with Amrita Nain and Yi Hao
Abstract: We study the impact of political disagreement on investor disagreement. Using continuous, time-varying measures of ideological leanings of U.S. state legislators on the liberal-conservative scale, we show that greater political polarization in a state leads to greater dispersion in earnings forecasts of analysts located in that state. This effect is stronger for firms in politically sensitive industries and firms that commit significant resources to social issues. We document the importance of our finding for both asset pricing and corporate investments. Looking at the cross-section of returns, we show that stocks covered by more politically polarized analysts earn lower future returns. This finding is consistent with Miller's (1977) idea that in the presence of belief heterogeneity and short-sale constraints, prices reflect more optimistic valuations. In an M&A setting, we show that acquirers covered by more polarized analysts earn significantly lower announcement returns for equity offers but not for all-cash offers. These findings are consistent with models in which greater investor disagreement leads to steeper demand curves for stocks.
Presentations: 2024 Spring Finance Brown Bag Seminar*; 2024 Fall Finance Brown Bag Seminar; University of Texas at San Antonio*; 2025 Eastern Finance Association Annual Meeting; 2025 SFS Cavalcade North America 2025 (Scheduled)*; 2025 Silicon Prairie Finance Conference (Scheduled)
with Amrita Nain, Yasmine Nosair, and Jiajie Xu
Abstract: We study whether funding goes up for firms developing labor-saving automation patents facing COVID-induced labor supply shock. We look into different types of funding, including venture capital funding, corporate acquisitions, and government funding such as SBIR and SBA. Additionally, we examine whether VC experience matters in identifying the firms conducting labor-saving innovation as well as the value of such innovation. Employing a work-from-home suitability measure, we find that innovative firms that are shielded from the labor shock themselves and develop more labor-saving innovations attract more VC funding, particularly experienced VCs. We find no similar effects for corporate acquisitions and government funding.
Presentations: 2024 Spring Finance Brown Bag Seminar