“Readability of Financial Advisor Disclosures” (with Kyre Lahtinen), Journal of Empirical Finance, 2017, In press
We explore the readability of 30,000 registered investment advisor disclosures and find that these disclosures are written to a college reading level. This finding suggests it will be challenging for the average person to read a typical disclosure, which can lead to misunderstandings regarding conflicts of interest, fee structures, and the advisor’s background. Moreover, there may be agency problems, and uninformed investors may also be deterred from seeking financial advice. The readability of these disclosures has decreased over the past seven years. These results are consistent among four different readability proxies and contradict SEC requirements for ‘‘plain English’’ language in disclosures, specifically for firms providing financial planning services to individuals.
“Compensation of Investment Advisors” (with Kyre Lahtinen), Journal of Investing, Forthcoming Winter 2017
The use of an investment advisor presents an agency problem as the firm works in the client’s interest while also managing its own growth. We use a dataset of over 30,000 advisor-year observations to investigate the potential for agency problems in the analysis of investment advisor firm characteristics. The compensation structures of investment advisors are not homogenous, varying by services offered. In addition, firm size is a large factor in determining the number of clients an advisory employee services. This analysis sets the foundation to understanding the compensation component of the investment advisor relationship and the associated agency problem.
View my research on my SSRN Author page:
“Ex-post Bargaining, Corporate Cash Holdings, and Executive Compensation”
with Yingmei Cheng, Jarrad Harford, and Irena Hutton
Currently under review
University of South Florida, Florida State University, City University Hong Kong, Financial Management Association’s 2014 Annual Meeting, Depaul University
Although compensation contracts rarely include cash holdings as a factor, we show that high cash holdings can be used by executives in the ex post bargaining over compensation. An increase of cash holdings by 10% of assets corresponds to about $2.7 million in additional CEO total compensation. In companies with weaker governance, the relation is even stronger. Using awards and losses associated with corporate litigation as exogenous shocks to the firms’ cash, we show that CEO compensation readily responds to these changes in cash holdings, confirming that managers are able to derive personal benefits from excess cash holdings.
“Cash Holdings Volatility and Firm Value”
Florida Finance Conference, University of New Hampshire, James Madison University, Utah State University, University of Dayton, Southern Finance Association
Prior studies postulate that the optimal level of firms’ cash holding is dynamic and, thereby, managers should actively adjust cash holdings. I find that the more volatile a firm’s cash holdings, the higher its firm value. The correlation is more pronounced in smaller firms, younger firms, and firms in high tech industries. The findings are robust when controlling for the level of cash holdings and cash flow volatility, among other factors. The positive connection between cash holdings volatility and firm value is consistent with the need for active management of cash. Specialized managers who actively adjust the amount of cash holdings help enhance the firm value more than generalist managers, consistent with the idea that specialized management has a better understanding of the firm’s cash needs.