Paul Calluzzo

Sovereign wealth fund investments and the US political process

We examine US firm-level campaign finance contributions preceding and subsequent to equity investment by a sovereign wealth fund (SWF). Our empirical results suggest that SWFs are attracted to firms engaged in US campaign finance and that firm campaign finance contributions increase after SWF investment. SWF attraction to campaign finance firms increases (1) after an exogenous legal shock that liberalized corporate campaign finance activities, and (2) in a subset of industries vulnerable to recent legislation capable of inhibiting or expunging foreign investment. We provide some of the first evidence consistent with political motives for SWF investment in the United States.RésuméNous étudions les contributions des entreprises au financement des campagnes américaines avant et après l’investissement de capitaux par un fonds souverain (FS). Nos résultats empiriques suggèrent que les FS sont attirés par des entreprises engagées dans le financement de campagnes américaines et que les contributions au financement des campagnes américaines augmentent après l’investissement de FS. L’attrait pour les entreprises qui financent des campagnes augmente (1) après un choc légal exogène qui libéralise les activités de financement de campagnes par les entreprises et (2) dans un sous-ensemble de secteurs d’activité vulnérables à la législation récente capable d’empêcher ou de supprimer les investissements étrangers. Nous livrons les premières preuves qui sont cohérentes avec les motifs politiques pour l’investissement de FS aux Etats-Unis.ResumenExaminamos las contribuciones financieras de las empresas Estadounidenses precedentes y posteriores a la inversión por un fondo soberano de riqueza (SWF). Nuestros resultados empíricos sugieren que los fondos soberanos de riqueza son atraídos por las empresas que participaron en la financiación de campañas en los Estados Unidos y que las contribuciones financieras de una empresa aumentan después de la inversión a fondos soberanos. La atracción de fondos soberanos de riqueza a las empresas que financian campañas aumenta (1) después de una choque legal exógeno que liberaliza las actividades corporativas de financiación de campañas, y (2) en un subconjunto de industrias vulnerables a legislación reciente capaz de inhibir o eliminar la inversión extranjera. Damos algunas de las primeras evidencias consistentes con las motivaciones políticas de inversión a fondos soberanos de riqueza en los Estados Unidos.ResumoExaminamos as contribuições financeiras para campanhas americanas ao nível de empresa anteriores e subsequentes ao investimento de capital por um fundo de riqueza soberano (SWF). Nossos resultados empíricos sugerem que os SWFs são atraídos para firmas envolvidas no financiamento de campanhas americanas e que as contribuições financeiras para campanhas das firmas aumentam após o investimento de SWF. A atração de SWF para firmas com financiamento de campanhas aumenta (1) após um choque exógeno legal que liberou as atividades corporativas de financiamento de campanhas, e (2) em um subconjunto de indústrias vulneráveis à legislação recente capaz de inibir ou eliminar o investimento estrangeiro. Fornecemos algumas das primeiras evidências consistentes com motivos políticos para o investimento de SWF nos Estados Unidos.概要我们研究美国企业层面主权财富基金(SWF)股权投资前后的竞选融资捐赠。我们的实证研究结果表明,SWFs对从事美国竞选融资的公司有吸引力,且公司竞选融资捐款在SWF投资后增加。SWF对竞选融资公司的吸引力在如下情况下会增加:(1)在一个外生的法律冲击使公司竞选融资活动自由化之后,以及(2)在一个易受能抑制或清除外商投资的近期立法影响的行业子集里。我们提供了一些与在美国的SWF投资政治动机一致的首次证据。

Clustered Shareholder Activism

We study multiple shareholder activists simultaneously targeting the same firm. We document that activists prefer to target firms which other activists are already targeting. This phenomenon is not explained by firm specific characteristics, and is more prevalent among activists who are geographically proximate and who pursue similar activism strategies. Furthermore, our results show that these campaigns produce elevated profitability and abnormal market returns which are significantly higher than campaigns which feature a single activist. These results suggest that activists deliberately pursue a clustered strategy.

Director Connections in the Mutual Fund Industry

The executives of publicly traded firms often sit on mutual fund boards. This paper provides empirical evidence about the influence these executives exert on the investment decisions of the fund. It shows that funds concentrate their holdings in and trade informatively in the stock of the executive’s firm. Specifically, funds hold approximately 25 percent larger stakes in the executive’s firm. When the fund purchases the stock of the executive’s firm, the stock, on average, earns an abnormal return of 2.07 percentage points over the following quarter, and when the fund sells the stock of the executive’s firm, the stock, on average, underperforms by 3.76 percentage points over the following quarter. Furthermore, the paper shows that abnormal trading returns in the executive’s firm, are associated with positive career outcomes for the executive. These results are robust to controlling for fund and firm specific factors and suggest that the influence of fund directors extends beyond their formal monitoring responsibilities.

Corporate Hedging During the Financial Crisis

We study corporate hedging during the 2007-2008 financial crisis. We find that hedging programs are fragile. Firms whose lenders suffered losses on their mortgage portfolios were more likely to lose access to over-the-counter derivatives, and this effect was strongest among unrated and below investment grade firms. Affected firms responded by drawing down existing lines of credit, and saving more out of realized cash-flows. Terminations of hedging programs decreased firm value by 11% to 28% in unrated and below investment grade firms. These value effects were largest among firms that did not have alternative sources of liquidity to draw upon.

The Real Effects of Proxy Advisors on the Firm

This paper examines the influence of proxy advisors (PA) on firm voting outcomes, policies and value. We measure PA influence with shareholders’ historical propensity to follow PA recommendations. PA influence increases the impact of PA recommendations on proxy voting outcomes and firm policies. However, we find a more nuanced effect with respect to firm value. When shareholders have private incentives to engage in costly research without a proxy advisor, PA influence neither harms nor benefits shareholder value. At firms with dispersed shareholders with little incentives to vote informatively in the absence of a proxy advisor, PA influence can increase value. Our findings are consistent with theories of voting in which proxy advisors compete with private information acquisition efforts by large shareholders.