Corporate Finance

WORKING PAPERS

Form or Substance? Incomplete Credit Rating Disambiguation in Bank Loans

Authored by Aysun Alp Paukowits and Nagpurnanand Prabhala

AlpPrabhalaWP

Corporate credit ratings have tightened substantially and gradually over two decades.

The paper shows that there are spillover effects in bank loans, which are costlier for firms, especially for those dependent on bank borrowings. Newly rated borrowers do not benefit from being rated; the strictness of ratings results in a net increase in their financing costs. 

Available at https://ssrn.com/abstract=3706576 

PUBLISHED PAPERS

Director Diversity and Inclusion: At the Table but in the Game?

Authored by Nemmara K. Chidambaran, Yun Liu, and Nagpurnanand Prabhala

ChidambaranLiuPrabhala

© 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 likely to be retained or promoted. Skill diversity matters: both retention and promotion are more likely for skill-diverse directors.

Product Market Threats, Payouts, and Financial Flexibility

Authored by Gerard Hoberg, Gordon Phillips, and Nagpurnanand Prabhala

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. 

Post-merger Restructuring and the Boundaries of the Firm

Authored by Vojislav Maksimovic, Gordon Phillips, and N.R. Prabhala

MaksimovicPhillipsPrabhala

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 targets in ways that exploit their skills and comparative advantages.

IPOs With and Without Allocation Discretion: Empirical Evidence

Authored by Amit Bubna and Nagpurnanand R. Prabhala

BubnaPrabhala

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.

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

​Authored by Michael Faulkender, Dalida Kadyrzhanova, N. Prabhala, and Lemma Senbet

FaulkenderKadyrzhanovaPrabhalaSenbet

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. 

Disappearing Dividends, Catering, and Risk

Authored by Gerard Hoberg and Nagpurnanand R. Prabhala

HobergPrabhalaCatering

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. 

Self-Selection Models in Corporate Finance

Authored by Kai Li and Nagpurnanand R. Prabhala

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. 

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

Authored by N.K. Chidambarana and Nagpurnanand R. Prabhala

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. Re-pricers experience abnormally high CEO turnover rates and often exclude top management options. There is little evidence that repricing reflects managerial entrenchment or ineffective governance.

Institutional Allocation in Initial Public Offerings: Empirical Evidence

Authored by Reena Aggarwal, Nagpurnanand R. Prabhala, and Manju Puri

AggarwalPrabhalaPuri

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.

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

Authored by Subhankar Nayak and Nagpurnanand R. Prabhala

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.