The 251^st Wenlan Financial Forum

Abstract:
We show that conflicts of interest between shareholders and creditors affect stock prices through limits to arbitrage and short sales constraints. We use financial institution mergers as exogenous variation in the presence of dual holders -- institutions that hold equity and debt of the same firm -- to study how conflicts of interest impact asset prices. Firms with lower conflicts of interests exhibit higher equity lending supply, lower short sale constraints, and more efficient and less overvalued stock prices. Firms with more dual holders are also less likely to recall loaned shares prior to shareholder meetings. Our findings suggest that agency problems due to shareholder-creditor conflicts have a real impact on market efficiency and asset prices.

Speaker Introduction:
Yongqiang Chu, Childress-Klein Chair Professor at the Belk School of Business, University of North Carolina at Charlotte, Director of the Childress-Klein Center for Real Estate. His research interests include banking, real estate finance and financial institutions and related fields. He has published more than 30 articles in Journal of Finance, Review of Financial Studies, Journal of Financial Economics, Management Science, Journal of Financial and Quantitative Analysis, Journal of Financial Intermediation, Journal of Corporate Finance, Quarterly Journal of Finance, Journal of Real Estate Finance and Economics, and other top international journals.