Review of Finance

We're pleased to share that Review of Finance Volume 29, Issue 2, is now available. Here's what's inside: ?? What drives commodity price variation? – Meng Han, Lammertjan Dam, Walter Pohl ?? Corporate Governance, Meritocracy and Careers – Marco Pagano, Luca Picariello ?? Supervisory cooperation and regulatory arbitrage – Thorsten Beck, Consuelo Silva-Buston, Wolf Wagner ?? Bank Regulation, Investment, and Capital Requirements Under Adverse Selection – Thomas J. Rivera ?? A Good Sketch is Better than A Long Speech: Evaluate Delinquency Risk through Real-Time Video Analysis – Xiangyu Chang, Lili Dai, Lingbing Feng, Jianlei Han, Jing Shi, Bohui Zhang ?? Saving Externality: When Depositing Too Much Breaks the Bank – Agnese Leonello, Caterina Mendicino, Ettore Panetti, Davide Porcellacchia ?? How do corporate tax hikes affect investment allocation within multinationals? – Antonio De Vito, Martin Jacob, Dirk Schindler, Guosong Xu ?? Do salient climatic risks affect shareholder voting? – Eliezer M. Fich, Guosong Xu ?? Blockbuster or Bust? Silver Screen Effect and Stock Returns – Sanghyun Hong, Xiaopeng Wei ?? Correction to: Margin constraints and asset prices Find the digests on our website: https://lnkd.in/eg_ZW79u Or read the full issue: https://lnkd.in/e4K5u9u2 We’ll be posting summaries of these papers starting next week—follow us to stay updated!

'Supervisory cooperation and regulatory arbitrage' by Thorsten Beck, Consuelo Silva-Buston, and Wolf Wagner is now available in Issue 2 of Volume 29 of the Review of Finance. Abstract: "While bank supervisors frequently cooperate across countries, novel data on 268 cooperation agreements reveal that such cooperation falls short of covering the global operations of large banking groups. We show that this causes material regulatory arbitrage: banking groups allocate lending activities and risk into third-country subsidiaries when cooperation agreements cover their operations in other countries. The average distortion in a country’s foreign lending caused by regulatory arbitrage is 21 percent, with the effect being magnified in the presence of a weak supervisory framework. Taken together, our results indicate that incompleteness in cooperation substantially diminishes its global effectiveness.' Read the article: https://lnkd.in/eFG-UZgp

'Corporate Governance, Meritocracy and Careers' by Marco Pagano and Luca Picariello is now available in Review of Finance, Volume 29, Issue 2. Digest: "This paper explores the impact of corporate governance standards on firms’ hiring and promotion policies, focusing on meritocracy versus power retention by entrepreneurs. Effective corporate governance can influence firms to adopt meritocratic practices, promoting skilled employees based on merit rather than favoritism. This alignment between corporate governance and merit-based policies improves firm productivity and attracts high-skill workers, which benefits not only the individual firm but also the broader economy by enhancing workforce skill levels and job-market alignment. The authors propose a model in which entrepreneurs may choose non-meritocratic promotions to retain control, despite the cost of reduced efficiency and profitability. External financiers anticipate these costs and offer less favorable terms to firms that prioritize power retention over merit. Similarly, high-skill workers prefer meritocratic firms, as these companies provide better promotion and pay prospects. Consequently, firms that follow meritocratic principles are more likely to attract skilled labor, which increases both their individual productivity and overall market efficiency. The paper shows that the labor market features a unique sorting equilibrium, where skilled employees gravitate toward firms with strong corporate governance standards and merit-based advancement, while firms with weaker governance attract unskilled workers. The better are corporate governance standards, the greater is the number of firms with meritocratic promotions, and therefore the larger is the number of workers whose career advancement rests on merit. The evidence shown in Figure 1 is consistent with the model’s prediction that governance standards should correlate with meritocratic practices: in countries with strong corporate governance (as measured by the World Bank’s Protection Minority Investors score) firms prioritize merit in promotions (based on an index built from the WEF Global Competitiveness report). However, meritocratic promotion requires firms to offer higher incentive pay to motivate skilled managers, which can limit the profitability of merit-based promotions in the presence of severe agency problems. Offering incentive pay to skilled managers has an ambiguous effect on workers’ skill acquisition: higher pay upon promotion increases their incentives to acquire skills, but raises the cost of promoting skilled workers, thus reducing the fraction of meritocratic firms and thereby the promotion probability for skilled workers. As a result, the severity of managerial moral hazard may turn out to either increase or decrease the equilibrium fraction of skilled workers in the economy." Keep reading the digest: https://lnkd.in/eXQ8fDk7 Full article:https://lnkd.in/eMBpZXE6

'What drives commodity price variation?' by Meng Han, Lammertjan Dam and Walt Pohl is #EditorsChoice in Review of Finance, Volume 29, Issue 2. Digest: "In financial markets, price variation generally reflects variation in discount rates rather than in expected cash flows, a pattern observed in many asset markets. An open question is whether this logic applies to commodity markets. We show that commodity markets differ significantly from other asset markets. Commodity prices can still be viewed as reflecting the discounted value of future cash flows; however, prices strongly predict cash flows instead. This makes commodity prices much closer to the classical textbook view of price changes reflecting cash flow news. From the point of view of a consumer of a commodity, it may seem peculiar to talk about the role of discount rates versus cash flows. If you operate an airline, a barrel of oil is purely a one-time cash outlay, and the only question is whether to determine the price now or later (i.e. whether to buy it on the spot or futures market). However, for an investor, commodities play a different role. Investors can trade commodities in both spot and futures markets to profit from price differences. Spot and futures prices do not move together perfectly, and the difference can be a reflection of news about the profitability of investing in this market, or how heavily investors discount. Experience in other markets suggests that the discount rate should dominate. It does not. To explore this, we consider a trading strategy that turns a single commodity unit into an infinite series of cash flows. By repeatedly selling the unit and buying it again using futures contracts, the investor can collect the cash equivalent of net convenience yields. By net present value logic, the price of the commodity should equal the discounted sum of these yields, with price changes reflecting changes in expected yields, discount rates, or both. We then apply a linearized present value model to commodity prices, similar to the Campbell-Shiller decomposition used for stocks. For equities, this model can reveal whether price-dividend ratios vary to predict future returns, dividend growth, or bubbles. However, applying this model to commodities is challenging because net convenience yields, the commodity equivalent of dividends, can be negative, complicating the log-linearization. To address this, we use the neglog transformation to generalize the Campbell-Shiller framework for negative yields. This approach preserves the economic meaning of negative yields." Keep reading the digest: https://lnkd.in/eQq2sPvx Or dive into the full #OpenAccess article: https://lnkd.in/eb2bxRev #reviewoffinance #finance

The?EFA Doctoral Tutorial?(EFA-DT) is an annual EFA doctoral event intended for Finance students who are nearing completion of their PhD and about to enter the job market.?

Gentle reminder! Submission closes tomorrow.

Submission closes: March 15, 2025 at midnight Pacific time

Essential information aboutthe EFA Doctoral Tutorial ? Date: Wednesday, August 20, 2025 (note: we will host a supper the evening before the event, on Tuesday) ? Venue: SKEMA Business School, Paris ? Submission opens: February 15, 2025 ? Submission closes: March 15, 2025 at midnight Pacific time ? Notification: Early June 2025 Please note that this is a closed event. Only invited presenters and observers attend the event. Chairs: Esther Eiling, University of Amsterdam Kristian Miltersen, Copenhagen Business School Frans de Roon, Tilburg University Detailed information about the event and submission details are available on the EFA website:?https://lnkd.in/e8YQhcxe European Finance Association

We're pleased to welcome Olivier Darmouni, James Vickery, Ansgar Walther, and Michael Weber as Associate Editors at the Review of Finance. Their three-year terms begin on 1 March, and we look forward to their contributions to the journal.

Submission closes tomorrow Saturday February 1, 2025?at midnight Standard Pacific Time. https://lnkd.in/gPy9nq9a Members and friends of the European Finance Association (EFA) are invited to submit research papers for the 52nd?EFA Annual Meeting to be held on August 20-23, 2025 at SKEMA Business School in Paris, France. Papers on any finance topic are invited. Registration for the conference will open by May 1, 2025.?More information will be available closer to the date. Laurent Calvet EFA 2025 Program Chair SKEMA Business School Helen Bollaert Head of the Local Organizing Committee SKEMA Business School