Phong T. H. Ngo

Political Uncertainty and Accounting Conservatism

We hypothesize that political uncertainty leads to higher agency costs between managers and shareholders resulting in an increased demand for accounting conservatism. Exploiting the exogenous variation in political uncertainty induced by the U.S. gubernatorial election cycle, we find that the asymmetric timeliness of news recognition increases with political uncertainty. Our political uncertainty hypothesis operates through three economic channels, namely, political power of the incumbent, industrial exposure to politics, and the alignment of managerial and investor incentives. Accordingly, we find that the political uncertainty effect is more pronounced when the governor has control of legislature and when patronage is weaker, when a firm belongs to an industry that is more exposed to politics, when managers are better disciplined by governance mechanisms and when their reputations are more tied to the firm.

The World Price of Political Uncertainty

We investigate the pricing of global political uncertainty in international equity markets. Using a sample of firms across 38 countries for the period from 1991 to 2010, we find that global political uncertainty, measured by the Baker, Bloom and Davis (2015) U.S. economic policy uncertainty index, positively impacts the cost of equity capital for non-U.S. firms. The estimates suggest that a one standard deviation increase in global political uncertainty leads to a 29 basis point (3%) increase in the cost of capital. Countries that are more integrated into the international economy suffer a higher pricing impact from global political uncertainty, especially those countries with fewer veto players. The findings highlight the significance of a global political risk premium.We investigate the pricing of global political uncertainty in international equity markets. Using a sample of firms across 38 countries for the period from 1991 to 2010, we find that global political uncertainty, measured by the Baker, Bloom and Davis (2015) U.S. economic policy uncertainty index, positively impacts the cost of equity capital for non-U.S. firms. The estimates suggest that a one standard deviation increase in global political uncertainty leads to a 29 basis point (3%) increase in the cost of capital. Countries that are more integrated into the international economy suffer a higher pricing impact from global political uncertainty, especially those countries with fewer veto players. The findings highlight the significance of a global political risk premium.

Banker Proximity, Financial Flexibility and Corporate Liquidity Management

Firms hold less cash (i.e. internal-liquidity) when their local bank branching network is dense. The effect is stronger for opaque and financially constrained firms. Further, it weakens with distance and strengthens with urban vibrancy. Finally, firms located in dense local branch networks enjoy better access to bank credit lines with looser covenants (i.e. external-liquidity) and are able to mitigate investment contractions during economic downturns. Using large bank mergers as a source of plausibly exogenous variation in local branch density, we confirm the causality of our results. Taken together, these findings suggest an economic link between financial agglomeration, financial flexibility and the real economy.

Does Government Spending Crowd Out R&D Investment? Evidence from Government-Dependent Firms and Their Peers

Federal budget shocks lead government-dependent firms to expand R&D investment whereas industry-peer firms contract. The net result is a reduction in industry-level R&D investment. We offer a novel interpretation for the crowding out of peer-firm investment, namely, that peerfirm managers respond to falling relative performance by cutting R&D to manage current earnings upward. Since R&D investment affects value, we show that these differential responses manifest is differential firm value: higher federal spending is associated with higher value for government-dependent firms but lower value for industry-peer firms. Our results highlight how managerial incentives can influence the effectiveness of federal fiscal policy. JEL Classification: G31, G32, G38, H32, P16

The Shifting Ownership Structure of State-Owned Enterprises: Performance, Pyramids, and Political Regimes

We examine changes to corporate ownership in nine East Asian countries following the 1997 Asian Financial Crisis. Countries with lower incomes and in which policy making involves greater transactions costs (i.e., veto points) have more firms with state ownership. Partial state ownership appears to be effective insurance against crisis. Firms with minority state ownership exhibit 5% (annualized) lower idiosyncratic volatility in the quarter of the Lehman Brothers collapse than firms with either no or dominant state ownership. Minority state-owned firms also enjoy a higher abnormal return of 3.7% and 6.1% in the two quarters following the collapse of Lehman Brothers.

Gambling for Resurrection: Evidence from the National Basketball Association

National Basketball Association (NBA) contracting rules provide plausibly exogenous variation in career concerns near contract end. We use this setting to study how individual career concerns affect risk-taking behavior and can sabotage team performance. Using the frequency and duration of player injury data from 1991 to 2013 to measure individual risk-taking behavior, we find that the average player’s likelihood of missing a game due to injury falls by 73% in the final three months of his contract, and when missing games due to injury is unavoidable, his recovery time drops by 17 days. However, elite players with virtually no career concerns actually miss more games due to injury. Finally, we find that elite players missing too many games and average players playing before healthy combine to hurt team performance. For each additional player in the last three months on contract, the win probability for that team falls by over 2%.