Corporate Finance II

Corporate Finance II

Session Chair: Henny Jung, The University of Melbourne
Ron Masulis, University of New South Wales
Jason Zein, University of New South Wales 

Depositing Corporate Payout

Leming LinUniversity of Pittsburgh

The past two decades have witnessed a sharp surge in corporate equity payout. The annual net equity payout of non-financial public companies in the U.S. averaged $525 billion (in 2010 dollars) per year from 2004 to 2019, compared to only $141 billion during the prior 17-year period. Using aggregate as well as county-level data, this paper shows that a significant amount of the net corporate payout flows into the banking sector in the form of deposits. The estimates suggest that the higher payouts since 2004 have contributed trillions of dollars of deposits to the banking sector. Estimation using bank level data shows that the inflow of deposits leads to a significant increase in bank loans, while having no significant effect on bank holdings of securities. The findings highlight the importance of considering the linkage of financial sectors and the flow of capital in the financial system, and suggest that policies aimed at restricting payouts may distort capital allocation by limiting capital flows from large and profitable corporations to small bank-dependent firms and households.

Political Attitudes, Partisanship, and Merger Activity

Ran Duchin, Boston College
Abed El Karim Farroukh, University of Washington
Jarrad Harford, University of Washington
Tarun PatelSouthern Methodist University

We demonstrate that similarity in employees’ political attitudes plays an important role in mergers and acquisitions. Using detailed data on employees’ campaign contributions to Democrats and Republicans, we find that firms are considerably more likely to announce and complete a merger when their political attitudes are closer. Furthermore, acquisition announcement returns and post-merger performance are higher when employees have more similar political attitudes. The effects are stronger when political polarization is greater, and when the target and acquirer plan to integrate operations. Overall, we provide new estimates that political attitudes and polarization affect the allocation of real assets.

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