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  3. 2022
  4. Preliminary Program
  5. Financial Certification, Competitive Strategy, and Innovation
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Financial Certification, Competitive Strategy, and Innovation

Paper Session

Friday, Jan. 7, 2022 12:15 PM - 2:15 PM (EST)

Hosted By: American Finance Association
  • Chairs:
    Eliezer M. Fich, Drexel University
  • William Gerken, University of Kentucky

Third Party Quality Certification in the Market for Financial Advice

William Gerken
,
University of Kentucky
Morteza Momeni
,
University of Kentucky

Abstract

We study third party quality certification in the market for financial advice. Using the Barron's Top Financial Advisors rankings from 2009 to 2020, we find evidence that being named a top advisor increases both client assets and number of accounts. These effects increase sharply around thresholds suggesting that clients value the certification and not solely the underlying quality of the advisor. Consistent with theoretical models of reputation in the financial advisory industry, we find that after obtaining this third-party certification, these advisors are less likely to engage in misconduct. We run tests that exploit within-individual variation, within-firm variation, and randomness around state-level cutoffs that suggest these effects are casual. The certification effects are larger for those with regulatory disclosures of past misconduct.

Strategic Similarity in Mergers and Acquisitions

Tina Oreski
,
Swiss Finance Institute and USI Lugano

Abstract

Using textual analysis and product life cycle to proxy for a company's competitive strategy, this paper empirically examines the strategic similarity hypothesis. The findings show that mergers and acquisitions deals are more likely between companies implementing the same strategy. Moreover, same strategy deals yield higher combined announcement returns, asset and sales growth. The effect is more pronounced in a highly competitive environment and within an industry, confirming that strategic misalignment acts as a constraint to the merged company's optimal response to investment opportunities and market threats. Overall, the results reveal that competitive strategy constitutes an important determinant of firms' investment decisions.

Crisis Innovation: Evidence from the Great Depression

Tania Babina
,
Columbia University
Asaf Bernstein
,
University of Colorado-Boulder
Filippo Mezzanotti
,
Northwestern University

Abstract

Using data on U.S. innovative activity spanning more than a century and a difference-in-difference design around the Great Depression, we document that innovation was surprisingly resilient to one of the largest financial crises in U.S. history. The areas harder hit by the financial fallout from the Great Depression experienced no decline in the overall quality of patents and saw a shift towards high impact innovation, despite a substantial and persistent decline in patenting by technological entrepreneurs. Moreover, we show that technological entrepreneurs reallocated into firms, which saw no short-run decline in patenting and increased their innovation over the long-run.

Discussant(s)
Andrey Golubov
,
University of Toronto
Paolo Volpin
,
City University of London
Jonathan M. Karpoff
,
University of Washington
JEL Classifications
  • G1 - Asset Markets and Pricing