G. Brandon Lockhart

Determinants and Effects of Corporate Lobbying

We examine the determinants and value effects of corporate lobbying, controlling for corporate PAC campaign contributions. We find evidence that firms with greater potential payoffs from favorable policy and regulations lobby most actively, and that managers often utilize both lobbying and campaign contribution channels to influence the political climate affecting the firm. We also find that shareholders value the lobbying activities pursued by management on their behalf, particularly if the firm does not have a PAC that contributed to an election campaign. The results are robust to a number of tests designed to mitigate potential omitted-variable and self-selection bias.

Credit Lines and Leverage Adjustments

Adjustment costs play a prominent role in explanations of capital structure, but the extent of their economic importance is unknown. A credit line has institutional features important for this analysis, notably its sunk costs of access to the debt market, its revolving nature, and its covenant-sourced contingent nature. I find that the credit line is associated with cross-sectional variation in estimated speeds of adjustment to target leverage in patterns consistent with the importance of adjustment costs, and with the importance of maintaining financial flexibility for liquidity and investment needs.

Downstream Value of Upstream Finance

We examine market value implications of managing liquidity via supplier financing. Results suggest a direct link between shareholder wealth and use of trade credit, and the relation exhibits significant cross-sectional variation. In particular, the market value of trade credit varies with the liquidity of goods sold and competition in product markets. Evidence also indicates the value-supplier financing association strengthens with financial constraint, which supports the financing motive for trade credit. Further findings are consistent with the transaction cost motive. Overall, we conclude that shareholders value the strategic benefits associated with supplier financing and that downstream firms’ characteristics influence this value.

Internal Capital and Investment: Evidence from 2012 Pension Relief

We exploit pension funding relief enacted in 2012 to estimate the effects of a positive shock to internal liquidity on market prices and investment. Measuring unexpected increases in internal liquidity using a priori expected pension contributions disclosed under FAS132R, we report positive market returns around the date of Congressional approval for financially constrained firms and find that weak institutional monitoring attenuates these returns. We estimate the likelihood firms will benefit from reductions in mandatory contributions and find that financially constrained firms increase R&D expenditures in the months following the legislation and increase capital expenditures in the year following the enactment date. Overall, we provide evidence that pension disclosures provided useful information to investors in assessing the benefits of pension relief and our results shed light on the importance of capital adjustment costs for capital expenditures vis-a-vis R&D.

Does Inside Debt Moderate Corporate Tax Avoidance

Theory suggests that inside debt held by executives in the form of deferred compensation and unfunded pensions serves to align management incentives with creditors, thereby incentivizing them to act more conservatively. Evidence in the literature suggests that creditors favor less aggressive tax avoidance strategies. Accordingly, we investigate whether the level of inside debt is associated with less corporate tax avoidance. Consistent with theoretical predictions and the high level of financial sophistication of the chief financial officer (CFO), we find that the level of inside debt for the CFO, but not chief executive officer (CEO), is associated with less tax avoidance. In addition, we find that the proximity to financial distress magnifies the inverse relation between CFO inside debt and tax avoidance. Our results are robust to numerous supplemental tests, including instrumental variables estimation and matching.

New Estimates of the Jumbo-Conforming Mortgage Spread

We use Monthly Interest Rate Survey (MIRS) data for April 1997 through May 2003 to estimate the effect of conforming status on the effective interest rate for 30-year fixed-rate mortgages. We show that plausible econometric refinements materially affect the jumbo-conforming spread as measured in the existing literature, and that the treatment of loan size is particularly important. We borrow from the discrimination literature to derive a new way to estimate this effect and conclude that the jumbo-conforming spread is about 25 basis points, with some evidence of decline since late 2001.

Overconfidence, CEO Awards, and Corporate Tax Aggressiveness

Theory and prior research suggest that overconfidence leads managers to overestimate their own ability to generate returns, leading to riskier corporate policies. We use a novel dataset of media awards as an exogenous shock to overconfidence to test whether award-winning CEOs adopt more aggressive corporate tax policies. Using propensity score matching and a difference-in-difference design, we find strong evidence that firms with an award-winning CEO exhibit significantly greater tax aggressiveness following the award. Overall, our results suggest that CEO overconfidence has a meaningful impact on corporate tax policy.