Research

Working Papers

Deposit and Credit Reallocation in a Banking Panic: The Role of State-Owned Banks, October 5, 2023

AnatomyWP

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Bank Accounts For The Unbanked: Evidence from a Big Bang Experiment, August 13, 2023

PMJDYWP

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Form or Substance? Incomplete Credit Rating Disambiguation in Bank Loans, July 25, 2023

AlpPrabhalaWP

Published Research

Director diversity and inclusion: At the table but in the game?

ChidambaranLiuPrabhala

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© 2021 The Authors. Financial Management published by Wiley Periodicals LLC on behalf of Financial Management Association International

Financial Management. 2022;51:193–225.

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While research focuses on the presence of diverse directors, the study looks at their inclusion, or onward progress of diverse directors once appointed.  There is little evidence that gender diversity matters, but age- and ethnicity-diverse directors are less liklely to be retained or promoted. Skill diversity matters: both retention and promotion are more likely for skill-diverse directors.

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The Relationship Dilemma: Why Do Banks Differ in the Pace at Which They Adopt New Technology?

MishraPrabhalaRajan

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The Review of Financial Studies 35 (2022) 3418–3466

© The Author(s) 2021. Published by Oxford University Press on behalf of The Society for Financial Studies.

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New tech or practices are often beneficial to businesses. Why then are some institutions slow to adopt them? Stickiness – habits -- created by past practices inhibit the adoption of better ones today. 

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Context, Language Modeling, and Multimodal Data in Finance

ContextMultimodalLearning

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The Journal of Financial Data Science, Summer 2021

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Pre-trained language models show materially improved performance when enhanced with contextual SEC filings data. Using context-enhanced language models also dominates predictions from the standard dictionary-based approaches used in finance. 

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Buy-Side Competition and Momentum Profits

HobergKumarPrabhala2

The Review of Financial Studies 35 (2022) 254–298

© The Author(s) 2021. Published by Oxford University Press on behalf of The Society for Financial Studies.

The paper proposes a new measure for competition for momentum profits. Momentum return spreads equal 13.2% per year when competition is low and negligible when competition is high. The alphas are attained with superior Sharpe ratios, low skewness, and in more investible strategies with value-weighted portfolios and only large capitalization stocks. 

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Venture Capital Communities

BubnaDasPrabhala

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JOURNAL OF FINANCIAL AND QUANTITATIVE ANALYSIS Vol. 55, No. 2, Mar. 2020, pp. 621–651

COPYRIGHT 2019, MICHAEL G. FOSTER SCHOOL OF BUSINESS, UNIVERSITY OF WASHINGTON, SEATTLE, WA 98195

doi:10.1017/S002210901900005X

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Using computational methods from the physical sciences, we show that VCs self-organize into “communities,” or non-exclusionary groups with fuzzy boundaries. The three communities in the data are roughly ordered by their age and reach, with members similar to each other in age, connectedness, and functional style. Firms funded by community VCs exit faster and have more innovation, especially when they are early-stage firms without an innovation history.

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The Promises and Pitfalls of Robo-Advising

DacuntoPrabhalaRossi

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The Review of Financial Studies , May 2019, Vol. 32, No. 5, Special Issue: To FinTech and Beyond (May 2019), pp. 1983-2020

Adopters of a robo-advisor become more attentive to investing and have better-diversified portfolios with less volatility and better returns. More interestingly, adopters exhibit declines in behavioral biases, including the disposition, trend-chasing, and rank effect.

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Mutual Fund Competition, Managerial Skill, and Alpha Persistence

HobergPrabhalaKumar1

The Review of Financial Studies , May 2018, Vol. 31, No. 5 (May 2018), pp. 1896-

1929

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The paper proposes a new measure of competition faced by funds, one that is fund-specific, dynamic, and intransitive. Skill, or alpha, is a fund’s return relative to that of its competitors. We show that alpha is high when funds face less competition. Alpha persists for up to four quarters. 

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Product Market Threats, Payouts, and Financial Flexibility

HobergPrabhalaPhillipsJF

The Journal of Finance , FEBRUARY 2014, Vol. 69, No. 1 (FEBRUARY 2014), pp.

293-324
 

The paper develops a new measure of competitive threats faced by firms called “fluidity” from textual data in annual corporate filings. Fluidity explains key financial policies of firms, specifically what cash is held and how much is paid out as dividends or repurchases. 

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Judging Borrowers by the Company They Keep: Friendship Networks and Information Asymmetry in Online Peer-to-Peer Lending

LinPrabhalaViswanathan

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Management Science , January 2013, Vol. 59, No. 1 (January 2013), pp. 17-35

Small retail investors who lend in peer-to-peer (P2P) lending markets show a significant – and perhaps surprising -- degree of sophistication. Loan funding probabilities, credit spreads, and ex-post default rates disentangle and reflect in reasonable ways the “soft” credit information implied by friendship networks. 

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Post-merger restructuring and the boundaries of the firm

MaksimovicPhillipsPrabhala

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0304-405X/$ - see front matter & 2011 Elsevier B.V. All rights reserved.

doi:10.1016/j.jfineco.2011.05.013
 

What do acquirers do with newly acquired targets? On average, 27% of target plants are sold and 19% are shut. Kept plants improve productivity; sold-off ones do not. Acquisitions do not absorb their newly acquired targets passively. Instead, they reshape targetsin ways that exploit their skills and comparative advantages.

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IPOs with and without allocation discretion: Empirical evidence

BubnaPrabhala

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2010 Elsevier Inc. All rights reserved.

A. Bubna, N.R. Prabhala / J. Finan. Intermediation 20 (2011) 530–561

Proprietary data show that underwriter control of IPO share allocations is associated with less underpricing. Allocation powers are used extensively: identical bids can receive significantly different allocations depending on bidder identity. Giving underwriters allocation powers appears to assist in pre-market price discovery.

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Executive Compensation: An Overview of Research on Corporate Practices and Proposed Reforms

FaulkenderKadyrzhanovaPrabhalaSenbet

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A Morgan Stanley Publication • Winter 2010

A review of the role of executive compensation and possible compensation reforms in light of corporate scandals of the 1990s, related bubbles, and the 2008 financial crisis. 

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Disappearing Dividends, Catering, and Risk

HobergPrabhalaCatering

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C The Author 2008. Published by Oxford University Press on behalf of the Society for Financial Studies.

All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org.

doi:10.1093/rfs/hhn073 Advance Access publication August 21, 2008
 

The propensity to pay dividends “disappears,” a secular trend over decades beginning in the late 1970s. The paper shows that risk is perhaps the most significant determinant of dividend-paying propensity and explains 40% of the disappearing dividends phenomenon. 

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Self-Selection Models in Corporate Finance

Li Prabhala 2007

Forthcoming in B. Espen Eckbo (ed.), Handbook of

Corporate Finance: Empirical Corporate Finance,

Volume A (Handbooks in Finance Series, Elsevier/North-

Holland), Ch. 2, 2006

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Corporate finance decisions are not made at random, but are usually deliberate decisions by firms or their managers to self-select into their preferred choices. The article reviews econometric models of self-selection, focusing on their interpretation as models of private information in finance, and reviews several applications in received research. 

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Executive stock option repricing, internal governance mechanisms, and management turnover

ChidambaranPrabhala

Journal of Financial Economics 69 (2003) 153–189

0304-405X/03/$ - see front matter r 2003 Elsevier Science B.V. All rights reserved.

doi:10.1016/S0304-405X(03)00111-9

Stock option repricing occurs for smaller, younger, rapidly growing firms, especially in manufacturing-light sectors, that experience a deep, sudden shock to growth and profitability.. Repricers experience abnormally high CEO turnover rates and often exclude top management options. There is liitle evidence that repricing reflects managerial entrenchment or ineffective governance.

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Institutional Allocation in Initial Public Offerings: Empirical Evidence

AggarwalPrabhalaPuri

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THE JOURNAL OF FINANCE * VOL. LVII, NO. 3 * JUNE 2002

Underwriters controlling IPO allocations in the U.S. give more shares in IPOs to institutions when there is strong pre-market demand. Institutional allocation predicts day 1 IPO returns beyond other publicly available data.

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Disentangling the Dividend Information in Splits: A Decomposition Using Conditional Event-Study Methods

NayakPrabhala

The Review of Financial Studies Winter 2001 Vol. 14, No. 4, pp. 1083–1116

© 2001 The Society for Financial Studies

80% of splits are announced together with dividends. What portion of the stock market reaction to the joint announcement is not due to dividend information implied by splits? 46%, according to our estimates. 

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The relation between implied and realized volatility

ChristensenPrabhala

Journal of Financial Economics 50 (1998) 125—150

0304-405X/98/$— see front matter ( 1998 Elsevier Science S.A. All rights reserved

PII: S 0 3 0 4 - 4 0 5 X ( 9 7 ) 0 0 0 3 4 - 8

The volatility implied by S&P 100 index option prices has significant predictive power for forecasting future realized volatility. 

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