The Journal of Finance

Offering versus Choice in 401(k) Plans: Equity Exposure and Number of Funds

Published: 03/09/2006   |   DOI: 10.1111/j.1540-6261.2006.00854.x

GUR HUBERMAN, WEI JIANG

Records of over half a million participants in more than 600 401(k) plans indicate that participants tend to allocate their contributions evenly across the funds they use, with the tendency weakening with the number of funds used. The number of funds used, typically between three and four, is not sensitive to the number of funds offered by the plans, which ranges from 4 to 59. A participant's propensity to allocate contributions to equity funds is not very sensitive to the fraction of equity funds among offered funds. The paper also comments on limitations on inferences from experiments and aggregate‐level data analysis.

Mutual Fund Holdings of Credit Default Swaps: Liquidity, Yield, and Risk

Published: 12/04/2020   |   DOI: 10.1111/jofi.12996

WEI JIANG, JITAO OU, ZHONGYAN ZHU

This study analyzes the motivations for and consequences of funds' credit default swap (CDS) investments using mutual funds' quarterly holdings from pre‐ to postfinancial crisis. Funds invest in CDS when facing unpredictable liquidity needs. Funds sell more in reference entities when the CDS is liquid relative to the underlying bonds and buy more when the CDS‐bond basis is more negative. To enhance yield, funds engage in negative basis trading and sell CDS with the highest spreads within rating categories, and with spreads higher than those of their bond portfolios. Funds with superior portfolio returns also demonstrate more skill in CDS trading.

The Real Effects of Financial Markets: The Impact of Prices on Takeovers

Published: 05/21/2012   |   DOI: 10.1111/j.1540-6261.2012.01738.x

ALEX EDMANS, ITAY GOLDSTEIN, WEI JIANG

Using mutual fund redemptions as an instrument for price changes, we identify a strong effect of market prices on takeover activity (the “trigger effect”). An interquartile decrease in valuation leads to a seven percentage point increase in acquisition likelihood, relative to a 6% unconditional takeover probability. Instrumentation addresses the fact that prices are endogenous and increase in anticipation of a takeover (the “anticipation effect”). Our results overturn prior literature that finds a weak relation between prices and takeovers without instrumentation. These findings imply that financial markets have real effects: They impose discipline on managers by triggering takeover threats.

Directors' Ownership in the U.S. Mutual Fund Industry

Published: 11/11/2008   |   DOI: 10.1111/j.1540-6261.2008.01410.x

QI CHEN, ITAY GOLDSTEIN, WEI JIANG

This paper empirically investigates directors' ownership in the mutual fund industry. Our results show that, contrary to anecdotal evidence, a significant portion of directors hold shares in the funds they oversee. Ownership patterns are broadly consistent with an optimal contracting equilibrium. That is, ownership is positively and significantly correlated with most variables that are predicted to indicate greater value from directors' monitoring. For example, directors' ownership is more prevalent in actively managed funds and in funds with lower institutional ownership. We also show considerable heterogeneity in ownership across fund families, suggesting family‐wide policies play an important role.

Influencing Control: Jawboning in Risk Arbitrage

Published: 08/09/2018   |   DOI: 10.1111/jofi.12721

WEI JIANG, TAO LI, DANQING MEI

In an “activist risk arbitrage,” a shareholder attempts to improve terms of an announced M&A through public campaigns. Activists target deals with low premiums and those susceptible to managerial conflicts of interest, including going‐private deals and deals in which CEOs receive outsized payments. Activist arbitrageurs are associated with a significant decrease in the probability that targets will be sold to the announced bidders, and an increase in the premium paid, both ex post among surviving deals and ex ante among all deals. Activist arbitrage serves as a governance mechanism in M&A and earns higher returns than passive arbitrage.

Hedge Funds and Chapter 11

Published: 03/27/2012   |   DOI: 10.1111/j.1540-6261.2012.01724.x

WEI JIANG, KAI LI, WEI WANG

This paper studies the presence of hedge funds in the Chapter 11 process and their effects on bankruptcy outcomes. Hedge funds strategically choose positions in the capital structure where their actions could have a bigger impact on value. Their presence, especially as unsecured creditors, helps balance power between the debtor and secured creditors. Their effect on the debtor manifests in higher probabilities of the latter's loss of exclusive rights to file reorganization plans, CEO turnover, and adoptions of key employee retention plan, while their effect on secured creditors manifests in higher probabilities of emergence and payoffs to junior claims.

A q$q$ Theory of Internal Capital Markets

Published: 02/24/2024   |   DOI: 10.1111/jofi.13318

MIN DAI, XAVIER GIROUD, WEI JIANG, NENG WANG

We propose a tractable model of dynamic investment, spinoffs, financing, and risk management for a multidivision firm facing costly external finance. Our analysis formalizes the following insights: (i) Within‐firm resource allocation is based not only on divisions' productivity, as in winner‐picking models, but also their risk; (ii) firms may voluntarily spin off productive divisions to increase liquidity; (iii) diversification can reduce firm value in low‐liquidity states, as it increases the spinoff cost and hampers liquidity management; (iv) corporate socialism makes liquidity less valuable; and (v) division investment is determined by the ratio between marginal q$q$ and marginal value of cash.

Hedge Fund Activism, Corporate Governance, and Firm Performance

Published: 07/19/2008   |   DOI: 10.1111/j.1540-6261.2008.01373.x

ALON BRAV, WEI JIANG, FRANK PARTNOY, RANDALL THOMAS

Using a large hand‐collected data set from 2001 to 2006, we find that activist hedge funds in the United States propose strategic, operational, and financial remedies and attain success or partial success in two‐thirds of the cases. Hedge funds seldom seek control and in most cases are nonconfrontational. The abnormal return around the announcement of activism is approximately 7%, with no reversal during the subsequent year. Target firms experience increases in payout, operating performance, and higher CEO turnover after activism. Our analysis provides important new evidence on the mechanisms and effects of informed shareholder monitoring.

Uncovering Hedge Fund Skill from the Portfolio Holdings They Hide

Published: 11/26/2012   |   DOI: 10.1111/jofi.12012

VIKAS AGARWAL, WEI JIANG, YUEHUA TANG, BAOZHONG YANG

This paper studies the “confidential holdings” of institutional investors, especially hedge funds, where the quarter‐end equity holdings are disclosed with a delay through amendments to Form 13F and are usually excluded from the standard databases. Funds managing large risky portfolios with nonconventional strategies seek confidentiality more frequently. Stocks in these holdings are disproportionately associated with information‐sensitive events or share characteristics indicating greater information asymmetry. Confidential holdings exhibit superior performance up to 12 months, and tend to take longer to build. Together the evidence supports private information and the associated price impact as the dominant motives for confidentiality.

Trading Against the Random Expiration of Private Information: A Natural Experiment

Published: 10/09/2019   |   DOI: 10.1111/jofi.12844

MOHAMMADREZA BOLANDNAZAR, ROBERT J. JACKSON, WEI JIANG, JOSHUA MITTS

For years, the Securities and Exchange Commission (SEC) accidentally distributed securities disclosures to some investors before the public. We exploit this setting, which is unique because the delay until public disclosure was exogenous and the private information window was well defined, to study informed trading with a random stopping time. Trading intensity and the pace at which prices incorporate information decrease with the expected delay until public release, but the relation between trading intensity and time elapsed varies with traders' learning process. Noise trading and relative information advantage play similar roles as in standard microstructure theories assuming a fixed time window.

What Explains Differences in Finance Research Productivity during the Pandemic?

Published: 04/13/2021   |   DOI: 10.1111/jofi.13028

BRAD M. BARBER, WEI JIANG, ADAIR MORSE, MANJU PURI, HEATHER TOOKES, INGRID M. WERNER

Based on a survey of American Finance Association members, we analyze how demographics, time allocation, production mechanisms, and institutional factors affect research production during the pandemic. Consistent with the literature, research productivity falls more for women and faculty with young children. Independently, and novel, extra time spent on teaching (much more likely for women) negatively affects research productivity. Also novel, concerns about feedback, isolation, and health have large negative research effects, which disproportionately affect junior faculty and PhD students. Finally, faculty who express greater concerns about employers’ finances report larger negative research effects and more concerns about feedback, isolation, and health.