Theses and Dissertations - Department of Economics, Finance & Legal Studies

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Monetary Policy and Discount Window Lending During the Financial Crisis: Theory and Empirical Evidence
(University of Alabama Libraries, 2020) Zhang, Cuiyi; Reed, Robert R.; University of Alabama Tuscaloosa
This dissertation studies monetary policy during the financial crisis. Particularly, the three essays investigate the transmission channel and effect Discount Window (DW) and Term Auction Facility (TAF) as well as the optimal policy conduct during crisis period. In the first essay, we examine the transmission channels of the Federal Reserve's maturity extension policy on DW and TAF activity during the crisis period. Specifically, we separate the maturities and the size of loans to differentiate the effects of overnight fund availability from maturity extension. Our findings indicate that maturity extension of DW loans promoted long-term (LT) lending by small banks in the banking sector, but this was generally limited to the time before the failure of Lehman Brothers. Finally, maturity extension of the TAF promoted residential real estate (RRE) lending by medium and large banks. In the second chapter, we seek to examine the impact of mortgage recourse provisions on the effectiveness of the Federal Reserve's maturity extension policy during the crisis. Our results indicate that banks that were operating in non-recourse states did have a higher probability to borrow from the DW in comparison to their peers in recourse states. Moreover, small-sized banks in non-recourse states tended to borrow for longer maturities, especially after the bankruptcy of Lehman Brothers. Furthermore, the effect of maturity extension at the Federal Reserve's Term lending programs was weaker among non-recourse banks. In the last chapter, we develop a general equilibrium framework in which banks perform two important functions in the financial system – risk pooling and lending services. In doing so, the paper thoroughly investigates how the effects of monetary policy depend on the distribution of liquidity risk and demand for loans in the economy. When the rate of money growth is sufficiently high, monetary policy is superneutral in parts of the economy but non-superneutral to the rest. Finally, if there is more liquidity risk in parts of the economy, it is optimal to adopt a lower rate of money growth. However, if such an increase happens in the lower liquidity risk region, the optimal policy is the opposite.
Three Essays in Political Economy and Corporate Finance
(University of Alabama Libraries, 2020) Jiao, Anqi; Mobbs, Shawn; University of Alabama Tuscaloosa
This dissertation consists of three essays exploring the issues related to the political economy of finance and corporate finance. The first essay studies whether and how institutional investors exert influence in firms’ external governance environments related to law and politics. I explore the role of institutional investors in corporate lobbying of their portfolio firms. I find that greater lobbying institutional ownership leads to more lobbying activities of firms. This effect is more pronounce in the subsample where firms face constraints to lobbying. I identify two plausible channels through which institutional investors can facilitate corporate lobbying. First, institutional investors tend to provide direct support by lobbying in the same congressional bills with firms possessing greater weights in their portfolios. Second, institutional investors protect firms’ political information by voting against shareholder proposals requesting additional lobbying disclosure. Overall, I show that lobbying institutional investors actively engage in firms’ external governance related to law and politics. The second essay takes a unique insight into the ethics of corporate lobbying. We study the Honest Leadership and Open Government Act of 2007, a regulatory reform on lobbying and government ethics, aiming to mitigate unethical lobbying activities. We find that the average market reaction to the reform, which aimed to mitigate unethical lobbying practices, by lobbying firms is positive, implying the reform benefited these shareholders on average. We also uncover heterogeneity of lobbying firms’ response to the reform. Following the Act, firms with a history of active lobbying reduced their lobbying activity, whereas firms with little prior lobbying activity increased their lobbying efforts. Finally, we find that after the enactment of these reforms, firms that engage in active lobbying, and especially those with a good ethical reputation, are more likely to appoint politically connected directors relative to non-lobbying firms. The third essay focuses on the dark side of corporate lobbying on firms. Specifically, we investigate the impacts of lobbying engagement on corporate innovation. One percent increase in lobbying expenditures reduces the number of patents by 30 bps, the number of citations by 50 bps, and the average patent value by 50 bps. We find that more corporate lobbying activities causally impedes innovation, in contrast to the conventional stewardship perspective that lobbying brings government privileges. We find that the effects of corporate lobbying on innovation are stronger in the subsample where firms have more resources constraints and lower institutional ownership, which are constituent with both “resources constraints” and “lazy managers” hypotheses.
Three Essays on Corporate Policy in Workplace Safety and Health
(University of Alabama Libraries, 2021) Wang, Zhiyan; Guo, Lixiong; Mobbs, Shawn; University of Alabama Tuscaloosa
This dissertation includes three chapters on corporate policy in workplace safety and health. The research seeks to understand three economic determinants of workplace safety and health — hedge fund activism, shareholder litigation, and product market competition.Chapter 1 examines the impact of hedge fund activism on employee safety and health. Using a difference-in-differences framework to analyze regulatory safety records data, we find that the workplace incident rate rises after a company is targeted by an activist hedge fund. We also find that target firms reduce workplace safety-related investment, increase worker strain, and reduce management safety emphasis. Overall, the results imply that hedge fund activism induces managerial short-termism with respect to workplace safety. Chapter 2 studies the impact of shareholder litigation risk on workplace safety and health. Using the staggered state adoption of Universal Demand law that lowers shareholder derivative litigation risk to workplace safety, we find that weakened shareholder litigation rights compromise workplace safety. The impact is more pronounced for firms with weak governance, in less competitive, low union coverage, or low skilled industries. Overall, our findings suggest that shareholder litigation incentivizes corporate officials to uphold workplace safety. Chapter 3 examines the impact of product market competition on operational risk management. Using import penetration as exogenous variations for competition with regulatory safety records data, I find that increased import competition reduces workplace incident rate. Import competition also reduces safety violations and right tail risks of severe safety accidents. Overall, these findings suggest an operational channel via which firms manage competition risks.
Essays on Corporate Governance and Social Responsibility
(University of Alabama Libraries, 2021) Yang, Lukai; Mortal, Sandra; University of Alabama Tuscaloosa
In the first essay, we study whether the increasingly large and concentrated ownership stakes by passive investors influence shareholders’ activism in the form of shareholder proposals. We find a positive association between passive ownership and the total number of proposals initiated, proposals with different types of sponsors, the rate of proposal withdrawal, vote-for percentage, and finally 1-year abnormal returns following the annual meeting date at which time the proposals were put forth. To mitigate endogeneity concerns, we use the Russell reconstitution as an exogenous shock. Our findings highlight the ability and power that passive investors have to affect corporate policy by supporting fellow shareholder sponsored proposals.In the second essay, we investigate the effectiveness of shareholder voice. In 2017, “The Big Three” institutional investors launched campaigns to increase gender diversity on corporate boards. We estimate that their campaigns led firms to add at least 2.5 times as many female directors in 2019 as they had in 2016 and to promote female directors to key board positions. Firms increased female representation by relying less on managers’ existing networks to identify candidates and by placing less emphasis on candidates’ executive experience. Our results highlight index investors’ ability to influence firms’ governance structures and shareholder advocacy’s potential to expand women’s participation in corporate leadership more extensively than government mandates. In the third essay, we examine whether and how local religiosity has an impact on corporate attitude towards corporate social responsibility (CSR) activities and how CSR activities directly impact firm value. Employing an extensive US sample from 1991 to 2015, we find that firms headquartered in more religious regions undertake a greater level of CSR activities. Furthermore, the CSR activities of firms located in highly religious regions are positively valued in the stock markets as we observe a positive association between CSR and Tobin’s Q for the companies that are headquartered in high religious regions. The association is stronger when firms are less visible to non-local investors. This study enriches the emerging literature on the influence of local cultural factors on corporate behavior and encourages future research on the various aspects of how the local environment impacts firms’ ethical behaviors.
Essays on the Comovement of Commodity Prices, the Prebisch-Singer Hypothesis and the Convergence of CO2 Emissions
(University of Alabama Libraries, 2021) Islam, MD Towhidul; Lee, Junsoo; University of Alabama Tuscaloosa
My dissertation aims at developing econometric tests to study nonstationarity in panel data allowing for cross-correlations. The first chapter examines excessive comovement and nonstationarity in commodity prices. Pindyck and Rotemberg (1990) found excessive comovements among prices of a broad set of commodities. Wang and Tomek (2007) argue that commodity prices should be stationary and convergent though literature shows otherwise. I use both the principal component analysis (PCA) and dynamic factor models (DFM) to extract the comovements. We find some comovements, but they are not excessive. Then I control for the common factors and structural breaks in our unit root tests. I show that most commodity prices are non-stationary even after accounting for comovements and structural breaks. The second chapter studies the Prebisch-Singer (PS) hypothesis implying that commodity prices decline relative to industrial prices over the time. This has important implications for the growth of developing countries though the empirical evidence on the hypothesis is mixed. Using the dynamic factor models and principal component analyses I find significant comovements. I employ the residual augmented least squares (RALS) procedure to utilize the information contained in those factors and in the non-normal errors. I use Fourier function to model structural changes. Using data from 1900 to 2018, I find significantly negative trend in the common Fourier function and the dynamic common factor of the relative prices which supports the PS hypothesis. Out of the 24 individual relative commodity prices, I find negative trend in 12, positive trend in 6 and no clear pattern in others. I find an emerging positive trend in several of them from early 2000s. The last chapter develops a new unit-root test that accounts for dummy breaks and factors extend the two break tests of Lee and Strazicich (2003) in a factor structure to allow for cross-correlations using the PANIC procedure of Bai and Ng (2004). Then, we apply the new tests to examine the stochastic convergence of carbon dioxide (CO2) emissions for a set of 30 OECD countries during the period 1960-2018. Our results show that the null of no convergence is rejected only for a few countries.
An Analysis of the Effect of Hurricanes on Economic Growth and Labor Market Outcomes
(University of Alabama Libraries, 2021) Goulbourne, Rushaine Demar; Ross, Amanda; University of Alabama Tuscaloosa
Hurricanes pose a significant threat to life and property in coastal regions across the Caribbean and the United States. Within the United States, the south coast faces an annual threat in locations that house major economic centers. The disruption in these regions can have far reaching consequences for both individuals and firms who are impacted. For the Caribbean region, the recurrence of hurricanes causes recovery from disasters to be an on-going process. This limits the extent to which these countries can grow economically. In this dissertation I aim to explore the effects of hurricanes on economic agents with the intent of impacting future policy discussions. Chapter 1 investigates the impact of hurricanes on wage and employment growth. I utilize a model of wind intensity to measure the strength of hurricanes within each Florida county. By using a measurement technique that accounts for hurricane intensity variation over time, the results reveal a less severe effect on both wage and employment growth than previously reported. In many respects, the literature supports the notion that hurricanes affect labor markets through labor supply. My results present evidence that suggests labor demand plays as much a role in post disaster labor markets outcomes as does labor supply. As a novel contribution to the literature, I further test this result by using propensity score matching while accounting for the probability of each county to experience a hurricane. My results suggest that hurricanes depress not only employment growth but in fact both employment and wage growth in affected counties. Chapter 2 explores the implications of hurricanes for economic growth in the Small Island Developing States (SIDS) of the Caribbean region. Particularly, I examine the recurrent nature of hurricanes which creates a difficult environment for economic growth to take place.The results of this study finds support for the negative impact of hurricanes on growth. Additionally, the experience of successive hurricane seasons with hurricane strikes contrary to expectations, does not contribute further to the negative impact of the initial hurricane effect in the Caribbean region. Reasons for this are discussed. Countries that experience a gap between hurricanes enjoy better growth outcomes than countries that do not have similar experiences. The findings of this study shines light on the difficulty small islands face to prepare for hurricanes while being in a state of recovery.
Nonparametric Estimation and Inference in the Presence of Sample Selection Bias in Experimental Economics Studies
(University of Alabama Libraries, 2021) Zhong, Huizhen; Henderson, Daniel J.; University of Alabama Tuscaloosa
Experimental economics studies usually involve self-selection behaviors. In this dissertation, we explore the use of nonparametric approaches to estimate the treatment effect in these studies in the presence of sample selection bias. The first chapter reviews the econometrics literature on nonparametric estimation of treatment effects under sample selection. Specifically, we focus on the Heckman (1979) two-step correction approach, its nonparametric extensions, and three bounding estimation approaches: Horowitz and Manski (2000), Lee (2009), and Behaghel et al. (2015). We also discuss the different estimands and the relative performance in these studies. The second chapter explores the treatment effect of a higher match ratio on an individual’s donation behavior based on evidence from a field experiment using multiple waves of email solicitations. Since donation decisions are observable only for email openers and opening rates differ between treatment and control groups, we apply the nonparametric bounding estimation approaches of Lee (2009) and Behaghel et al. (2015) to correct for selection bias when estimating the treatment effect. A higher match rate significantly increases an email opener’s likelihood to give and increases the donation amount for those who contributed to the fund in the past 24 months. The third chapter investigates whether randomized advertised show-up fees can be used as an exclusion restriction in the Heckman (1979) correction model to correct for bias caused by individuals’ self-selection into lab experiment studies. We control for the actual participation fee and study the impact of the advertised show-up fee on an individual’s participation decision, subject’s decision making, and the treatment effects in three well-studied lab experiment tasks. We estimate these impacts using nonparametric regressions. For the range of show-up fees in our study, we find no impact on an individual’s participation decision. Also, the advertised show-up fee does not affect the participant’s decision-making or the treatment effect in the tasks related to individuals' social preference and risk attitude. However, the advertised show-up fee impacts subjects’ strategic performance under a higher cognitive load. Therefore, caution should be made when we incorporate the randomized advertised show-up fee in the experiment design to correct for participation bias.
Three Essays on Investments
(University of Alabama Libraries, 2021) Xu, Luqi; Ray, Sugata; University of Alabama Tuscaloosa
This dissertation consists of three essays on investments. The research seeks to contribute to the finance literature on hedge fund marketing, flows and performance, investor behavior and stock market participation and REIT valuation.In the first essay I study the impact of JOBS (Jumpstart Our Business Startups) Act on hedge fund advertising through hedge fund website creation around JOBS Act. I use a unique hand collected hedge funds’website database to study the changes of hedge funds before and after the JOBS Act. I find that although hedge funds were discouraged to create websites before the JOBS Act, some of them did have websites, especially those that were performing poorly. Creating websites attracted more investor attention and increased flows into funds, but also leaded to worse performance. After JOBS Act, most hedge funds started to create their own websites. Therefore, funds are now equally likely to create websites regardless of their past performance. Websites are no longer able to attract more flows as they did before. In the second essay, using a novel dataset of trades made on a trading simulator in Brazil, we examine the link between simulation experience and (1) the determinants of opening a real money account, and (2) the performance in real money accounts. We find that more active simulator users take on more risk, and simulator users with the best stock level performance (but not portfolio level performance) are more likely to open real money accounts. These users are also likely to be more active real money traders and significantly underperform in their real money trades. These results suggest that without proper edu- cation regarding the hazards of active trading and accurate performance evaluation, stock simulator users may draw incorrect inferences regarding their trading skill and experience real-money underperformance. In the third essay we explore the determinants and value implications of publicly traded real estate companies converting to real estate investment trusts (REITs), which we term REITing, and publicly-traded REITs giving up their REIT status, termed de-REITing. Non- REIT real estate firms that pay relatively high dividends and have high income tax ratios are more likely to convert to a REIT; while REITs that have lower pretax incomes, dividend adjusted operating cash flows, and higher leverage ratios are significantly more likely to de- REIT. REITing generates significant positive abnormal returns (ARs) around the REITing announcement. These positive ARs are concentrated in firms with higher income tax liabil- ities and firms paying larger dividends pre REIT-conversion. De-REITing announcements generate significant negative ARs, which are mitigated when the de-REITing firm has low potential tax liabilities, or when the firm is cash flow constrained with respect to its dividend payment. Based on these results, we argue that the degree to which REITing (de-REITing) decisions are value generating (destroying) depends on the magnitude of potential tax and dividend implications. We also examine the longer run valuation effects of REITing and de-REITing decisions and find no evidence of a reversion of the short-run announcement effects.
Three Essays in Investments
(University of Alabama Libraries, 2021) Azimirahmatidoozandeh, Mehran; Agrawal, Anup; University of Alabama Tuscaloosa
Sentiment is an important concept in economics and finance and has been the focus of many studies. Individual investors, professional investors, corporate managers, and households have sentiments on the economy and financial markets which affect their decisions, and hence economic activities and asset prices. Measuring sentiment and determining what factors affect it have significant importance in finance research. My dissertation studies this subject by introducing state-of-the-art methods from artificial intelligence to measure the sentiment in several sources of business text data, that is, public firms’ disclosures and mutual funds’ reports. I investigate the information content, determinants, and the effects of the sentiments on asset prices and investment decisions of investors. In chapter one, we use a novel text classification approach from deep learning to accurately measure sentiment in a large sample of 10-Ks. In contrast to prior literature, we find that both positive and negative sentiments predict abnormal returns and abnormal trading volume around the 10-K filing date and future firm fundamentals and policies. Our results suggest that the qualitative information contained in corporate annual reports is richer than previously found. In chapter two, I study the sentiment of mutual fund managers towards the stock market. Using a direct measure of managers’ market expectations extracted from mutual funds’ semi-annual reports, I find that fund managers extrapolate their funds’ past performance into their market outlook. Funds with managers who have higher market expectation take more risk by increasing their equity holdings and the beta of their equity portfolios, but underperform subsequently. In chapter three, we study the sentiment of mutual fund managers about specific stocks in their portfolios. We study some mutual funds’ practice of voluntarily disclosing investment ideas in their annual reports. The practice involves, at a minimum, expressing views on stocks which fund managers are optimistic about. We find that managers of larger and better performing funds discuss positions that have recently underperformed, those that make up larger portions of their portfolios, and those they have held for longer periods. Our findings suggest that managers disclose these recommendations to boost their own fund performance and to attract additional capital.
Essays in Corporate Finance
(University of Alabama Libraries, 2021) Luo, Shikong; Cook, Douglas O.; University of Alabama Tuscaloosa
Despite the importance of understanding the interaction between financial markets and the real economy, the indirect effects of secondary markets on corporate outcomes, however, are not well understood. This dissertation comprises three essays that aim to shed some light on this issue by exploring the unintended consequences for firms in response to trading activities in equity and derivative markets. Uninformative stock price fluctuations induced by volatile mutual fund flows may inflict a hidden financial cost on firms. The first essay proposes a measure of stock-level passive equity mutual fund flow-induced volatility pressure and find it to positively affect bond yield spread at issuance through higher perceived risks revealed by increased equity volatility. Although flow-induced volatility is costly to the borrowing firm, it has no significant association with future firm fundamental risk, in contrast to equity volatility. This study empirically reveals a dark side of passive investing. The second essay examines the effects of options trading activities on corporate liquidity management. Based on a large sample of U.S. non-financial firms, it documents a positive relationship between equity options trading intensity and corporate cash holdings. Along with the instrumental variable approach, the CBOE's Penny Pilot Program as an exogenous shock and the extensive margin analysis using option listings corroborate a causality interpretation of the baseline results. The relationship is mainly driven by firms where financial distress risk is high and debt-financed investments are constrained by liquidity issues. Overall, these results suggest a precautionary saving motive due to active options markets that provide risk-shifting incentives to firms. During 2005-2007, SEC conducted a pilot program that relaxed short-selling restrictions. Using a difference-in-differences methodology and a hand-collected dataset of derivatives usage from a sample of U.S. oil and gas producing firms, the third essay finds a relative increase in hedging intensity among pilot firms compared to non-pilot firms during the pilot program period. This effect is stronger when firms face higher financial distress risk and when managers' incentives are more closely tied to firm value. These results indicate that managers are incentivized to smooth operating income due to concerns about a rise in the cost of financial distress under short-selling pressures.
Essays in global comovements
(University of Alabama Libraries, 2020-12) Isomitdinov, Hasan; Lee, Junsoo; University of Alabama Tuscaloosa
This dissertation looks into comovements in the global macroeconomic aggregates across countries by applying Bayesian econometric models. The first essay provides new results on the significance and relative importance of global and regional comovements in sovereign credit risk. I employ a dynamic factor model with time-varying stochastic volatility to examine the time-varying effects of global comovements. I find that the effects of the global comovements on individual countries are smaller than commonly perceived, especially after the end of the Eurozone debt crisis. Moreover, contrary to previous findings, I find that the net effects of the global and regional factors are greater than those of global macroeconomic variables. The second essay provides evidence of significant international co-movements of public debt in the form of the common global and regional factors. International events such as the global financial crisis and Eurozone sovereign debt crisis suggest the existence of global and regional factors that can generate synchronizations of public debt across countries. In contrast with previous studies that are focused mostly on domestic economic fundamentals in explaining public debt, I find distinct global factors in the public debt-to-GDP ratio, from both principal components analysis and the Bayesian dynamic factor model. I show that the global factor accounts for a significant fraction of the variation of public debt often more substantial than those explained by domestic variables in many countries. In the third and final essay, I develop a new panel cointegration model based on the well-known autoregressive distributed lag (ADL) models. I adopt the generalized method of moments procedure of Arellano and Bond, noticing that the ADL cointegration model is a special case of dynamic panel data models. The suggested procedure can overcome the difficulties found in the studies based on the panel vector auto-regressive models, which can be biased in the presence of cointegration. I apply the suggested procedure to the issue of defense-growth relationship, while capturing the inter-temporal dynamic relation between military spending and economic growth. The results reveal that there are multiple cointegrating vectors in the relationship of military spending and growth.
Three essays: cointegration tests and empirical studies using the dynamic factor models
(University of Alabama Libraries, 2020-05) Lu, Yan; Lee, Junsoo; University of Alabama Tuscaloosa
The first essay extends the pioneering cointegration test of Johansen (1991) to allow for structural breaks in a cointegration system. Instead of using usual dummy variables, we utilize a Fourier function to control for an unknown number of multiple breaks in the cointegration system. When we use dummy variables, we need to determine the number of breaks and their locations a priori in each of the equations in the system. However, this challenging task is converted to a simpler task of determining the number of a few cumulative frequencies when we use a Fourier function. The number of parameters to estimate is reduced significantly, which can lead to a good performance of the tests. We also recommend using a fixed value of cumulative frequencies. We provide the limiting distribution of the Johansen-Fourier tests and the corresponding critical values. Monte Carlo simulations show that the new tests display good size and power properties. An empirical application to the Kilian (2009) dataset shows the result of cointegration, while the conventional Johansen cointegration tests indicate no cointegration. The second essay follows the extensive studies on the similarity and synchronization of member states’ economic fundamentals and conditions triggered by the formation of the Economic and monetary union in Europe. Similar institutional and economic conditions are considered essential characteristics, implicit targets, and preferred prerequisite qualifications for the Eurozone members, as the optimal currency area theory indicates. This paper analyzes synchronization in five major macroeconomic variables in the European Union using the dynamic factor model. We do not find significant evidence of synchronization in the Eurozone or EU countries. The degree of synchronization in the Eurozone countries is not greater than that in other countries. Also, we find no significant evidence to show that the EU or Eurozone membership has increased synchronization or similarity within the group over time. Instead, we find that synchronization effects are time-dependent; they are more significant during the financial crisis period. The third and final essay analyzes the co-movements of US housing prices using the state level and metropolitan statistical areas (MSA) data. The objective of the study is to examine the significance and time-varying nature of the co-movements from macroeconomic aspects and determine major factors that drive the movements of the housing prices. Dynamic factor models with time-varying loadings and stochastic volatility (DFM-TV-SV) are employed to estimate the national, regional, and state factors. The results show that the national factor is dominant in explaining the movement of housing prices. On average, the national factor accounts for 79 percent of the variation of housing prices, while its significance is the highest during the housing boom and bust periods in many regions and states. Overall, the significance of each factor varies significantly over time and in different regions. The synchronization effects are also time varying and heterogeneous over different regions and states.
Self-protection under compound risk and ambiguity
(University of Alabama Libraries, 2020-12) Brinkley, Nathan; Jindapon, Paan; University of Alabama Tuscaloosa
We conduct an experiment designed to elicit risk management behavior and study its effects on disaster risk mitigation and investment in self-protection. Resident homeowners in Tuscaloosa and Mobile, Alabama are given choices against risk and ambiguity in both general and framed contexts, and in both monetary loss and gain domains. Demographics and data from homeowners' insurance policies are collected. This study seeks to understand factors influencing Alabama homeowners’ decisions to invest in windstorm loss mitigation. The results of this study could lead to significant policy implications on the design, selection, and promotion of specific windstorm resistant features.
Essays on financial stability and the industrial organization of the banking system
(University of Alabama Libraries, 2020) Gao, Jiahong; Reed, Robert R.; University of Alabama Tuscaloosa
The focus of my dissertation is to study how the industrial organization of the banking sector affects the risk-taking behavior of financial intermediaries and the degree of instability within the banking system. In the first chapter, I ask whether the notion that market concentration promotes stability survives when the government intervention during a crisis is properly taken into account. To this end, I study suspension policies in an environment without commitment, following Ennis and Keister (2009). When the BA only values the welfare of depositors, the degree of fragility is independent of the competitive structure of the banking system. However, having a BA that puts some weight on the monopolist’s welfare can serve as a commitment device in suspending payments earlier to protect bank profits, which reduces fragility under a monopoly. The second chapter investigates how the industrial organization of the banking sector may be associated with different triggers for the system to be unstable. In particular, my analysis is based on a modern version of the Diamond and Dybvig (1983) framework in which a self-fulfilling run occurs at a non-trivial probability and banks lack commitment in determining the structure of liabilities as in Ennis and Keister (2010). I find that the possibility that the monopolistic bank may lose its rents in times of stress encourages it to be relatively illiquid. As a result, a monopoly is more stable (fragile) than perfect competition if the ex-ante probability of a financial crisis is below (above) some threshold. The last chapter examines the effects of bank failures and market concentration on credit market activity across United States. In particular, I employ a recent 17-year panel of all FDIC-insured commercial banks over the period 1994Q3 to 2010Q4 and construct state-specific measures of bank failures and deposit concentration. Using a seemingly unrelated regressions (SUR) model, I find that over the full sample, banks issued less loans if the likelihood of a bank failure in a given state increased. Further, banks in states with higher degrees of concentration also issued less loans. Interestingly, there appears evidence that market concentration serves as a buffer against instability.
Essays in applied spatial microeconomics
(University of Alabama Libraries, 2020) Herndon, James Dennis; Ross, Amanda; University of Alabama Tuscaloosa
In the first essay, I examine the price behavior of consumer goods in the strategically vital country of Pakistan. Results show that prices converge both temporally and spatially. A wage-adjusted Consumer Price Index shows that Pakistani cities have converging costs of living. Finally, a novel measure of cointegration ranks the most and least economically integrated cities. Divergence does not occur along provincial, linguistic, or ethnic boundaries. In the second essay, paper I examine private sector job growth in cities across the United States from 1990 to 2018. Defining “concentration” as a city’s sectoral Herfindahl-Hirschman Index, I find that cities with greater economic concentration subsequently experience more job growth than comparable cities with less concentration. However, the skewed distribution of job growth by sector means that cities face a trade-off between risk and reward analogous to an investment portfolio. In the third and final essay, we examine how changes in rainfall affect the persistence of conflict in Africa using fine-grained grid cell level data. Using Markov transition matrices, we examine the persistence of conflict in grid cells across the African continent and the likelihood of transitioning into and out of conflict. We incorporate the Markov probabilities into a panel logit model to analyze how monthly variations in rainfall affect the probability that an area transitions from peace to conflict. We find that peace is highly persistent across Africa, while violence is more transient. We also find that insufficient rainfall early in the wet season is associated with conflict in several regions.
International capital flows: implications for economic activity and monetary policy
(University of Alabama Libraries, 2020) Harrison, Andre; Reed, Robert; University of Alabama Tuscaloosa
In the early 2000’s, there were large swings in capital flows across countries due to a worldwide savings glut. How did it affect investment across countries? Did it have an impact on the transmission channels of monetary policy? Chapter 1 develops a micro founded model of money and banking based on liquidity risk in which the government of a developing country mobilizes the savings of its citizens to lend to advanced countries. In this regard, the effects of monetary policy across countries can be meaningfully studied. Notably, the implications for investment in the developing country depend on its government’s commitment to lending to the advanced world. Furthermore, the increase in foreign capital to the advanced economy is complementary to domestic investment in the advanced economy. The effects of monetary policy also depend on the level of commitment by the government in the poor country. Despite recent improvements in the developing world, many developing countries still receive capital inflows from advanced countries. Chapter 2 shows that this is important as banks in advanced countries channel funds from domestic savers to entrepreneurs. Consequently, there are crowding out effects when the advanced country funds foreign debt. In turn, the effectiveness of monetary policy is exacerbated to reflect these crowding out effects. Further, there are adverse effects of monetary policy in the advanced country on capital formation in the developing country as external debt increases. Chapter 3 employs a sign-identified structural vector autoregressive (SVAR) model to analyze the effects of various types of official capital inflows to the United States on economic activity and the Federal Reserve. In particular, a positive shock to foreign official holdings of Treasuries reduces the size of the Federal Reserve's balance sheet and has a negative impact on business loans. Consequently, there is no significant impact on real estate loans and economic activity. Finally, a positive shock to foreign official holdings of corporate debt lowers the Fed funds rate, treasury yields regardless of maturity and has a significant impact on bank lending and economic activity due to a lack of response from the Federal Reserve.
Three essays on the impact of demographic and environmental changes on home sales
(University of Alabama Libraries, 2020) Goodnature, Mia; Ross, Amanda; University of Alabama Tuscaloosa
Gentrification occurs when low-income areas transition into higher-income neighborhoods. Chapter 1 examines one possible driver of gentrification: the influx of same-sex couples into a community. Anecdotal evidence suggests that there is a relationship between same-sex couples and gentrification, but this could be because these couples sort into neighborhoods that are more likely to gentrify. To address the endogeneity problem, we employ an instrumental variables strategy using voting results for the state-level equivalent of the Defense of Marriage Act in Ohio as an instrument for the change in the number of same-sex couples. We find that areas with a higher change in the number of same-sex couples are more likely to experience gentrification. In addition, using semi-parametric techniques, we find there is a tipping point after which gentrification is more likely to occur. Overall, our results suggest that same-sex couples can initiate gentrification, but there is a threshold that has to be met for neighborhood change to be more likely to occur. These findings are important for policy makers because understanding the drivers of gentrification is crucial to designing effective policy to revitalize urban neighborhoods and address any problems attributed to gentrification. Chapter 2 identifies same-sex couple households who purchase homes together and evaluates the concentration of their residential location. We draw upon a novel data set of real estate transactions from Miami-Dade County, Florida; Franklin County, Ohio; and King County, Washington. We are able to separately identify male same-sex couple homebuyers and female same-sex couple homebuyers at the property level by predicting the homebuyers’ sex based on homebuyers’ full names. To show that the method suggested in this paper to identify members of the LGBTQ+ community is identifying same-sex couple homebuyers, we compare distributions from the Decennial Census and look at summary statistics of houses purchased by same-sex couples. As hurricane destruction has become more frequent and more dramatic, it is important to understand how communities respond to this damage. Chapter 3 explores how the selling price of houses responds to spillover effects of living near houses with hurricane-induced damages and repairs. These spillover effects are investigated in Punta Gorda, Florida, which was hit by Hurricane Charley, a Category 4 hurricane, in August 2004. Results indicate that house prices temporarily increase after the hurricane. Nearby damaged houses have no statistically significant effect. Nearby houses that were repaired to a larger square footage have a positive spillover effect while all other repaired houses, like those that do not increase their square footage, have a negative spillover effect on housing prices.
Industrial firm and household responses to energy price changes: evidence from energy subsidy reform in Iran
(University of Alabama Libraries, 2020) Hasani, Karim; Henderson, Daniel J.; University of Alabama Tuscaloosa
The rise in global average temperature due to greenhouse gas emissions is a serious international concern. Yet, one of the important barriers for clean energy transition in the world is the existence of energy subsidies. Consequently, examining how industrial and residential sectors in countries with heavily subsidized energy markets, like Iran, would respond to energy price reforms can shed light on developing more effective energy policies. In the first chapter, I discuss a broad range of related issues including the political economy behind the existence of high energy subsidies and the Targeted Subsidies Reform (TSF) conducted by Iran in 2010. Further, I review some of the most important studies on modelling energy demands. In the second chapter, I use a unique firm-level panel (2005-2011) and a translog cost system and estimate both price elasticities of demand and Morishima elasticities of substitution for Iranian manufacturing firms. The price elasticities show that labor is slightly more sensitive than capital to energy price reforms, but energy is more elastic than both. In addition, Morishima elasticities indicate the substitution of capital for energy, labor for energy, and capital for labor dominate the opposite directions. Finally, it is seen that firms exhibit heterogeneity in adjusting to energy price reforms according to labor structure and energy intensity. In the third chapter, I apply an Exact Affine Stone Index (EASI) implicit Marshallian demand system on Iranian Household Expenditure and Income Survey (HEIS) data on 10 commodity groups. I estimate the parameters of interest (elasticities, Engle curves, and welfare index) for 2008-2010 (before the subsidy reform) and 2011-2014 (after the subsidy reform). As household income level increases, the nature of energy changes from being normal to inferior. Further, the estimated nonlinear Engel curves for energy, furnishing, communication, and clothing exhibit the largest change between the two time periods. Finally, a simulated 90% increase in energy prices is estimated to be associated with an average of 4.7% rise in the cost of living before the reform and 2.6% afterwards.
Studies on behavioral decision making: theory and experimental evidence
(University of Alabama Libraries, 2020) Wu, Fan; Price, Mike; Jindapon, Paan; University of Alabama Tuscaloosa
My dissertation on behavioral decision making contains two independent chapters, both adopting the methodology of developing theoretical model, running parameterized simulations, and testing equilibrium predictions or hypotheses through experimental evidence. Through the independent applications of microeconomics theories in behavioral industrial organization and environmental economics, these two chapters have reached conclusions that inspire policy implications to mitigate real-world problems like holdup and climate change dilemma. Chapter 1 studies the effects of cancellation payment on the hold-up problem through parameterized modelling and lab experiment. Our experiment results conform to equilibrium predictions: setting the cancellation payment too low can lead to agents being held-up, resulting in inefficiently low investment; setting it sufficiently high can enhance the agent’s incentive and solve hold-up problem, but setting it too high could lead to the agent to invest inefficiently high, i.e. the reverse hold-up problem. Our study has policy implications that carefully designed cancellation clauses could be harnessed by policymakers and mechanism designers to achieve outcomes that maximize social welfare; Another takeaway from our experiment is learning effect, implying policymakers could expect a contract regime to become increasingly effective over time. Chapter 2 develops a novel framework and runs parameterized simulations to show how individual decisions, not unlike nations in climate policy-making and international negotiations, are determined in a scenario where the probability of climate catastrophe is ambiguous. Our calibration finds that: when players vary in their effectiveness of contribution and degree of ambiguity aversion, free-riding is predicted to happen. Our study has policy implications that strategic decision-makers need to be better educated about environmental uncertainty to elicit better cooperation, and the gaps between different players’ effectiveness of contributions also need to be closed towards that end. This paper also designs a lab experiment imitating international bargaining scenarios to test our theoretical predictions. The aim of our study is to develop and then test a model on individual’s decision making in their contribution to reduce the degree of ambiguity over a shared loss, just as in the scenario for nations to cut down carbon footprint to reduce the likelihood of catastrophic climate change on global scale.
Investigating executive traits and corporate actions
(University of Alabama Libraries, 2019) Zhang, Wenqiao; Kong, Lei; Mobbs, Shawn; University of Alabama Tuscaloosa
This dissertation includes three essays on executive traits and various corporate consequences. In the first essay, we document a unique type of CEOs who are not always selfish, that is, altruistic CEOs. Specifically, we find evidence that when faced with weak corporate governance, altruistic CEOs are less likely to initiate value-destroying acquisitions, where we construct altruistic CEOs using their personal donation records to charities. Furthermore, this difference between altruistic CEOs and their peers are stronger when corporate governance is weaker, indicating that not all CEOs are always self-interested. In addition to corporate takeovers, we show that altruistic CEOs are less likely to engage in corporate wrongful activities, resulting in fewer lawsuits against the firm, fewer earnings manipulations, and lower insider trading profits. We contribute to the standard agency theory by showing that managers are not universally self-interested and identify a possible measure to spot more selfless managers by using charitable donations. In the second essay, we find that firms managed by CEOs who make regular charitable donations have significantly higher CSR performance than those managed by CEOs who occasionally donate or never donate. To identify causation, we examine changes in firms’ CSR performance around exogenous CEO turnover events with a difference-in-difference approach. We find that when a non-routine-donor CEO or non-donor CEO is replaced by a routine donor CEO, the firm’s CSR performance improves. Also, using natural disasters as quasi-natural experiments that increase public awareness about CSR, we find firms managed by routine donor CEOs increase their firm’s CSR performance more than firms managed by non-routine-donor CEOs after the shocks. Our results are consistent with behavioral consistency theory which predicts that a CEO’s personal socially responsible behavior can predict his firm’s socially responsible engagement. Overall, we provide important new evidence on why firms engage in CSR and identify a new CEO characteristic that can predict such engagements. In the third essay, we investigate the relationship between the CEO and the CFO focusing on one of the visible cultural attributes, age. Substantial age dissimilarity between the two, giving rise to cognitive conflicts, increases the difficulty of communications and may destroy firm value. We measure this age dissimilarity using the age gap between the CEO and the CFO to investigate its correlation with the firm’s financial performance. We find evidence showing that firm performance is negatively correlated with this age gap. As the high-tech industries require more efficient and timely communications, the age gap effects are stronger for those firms. Further, when human capital is of more importance, that is, for younger firms, the age gap effects are also stronger. As an alternative to age-based analysis, we also analyze the effects of a generational gap between the CEO and the CFO. We find that firm value tends to be lower when the generational gap exists between the two.

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