-performing funds, and occurred faster for funds headquartered near SEC regional offices. These findings suggest that increased regulatory attention reduced portfolio pumping by U.S. mutual funds.