Johan Sulaeman

When Do High Stock Returns Trigger Equity Issues

One of the most prominent stylized facts in corporate finance is that equity issues tend to follow periods of high stock returns. We document that firms exhibit such timing behavior only in response to high returns that coincide with strong institutional investor demand. When not accompanied by institutional purchases, stock price increases have little impact on the likelihood of equity issuance. The results highlight the importance of market reception for the timing of equity issues.

The Geography of Financial Misconduct

We find that a firms tendency to engage in financial misconduct increases with the misconduct rates of neighboring firms. This appears to be caused by peer effects, rather than exogenous shocks like regional variation in enforcement. Effects are stronger among firms of comparable size, and among CEOs of similar age. Moreover, local waves of financial misconduct correspond with local waves of non-financial corruption, such as political fraud.We find evidence that financial misbehavior occurs in regionally concentrated waves: a firm’s tendency to engage in misconduct increases with the misconduct rates of neighboring firms. This effect appears to be the result of peer effects, rather than exogenous shocks like regional variation in enforcement. Further, local waves of financial misconduct are correlated with non-financial misconduct, such as political fraud. Both firm and city performance suffer in the wake of local corruption waves.

Do Local Investors Know More? Evidence from Mutual Fund Location and Investments

This study finds that actively managed mutual funds do not display abnormal superior performance in local stocks relative to their own performance in distant stocks. However, the trading behavior of these funds is consistent with a widespread perception that local funds have an informational advantage. This perception is not only held by the local fund managers themselves (who tend to trade more aggressively), but also shared by distant managers (who tend to mimic local managers).

Local Investors' Preferences and Capital Structure

We provide evidence that publicly listed firms respond to capital supply conditions shaped by local investing preferences. The local supply of credit is higher and more stable in areas where demographics suggest that local investors prefer safer portfolios. We find that firms headquartered in these areas use more debt financing. The demographics-leverage relation is more pronounced for non-investment-grade and unrated firms that cannot easily tap public markets (about two-thirds of U.S. public companies). Analyses of firms’ financing activities around exogenous shocks to credit supplies - including interstate banking deregulation and the 2008-2009 financial crisis - support the capital supply effect. As demographics change slowly, local investors’ preferences may contribute to the heterogeneity and persistence of public firms’ capital structures.

Cost of Bereavement: How Does Parental Loss Affect Mutual Fund Managers?

We examine whether bereavement affects managerial investment decisions in large organizations using the exogenous events of managers’ family deaths. We find evidence in separate samples of mutual funds and publicly traded firms that bereaved managers take less risk. Mutual funds managed by bereaved managers exhibit smaller tracking errors, lower active share measures, and higher portfolio weights on larger stocks after bereavement events. Firms managed by bereaved CEOs exhibit lower capital expenditures, fewer acquisitions, and lower CEO ownerships after bereavement events. The risk-shifting by bereaved managers has negative implications on the performance of funds and firms that they manage.

Information Environment and the Geography of Firms and Investors

We develop a model linking stock ownership and returns to the distribution of private information and quality of public information. Supporting the model, we find that the firm’s information environment affects investors’ propensity to hold and trade its stocks, but its effects hinge on investors’ access to private information. Nearby investors with potential access decrease their holdings when private information becomes more dispersed and public information quality improves, whereas distant investors display opposite patterns. Tests exploiting exogenous shocks to firms’ information environments indicate these relations are causal. Moreover, firms’ information environments and proximity to potential investors jointly explain stock returns.