This study seeks to determine whether the process of mortgage finance liberalization, manifested in concurrent activities of securitization, deregulation, and neo-liberal policy, have resulted in changes to the tenure of residents in neighborhoods in Tampa Bay. It makes use of existing literature on gentrification and mortgage finance and compares those findings with three sample neighborhoods in and around the city of Tampa. To do so the thesis employs data collected from lenders pursuant to the Home Mortgage Disclosure Act, court records of sales and mortgages filed with the Clerk of the Circuit Court of Hillsborough County, and interviews with stakeholders such as community leaders, activists, residents and those involved in the lending industry. It was discovered that the sample neighborhoods largely conform to expectations about the general pattern of investment of mortgage dollars in core, peripheral, and semi-peripheral neighborhoods. Close analysis indicates that the liberalization of the mortgage process clearly increased the frequency of resident turnover, thus reducing the tenure of residents in each neighborhood to varying degrees. Neighborhoods where traditional, deposit oriented, banks and thrifts dominated the lending market saw a lower tendency for the rapid churning of housing and thus can be expected to possess a lower turnover in residents, fewer examples of foreclosure, and a greater level of wealth accumulation for the homeowner.

I find evidence of predictability in out-of-sample data for four risk premia using simple econometric models. Two factor return models are used, an APT model and the Wilshire Atlas. I demonstrate that investors can exploit conditioning information to manage their exposures to risk factors. The results suggest that the investment opportunities set changes in a large and an economically significant way. I show that the growth rate in money supply and trend in stock market valuations are the main drivers respectfully of the risk premia associated with the Book-to-Market and Size factors from the Wilshire model. The predictability results are mixed with respect to Business Cycle Theory. At times investors price business cycle risk while at other times they exhibit herding tendencies.

The first essay examines cross-sectional differences between money market mutual funds (MMMFs), in the context of the sponsoring fund family. While extant studies have shown that fund family characteristics impact the management of open-end equity mutual funds, results of this study’s analysis find that fund family characteristics also affect the management of MMMF assets, contributing to differences in the maturity of the fund’s holdings, expenses, and realized returns. I find that an MMMF is not simply a transitional account with a short-term low-risk investment objective, but rather, a critical role player within the fund family. Differences in maturity, yield, and expenses in MMMFs can be explained by family-specific characteristics, including diversification and cash management strategies at the family level. The second essay examines implications of substitutability of two similar financial assets: conventional index mutual funds and exchange traded funds (ETFs). I seek to explain the coexistence of these fund types, since both offer a claim on the same underlying index return process, but have different organizational structures. This study compares conventional open-end index funds with matched ETFs on various underlying indexes. Aggregate flows are used to detect substitution and clientele effects. I show that conventional funds and ETFs are substitutes, while ETFs have smaller tracking errors and lower fund expenses. However, I find that these fund types are not perfect substitutes, and their coexistence can be explained by a clientele effect that segregates them into different market niches.

ABSTRACT TWO ESSAYS ON MANAGERIAL BEHAVIORS IN THE MUTUAL FUND INDUSTRY LENG LING ESSAY 1: DOES MUTUAL FUND WINDOW-DRESSING PROMOTE FUND FLOWS? I investigate the effectiveness of window-dressing as a potential strategy to be used by mutual fund managers to promote fund flows. Using a rank gap measure as a proxy for the likelihood that window-dressing has occurred, I find that fund investors as whole punish those managers who are suspected to have engaged in window-dressing. That is, I find a negative relation between the window-dressing measure and net fund flows in subsequent quarters after controlling for fund performance, size, expense ratio, and other pertinent characteristics. I also find that window-dressing leads to higher trading activities and lower fund performance. ESSAY 2: A LIFE CYCLE ANALYSIS OF PERFORMANCE AND GROWTH IN U.S. MUTUAL FUNDS I propose a five-stage growth model to describe the life cycle evolution of mutual funds and show that mutual funds exhibit distinctive performance, size, expense ratios, asset turnover, and other pertinent characteristics through stages of incubation, high-growth, low-growth, maturity, and decline. I also investigate the viability of managerial strategies to affect a fund’s life cycle evolution and find that changing a declining fund’s investment objective is effective in rejuvenating asset growth and thus repositioning the fund to younger life cycle stages. However, the strategy of adding portfolio managers appears to have no such rejuvenation effect.

This paper proposes that managerial incentive compensation affects the firm choice between public and bank debt. To motivate the case I analyze a simple model with complete and perfect information that implies a positive relation between managers’ incentive compensation and preference toward bank debt. Using firm-level data over the period 1992-2005, I empirically examine the relation between managerial incentives and financing decisions. Specifically, I examine whether managers whose compensation is tied to firm performance choose bank over public debt as a commitment mechanism to reduce the cost of debt. Consistent with a monitoring role of banks, I find that the probability of choosing bank over public debt is positively related to the level of incentive compensation. Further, I find that public lenders price the incentive alignment between manager and shareholders by increasing the cost of debt, while the overall cost of bank loan does not depend on the manager’s incentive compensation. Finally, I find that banks are more likely to include a collateral provision in the debt contract if the manager’s compensation is tied to firm performance.

I propose that CEO employment history is an observable characteristic that reveals the CEO’s unobservable risk-taking preferences. I hypothesize that CEOs that change employers more frequently (mobile CEOs) have a propensity to bear risk and implement riskier firm policies. Using a sample of S&P 1500 CEOs, I find that firms are more likely to hire mobile CEOs when the firm’s prior risk is high, firm-specific human capital is less important, the prior CEO turnover is forced, the prior CEO has a shorter tenure and the board is smaller and has fewer insiders. Mobile CEOs increase financial leverage, invest more in advertising and less in capital expenditures, and increase firm-specific risk. Mobile CEOs invest more (less) in R&D in homogenous (heterogeneous) industries where firm-specific knowledge is less (more) important in making investment decisions. Shareholders react positively to appointments of CEOs who change employers more frequently. I find no difference in long-run accounting performance for CEOs with different employment histories. Firms’ annual stock returns and sales growth are higher for CEOs who change employers more frequently. The cost of debt increases after the firm appoints a mobile CEO. These findings suggest that lower CEO risk aversion and the potential risk-shifting from shareholders to bondholders are sources of shareholder value increases. In sum, my findings provide evidence that CEO employment history is an observable characteristic that reveals the risk-taking preference of the CEO.

This paper investigates the effect of correlation and volatilities of firm and project cash flows on the choice of project finance. I use a pure-play approach to measure unobservable project cash flows for a sample of 440 US and non-US firms that invested in 577 projects from 1990 to 2008 and find evidence that the probability of project finance is increasing in cash flow volatility difference between firm and project cash flows. The likelihood of the project finance is greater when volatilities are different and the correlation between firm and project cash flows is high. I also find that firms are likely to choose corporate finance for low correlation and low and similar volatilities between firm and project cash flows. This empirical work is consistent with the theoretical predictions in Leland (2007) that provides a potential explanation for the existence of project finance based on financial synergies.

Target-Date Funds (TDFs) facilitate retirement planning by varying asset allocation over time with the goal of reducing portfolio risk. We explore potential agency problems in TDFs by examining their return performance and flow-performance relation. We find that TDFs under-perform balanced funds (BFs) which are also approved as a default option along with TDFs in 401(k) plans with automatic enrollment. We show that the under-performance is driven by TDFs that have a fund-of-fund structure and constituent funds with high expense ratios or poor performance within the fund family. Additionally, we discover an absence of flow-performance relation in TDFs while BFs exhibit the convex flow-performance relation shown for mutual funds. Our evidence suggests the presence of agency problems in TDFs arising from investor inertia, weak incentives for fund managers to outperform peers, and opportunities for fund families to gain private benefits.

In this paper, I discuss the importance of internal funds for corporate investment among financially constrained firms. I use the paper ‘Financing Constraints and Corporate Investments’ by Fazzari, Hubbard and Petersen.as a base for my framework. I focus on a specific paper refuting their findings and their response in order to fully understand the benefits and costs of the framework. I then apply the original framework to a recent sample that covers the Great Recession to see the results of the initial paper are still valid today and if the recent recession and elongated recovery had an even more adverse effect on financially constrained firms than was previously noted.

Using historical firm financial and insider trading information, this paper examines whether high-level insiders manipulate earnings ahead of their own 10b5-1 equity transactions. The empirical evidence suggests that high-level executives appear to manipulate earnings through real activities such as abnormal discretionary expenditures and abnormal cash flows from operations to influence equity prices ahead of their own transactions under Rule 10b5-1. Evidence also suggests that executives appear to be unlikely to engage in earnings management through highly scrutinized means such as accruals. An interpretation of these results is that high-level executives may be using 10b5-1 plans as an offensive tool to trade with the knowledge of inside information, which appears to be in direct opposition to the defensive mechanism that 10b5-1 plans are intended to represent.