Veranstaltungsprogramm der VHB Jahrestagung

We investigate the impact of textual disclosures’ quality and quantity, measured as the share of boilerplate language, the linguistic complexity, and the disclosure length, on investors’ security pricing at issuance. Exploiting an extensive data set of over 1,000 issuance prospectuses covering all ABS transactions under the European Central Bank’s loan-level reporting initiative, we show that the prospectuses’ quality and quantity substantially affect investors’ pricing beyond all observable risk factors. Investors demand an economically significant lower yield spread if the share of boilerplate language increases, while longer prospectuses lead to higher spreads. We provide three mechanisms for our results: presumed default risk, level of information asymmetry, and visualizations supplementing the prospectus. Investors’ risk assessment is weakened because the resulting prices are less predictive of future security performance. We show empirically that these results are not driven by information on performance or deal complexity being potentially included in the textual disclosure measures. Recent EU regulations aiming at addressing these problems have homogenized the quality and quantity of textual disclosure in ABS prospectuses. Our results have important implications for market participants and regulators alike, placing the quality and quantity of textual disclosure in prospectuses high on their agenda.

We examine how division managers’ human capital affects internal capital allocation using a hand-collected and comprehensive data set of divisional managers at S&P 1,500 firms. Based on a novel measure of division-manager ability, we show that more able division managers receive substantially larger capital allocations than do their less able peers. This effect is robust to controlling for the possibility of assortative matching and more pronounced for firms with better governance. Firms not only allocate more capital to higher-ability managers, but also appoint them to relatively larger divisions, suggesting that firms entrust them with larger allocations, both in relative and absolute terms. Finally, we find that the allocation of extra capital to higher-ability managers creates value at the firm level. Taken together, these results correspond to efficient fund transfers to high-productivity managers and provide support for a largely unexplored bright side of internal capital markets.

We study the contagion effects of high-yield bond defaults via common auditors, rating agencies, underwriters, and exchange listings. A bond event study of 53 defaults between 2012 and 2019 among all German small and medium enterprise bonds shows significant negative price reactions for non-defaulted bonds with a common rating agency or underwriter as the defaulted bond. Regressing abnormal returns on possible determinants corroborates the effect of common rating agencies but not for common underwriters. It additionally reveals an effect of common exchanges. Effects of common rating agencies and exchanges are concentrated in respective market leaders among those intermediaries. Finally, we find some evidence consistent with stronger effects when bonds use more intermediary reputation.