Home » JEL Codes » G (Page 2)

Category Archives: G

Forecasting Corporate Bankruptcy: Applying Feature Selection Techniques to the Pre- and Post-Global Financial Crisis Environments

By Parker Levi   

I investigate the use of feature selection techniques to forecast corporate bankruptcy in the years before, during and after the global financial crisis. Feature selection is the process of selecting a subset of relevant features for use in model construction. While other empirical bankruptcy studies apply similar techniques, I focus specifically on the effect of the 2007-2009 global financial crisis. I conclude that the set of bankruptcy predictors shifts from accounting variables before the financial crisis to market variables during and after the financial crisis for one-year-ahead forecasts. These findings provide insight into the development of stricter lending standards in the financial markets that occurred as a result of the crisis. My analysis applies the Least Absolute Shrinkage and Selection Operator (LASSO) method as a variable selection technique and Principal Components Analysis (PCA) as a dimensionality reduction technique. In comparing each of these methods, I conclude that LASSO outperforms PCA in terms of prediction accuracy and offers more interpretable results.

View Thesis

View Data (Email for Access)

Advisors: Professor Andrew Patton, Professor Michelle Connolly | JEL Codes: G1, G01, G33

Private Equity Buyouts and Strategic Acquisitions: An Analysis of Capital Investment and the Timing of Takeovers in the United States

By Anthony Melita   

This paper investigates how motivational differences between agents who execute private equity buyouts and those who execute strategic (corporate) acquisitions may influence the timing of capital investment via takeovers. This paper synthesizes prominent merger theories to inform macroeconomic variables that may drive acquisitions. I find a significant negative expected effect of volatility on capital investment via takeover for each buyer type, a negative expected effect from valuation multiples on capital investment from PE buyouts, and a positive expected effect from debt capacity (EBITDA-CAPEX) on capital investment from PE buyouts.

View Thesis

View Data

Advisors: Professor Grace Kim | JEL Codes: G3, G34, G29

An Unequal Dream: The Mortgage Rate Premium Paid by Black Communities

By Michael Nicholson   

This paper analyzes loan pricing discrimination against predominantly black communities in U.S. mortgage markets. Building on previous literature, this paper posits that ceteris paribus predominantly black communities continue to face economically significant discrimination in mortgage pricing. Ultimately, this paper concludes that predominantly black communities face 10-14 basis points of pricing discrimination in mortgage loans which corresponds to 12.6-17.6% higher rate spreads. This estimation comes after accounting for geographic and lender effects, borrower quality, tract-level characteristics, and loan type. These results confirm past findings of pricing discrimination and illustrate yet another financial barrier for black households in this country.

View Thesis

Advisors: Professor Emma Rasiel, Professor Kent Kimbrough | JEL Codes: R2, J15, G21

Determining the Drivers of Acquisition Premiums in Leveraged Buyouts

By Peter Noonan   

This thesis analyzes factors that determine acquisition premiums paid by private equity firms in public to private leveraged buyouts. Building off of established literature that models the acquisition premiums paid in corporate mergers and acquisitions (M&A), this paper considers factors that influence a private equity firm’s willingness to pay (referred to as reservation price) and the bargaining power dynamic between a target company and acquirer in leveraged buyouts. Specifically, multivariable regression analysis is used to quantify the impact of a target company’s trading multiple, profitability, stock price as a percentage of its annual high, and number of competitors, a private equity firm’s deal approach and payment method, and the financial market’s 10-year US Treasury yield and high-yield interest rates at the time a transaction was announced. A sample of 320 public to private leveraged buyout transactions completed from 2000 to 2020 is constructed to perform this paper’s regression analysis. Using 2008 as an inflection point, this thesis then applies the same regression model to the subperiods from 2000–2008 and from 2009–2020 to examine how these drivers have changed as a result of industry trends—increased competition, low interest rates, and new value creation investment strategies—as well as the 2008 financial crisis and US presidential election—two crucial events that caused tremendous change in the financial system and intense scrutiny of the private equity industry. From the same original transaction screen, a second sample of 659 transactions is used to perform a difference of acquisition premium means t-test to analyze how the absolute magnitude of leverage buyout acquisition premiums have changed across these two subperiods. The second sample consists of more transactions due the t-tests less data-demanding nature as a result of its fewer variables. Results of this paper’s baseline model suggest that acquisition premiums are driven by a target company’s…

View Thesis

View Data

Advisors: Professor Ronald Leven, Professor Michelle Connolly | JEL Codes: G3, G11, G34

Investigating Underpricing in Venture-Backed IPOs Using Statistical Techniques

By Michael Tan   

This paper concerns applying statistical methods to investigate under-pricing in VC-backed technology Initial Public Offerings (IPOs) since the great recession. In particular, firm, market, and IPO-specific variables were explored to determine if there were any significant relationships to under-pricing. The paper focused on the Bank Preference theory of under-pricing, where under-pricing is said to occur because investment banks running IPO processes are incentivized to under-price to decrease the risk that they will not be able to allocate all the issuance to price-sensitive public markets investors.

View Thesis

Advisors: Professor Daniel Xu, Professor Shawn Santo, Professor Grace Kim| JEL Codes: G3, G33, G24

Where Did the Money Go? Impact of the ECB’s Corporate Sector Purchase Program on Eurozone Corporate Spending

By Tina Tian   

Slow corporate growth and a lack of corporate investment has plagued European markets for the past decade. As a response, the ECB began the Corporate Sector Purchase Program (CSPP) in 2016 to provide liquidity to corporate debt markets through bond purchases. Four years after the start of the program, this paper assesses its impact by looking at how companies spent this money on a micro level. In particular, it looks at the impact of long-term debt on five expenditures (fixed assets and R&D, cash balances, short-term debt, cash to shareholders, and share buybacks). We test these hypothesized expenditures based on financial statement panel data from a selection of European firms whose bonds were purchased by the ECB. The results show an increase in financial expenditures including cash balances and short-term debt and a decrease in productive investment expenditures such as fixed assets and R&D. This indicates a lack of efficacy of the corporate bond purchase program as excess liquidity provided by the ECB went towards eurozone companies refinancing existing debt rather than investing in growth ventures.

View Thesis

View Data

Advisors: Professor Connel Fullenkamp, Professor Kent Kimbrough | JEL Codes: G3, O16, E58

Investigating the Costs of Religious Observance: Cross-Country Analysis of Islamic Banking

By Myla Swallow and Richard Vargo

This study regresses key variables that influence the profitability of Conventional and Islamic banks as measured by Return on Average Assets, to determine the impact of Islamicity on the profitability of the banks in a given country. The study compares 36564 banks in 77 countries belonging to both Islamic and non-Islamic countries. We  find that Islamic banks have higher operating costs and overall experience lower return on average assets.

View Thesis

View Data (Email for Access)

Advisors: Professor Kent Kimbrough, Professor Michelle Connolly | JEL Codes: F30; G21; Z12

The Impact of Post-IPO Private Equity Ownership on Long-Term Company Performance

By Maria Suhail and Cipriano Echavarría

This thesis contributes to existing knowledge of private equity (PE) by analyzing the
impact of PE ownership post-IPO upon the long-term performance of companies. It considers whether companies perform better when PE funds maintain their ownership stakes post-IPO and whether this performance is also impacted by the degree of ownership that is maintained after IPO. This study uses stock performance (measured by cumulative excess stock returns) as a proxy for long-run company performance. The paper constructs and analyzes a sample of 487 companies that underwent an IPO between 2004 and 2012 to determine the implications of the maintenance and level of PE ownership by analyzing the performance of these companies for six years post-IPO. Results suggest that PE ownership post-IPO positively impacts long-term stock performance of companies. Duration and degree of PE ownership post-IPO are also important determinants of long-run performance likely due to the positive signal that continued PE ownership sends to outside investors about the quality of the company, the information asymmetry that exists between public and private markets and that PE firms are experienced managers that add value to companies.

View Thesis

Advisors: Professor David Robinson, Professor Michelle Connolly | JEL Codes: G11, G14, G24

Social Capital and Financial Development after Economic Shocks: Evidence from Italy after the Financial Crisis of 2007-2009

By Sujay Rao & Ethan Lampert

Like traditional forms of capital, social capital – an intangible measure of an individual’s social networks, trust in institutions, and participation in civic life – has implications for personal and financial behavior. Individuals from educated, well established backgrounds with fruitful family ties may be more amenable to opening new lines of credit or investing in stock markets due to their trust in and connectedness with society. But what happens after a major economic shock, such as the financial crisis of 2008? Using Italy as a case study and panel data from the Survey of Household Income and Wealth, we find that social capital has significant effects on an individual’s credit card usage, informal borrowing, and choice to invest in securities.

View Thesis

View Data

Advisors: Professor Grace Kim, Professor Michelle Connolly, Professor Giovanni Zanalda | JEL Codes: G01, G2, O1, D1, D14

Leverage and Varying Metrics of Firm Performance

By Preston Jiateng Huang

This paper sets out to examine the effect of leverage on company performance. Drawing on the methodology of key prior research, this study finds that leverage has a consistent negative effect on firm growth; by contrast, no such negative impact was found on return on equity. Importantly, such patterns hold throughout the entire period under study (1970-2017), during which several disruptive economic events have occurred. These results highlight the importance of selecting appropriate company performance measures when studying the effect of debt load on a firm as well as the misalignment of incentives for policymakers and company management. Other implications are also discussed.

View Thesis

Advisor: Professor Kyle Jurado | JEL Codes: G24; G31; G32

Questions?

Undergraduate Program Assistant
Matthew Eggleston
dus_asst@econ.duke.edu

Director of the Honors Program
Michelle P. Connolly
michelle.connolly@duke.edu