Vijay Yerramilli
Associate Professor, Finance
C. T. Bauer College of Business
University of Houston

Contact information:
240D, Melcher Hall
University of Houston
Houston, TX 77584
Phone: (713) 743-2516
Fax: (713) 743-4789
email: vyerramilli@bauer.uh.edu

web: http://www.bauer.uh.edu/yerramilli
SSRN page: http://ssrn.com/author=328687




Vita: Click here



Publications:

"Debt Maturity Structure and Credit Quality" (with Radhakrishnan Gopalan and Fenghua Song)
Journal of Financial and Quantitative Analysis, Vol. 49 (4), pp. 817--842

"Market Efficiency, Managerial Compensation, and Real Efficiency" (with Rajdeep Singh)
Journal of Corporate Finance, 2014, Vol. 29, pp. 561--578

"Stronger Risk Controls, Lower Risk: Evidence from U.S. Bank Holding Companies" (with Andrew Ellul)
Journal of Finance, 2013, Vol. 68 (5), pp. 1757--1803
(Here's the Internet Appendix)

"Moral Hazard, Hold-up, and the Optimal Allocation of Control Rights"
RAND Journal of Economics, 2011, Vol. 42 (4), pp. 705--728

"Does poor performance damage the reputation of financial intermediaries? Evidence from the loan syndication market"
(with Radhakrishnan Gopalan and Vikram Nanda)
Journal of Finance, 2011, Vol. 66 (6), pp. 2083--2120

"Why do Firms Form New Banking Relationships?" (with Radhakrishnan Gopalan and Gregory F. Udell)
Journal of Financial and Quantitative Analysis, 2011, Vol. 46 (5), pp. 1335--1365

"Entrepreneurial Finance: Banks versus Venture Capital" (with Andrew Winton)
Journal of Financial Economics, 2008, Vol. 88 (1), pp. 51--79

"The effect of decimalization on the components of the bid-ask spread" (with Scott Gibson and Rajdeep Singh)
Journal of Financial Intermediation, 2003, Vol. 12, pp. 121--148



Completed Working Papers:

"How do Investors Accumulate Network Capital? Evidence from Angel Networks" (with Buvaneshwaran Venugopal)
Abstract: We use the angel investor market to examine the effect of performance on the network connectedness of individual angel investors. We collect data on start-ups and angel investors from CrunchBase (\url{www.crunchbase.com}), the largest crowd-sourced database on start-ups and investors, and AngelList (\url{www.angel.co}), the leading online fund-raising platform for start-ups. We find that angels that successfully lead a portfolio company to the next financing stage, especially from seed stage to series A stage, experience an increase in both the quantity and quality of their co-investment connections relative to their unsuccessful peers, and are rewarded with more new investment opportunities, both as lead investors and as participants. Success begets more success, making it more likely that other seed-stage portfolio companies of a successful angel also progress to the next financing stage. Finally, successful performance also expands the online followership of angels, and makes it more likely that their existing followers establish a new co-investment connection. Overall, our results highlight that reputation for good performance enhances the network capital of angel investors.

"Relative Values, Announcement Timing, and Shareholder Returns in Mergers and Acquisitions" (with Sangwon Lee)
Abstract: We examine the endogenous timing of M&A announcements in terms of the bidder's relative value (ratio of bidder's equity value to target's equity value) at which the deal is announced, and how it compares with the range of relative value during a 52-week reference window preceding the announcement. Accordingly, we create a normalized relative value (NRV) measure, which takes a higher (lower) value if the bidder's relative value at announcement is closer to its 52-week high (low). High-NRV deals are more likely to feature stock payment, have higher offer premium, are more likely to fail, and are associated with lower (higher) announcement returns for the bidding (target) firm. However, bidding (target) firms in high-NRV deals earn large positive (negative) abnormal returns in the period from one year before announcement to a day after announcement. Overall, our results are consistent with the misvaluation hypothesis of takeovers, and suggest that bidders strategically choose the timing of M&A announcements to exploit misvaluations.

"Optimal Financial and Operating Leverage with Real Options" (with Praveen Kumar)
Abstract: We analyze the optimal capacity investment (or operating leverage) and financial leverage policies with irreversible investment in the presence of financial distress and capacity expansion costs. In a loan market equilibrium with endogenous default, financial and operating leverage may either be substitutes or complements depending on the magnitude of expansion costs and whether the marginal tax rate exceeds marginal distress costs. Consequently, the relation of financial leverage and cash-flow uncertainty can be complex, consistent with empirical evidence. We generate novel predictions on the effects of financial and technological parameters on the cross-sectional variation in financial and operating leverage, and book-to-market.

"Lender Moral Hazard and Reputation in Originate-to-Distribute Markets" (with Andrew Winton)
Abstract: In a dynamic model of originate-to-distribute lending, we examine whether reputation concerns can incentivize a bank to monitor loans it has sold. Investors believe that banks with fewer recent loan defaults are more likely to monitor ("have higher reputation"). In equilibrium, banks monitor more and retain a smaller loan fraction when their reputations are high. Monitoring is harder to sustain in periods with uncommonly large spikes in loan demand ("booms"), especially for low-reputation banks, which are more likely to accommodate boom demand and forgo monitoring. Increased likelihood of facing a rival with reputation concerns also weakens monitoring incentives.

"Uncertainty, Capital Investment, and Risk Management" (with Hitesh Doshi and Praveen Kumar)
Abstract: We use forward-looking and exogenous measures of output price uncertainty to examine the effect of price uncertainty on firm-level capital investment, risk management, and debt issuance. The effects of uncertainty vary significantly by firm size. When faced with high price uncertainty, large firms increase their hedging intensity but do not lower capital investment or debt issuance. In contrast, small firms do not adjust their hedging intensity but significantly lower capital expenditure and debt issuance even after controlling for investment demand. Moreover, the negative effect of uncertainty on capital investment is significantly weaker for firms that hedge their output price risk. Our analysis highlights that high price uncertainty has significant dampening effects on capital investment of small firms by exacerbating their financial and hedging constraints.
(Here's the Internet Appendix)

"Do Bond Investors Price Tail Risk Exposures of Financial Institutions?" (with Sudheer Chava and Rohan Ganduri)
Abstract: We analyze whether bond investors price tail risk exposures of financial institutions using a comprehensive sample of bond issuances by U.S. financial institutions. Although primary bond yield spreads increase with an institutions' own tail risk (expected shortfall), systematic tail risk (marginal expected shortfall) of the institution doesn't affect its yields. The relationship between yield spreads and tail risk is significantly weaker for depository institutions, large institutions, government-sponsored entities, politically-connected institutions, and in periods following large-scale bailouts of financial institutions. Overall, our results suggest that implicit bailout guarantees of financial institutions can exacerbate moral hazard in bond markets and weaken market discipline.

"Insider Ownership and Shareholder Value: Evidence from New Project Announcements" (with Meghana Ayyagari and Radhakrishnan Gopalan)
Abstract: Most firms outside the U.S. have one or more controlling shareholders that manage multiple firms within a business group structure with very little direct cash flow rights. We employ a novel dataset of new capital investment projects announced by publicly-listed Indian firms to estimate the value implications of such complex ownership structures. Focusing on the market's assessment of the \emph{marginal value} of new projects enables us to overcome problems associated with employing average Tobin's q as a value measure. We find that the project announcement returns are significantly larger for projects of group firms with high insider holding as compared to projects of group firms with low insider holding. This effect is larger for projects that result in either the firm or the business group diversifying into a new industry, and for firms with high level of free cash flows. Our results obtain when we employ a matching estimator and when we instrument for the level of insider holding. Overall, our results are consistent with business group insiders expropriating outside shareholders by selectively housing more (less) valuable projects in firms with high (low) insider holding.




Other Links:

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Finance Department Seminar Series