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Cambridge Finance coordinates the programmes of research and study in all areas of finance across the University of Cambridge. Its members are grouped into seven research centres: 3CL, CCFin, CFR, CIMF, JBSF, REF, CFH and CEAM.
Updated: 37 min 48 sec ago

Thu 24 Feb 13:00: Board Diversity and Rare Disasters Risk Insurance

Tue, 25/01/2022 - 14:41
Board Diversity and Rare Disasters Risk Insurance

About 37% of Chinese listed firms have medical expertise, as measured by the existence of senior executives with a medical degree or medical-industry experience. Using the COVID -19 outbreak in China as a natural experiment, we find that stock returns of firms with medical expertise, excluding those within the healthcare and pharmaceutical industry, are significantly higher than firms without. This effect has a similar effect that financial variables such as leverage, short-term debt, and cash have on the stock price. The positive impact is more pronounced if a CEO or Chairman has medical expertise and if the firm is not state-owned, or when the firm is located in a place with higher infection rates or with fewer public health resources. To shed light on the underlying mechanisms, we also show that senior executives with medical backgrounds enable their firms to react strategically. They have a more conservative attitude toward the pandemic and advise their firms to hoard more cash. Overall, through disentangling macro shocks, this study underlines the importance of diversified executive human capital on firm performance. Even though this diversity does not seem to increase firm value in normal times, it has the potential to insure the firm against rare disaster risks.

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Thu 27 Jan 13:00: Monitoring Secretive Startups

Thu, 13/01/2022 - 12:58
Monitoring Secretive Startups

This article examines the mechanisms used by venture capitalists (VCs) to monitor their investments in startups that use trade secrets to protect their intellectual property (IP). First, we confirm that, after startups are afforded stronger trade secrets protection by the adoption of the Uniform Trade Secrets Act (UTSA), they reduce their reliance on patents. Next, we investigate how VCs respond, finding that they decrease both the duration of financing rounds and the overall amount invested per round, especially for startups located the furthest distance away. Finally, we consider how these collective changes affect the exiting process, finding that the likelihood of a successful exit through either an initial public offering (IPO) or merger or acquisition (M&A) is unchanged, but that, within successful M&A exits, the likelihood that the acquirer is private increases. Overall, our findings suggest that VCs work harder to monitor startups that use trade secrets and that this increased effort is necessary to maintain similar likelihoods of successful exiting.

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Thu 27 Jan 13:00: Monitoring Secretive Startups

Thu, 02/12/2021 - 10:21
Monitoring Secretive Startups

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Thu 16 Jun 13:00: Title to be confirmed

Fri, 15/10/2021 - 14:19
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Thu 09 Jun 13:00: Title to be confirmed

Fri, 15/10/2021 - 14:15
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Thu 19 May 13:00: Title to be confirmed

Fri, 15/10/2021 - 14:12
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Thu 05 May 13:00: Title to be confirmed

Fri, 15/10/2021 - 14:09
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Thu 24 Feb 13:00: Title to be confirmed

Fri, 15/10/2021 - 13:56
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Thu 10 Feb 13:00: Strategic Default and Renegotiation: Evidence from Commercial Real Estate Loans

Wed, 13/10/2021 - 15:45
Strategic Default and Renegotiation: Evidence from Commercial Real Estate Loans

We study strategic default in commercial real estate loans in a setting where the borrowers hold multiple such loans and the borrower cash flow is disclosed. We find that the majority of delinquent loans are held by borrowers that continue to meet their debt obligations in their other mortgages and that also have cash flow to meet their delinquent obligations. The pervasiveness of strategic defaults is robust to alternative ways to identify them. Loans in their final year, interest-only loans, and loans with high Current Loan-to-Value are more likely to be subject to strategic default. Our IV analysis reflects that strategically defaulted borrowers are also more likely to have their loans restructured.

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Thu 11 Nov 13:00: Pi-CAPM: The Classical CAPM with Probability Weighting and Skewed Assets

Wed, 13/10/2021 - 15:34
Pi-CAPM: The Classical CAPM with Probability Weighting and Skewed Assets

We study asset prices in a generalized mean-variance framework that allows for probability weighting (the idea that investors overweight rare, high impact events). The resulting model – the Pi-CAPM – allows for a unique and homogeneous pricing equilibrium with skewed and correlated assets and a tractable analysis thereof. We find that even symmetric probability weighting has asymmetric pricing implications. For example, the price impact of volatility is skewness-dependent, negative for left-skewed assets but potentially positive for right-skewed assets. We further find that probability weighting translates into an exaggerated dependence between the assets. Finally, we make an empirical contribution and show that the option-implied premiums on variance and skewness depend on the underlying asset’s skewness, in the very way that is predicted by the Pi-CAPM.

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Thu 10 Feb 13:00: Title to be confirmed

Wed, 13/10/2021 - 12:25
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Thu 27 Jan 13:00: Title to be confirmed

Wed, 13/10/2021 - 12:17
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Thu 25 Nov 13:00: Harnessing the Overconfidence of the Crowd: A Theory of SPACs

Wed, 13/10/2021 - 10:59
Harnessing the Overconfidence of the Crowd: A Theory of SPACs

We provide a theory of Special Purpose Acquisition Companies, or SPA Cs. A sponsor raises financing for a new opportunity from a group of investors with differing ability to process information. We show that when all investors are rational, the sponsor prefers to issue straight equity. However, when sufficiently many investors are overconfident about their ability to process information, the sponsor prefers to issue units with redeemable shares and rights. The model matches many empirical features, including the difference in returns for short-term and long-term investors and the overall underperformance of SPA Cs. We also evaluate the impact of policy interventions, such as greater mandatory disclosure and transparency, limiting investor access, and restricting the rights offered.

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Thu 10 Feb 13:00: Title to be confirmed

Wed, 13/10/2021 - 10:44
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Thu 24 Feb 13:00: Title to be confirmed

Wed, 13/10/2021 - 10:44
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Thu 10 Mar 13:00: Title to be confirmed

Wed, 13/10/2021 - 10:44
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Thu 05 May 13:00: Title to be confirmed

Wed, 13/10/2021 - 10:44
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Thu 19 May 13:00: Title to be confirmed

Wed, 13/10/2021 - 10:44
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Thu 09 Jun 13:00: Title to be confirmed

Wed, 13/10/2021 - 10:44
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Thu 16 Jun 13:00: Title to be confirmed

Wed, 13/10/2021 - 10:44
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