Ryan J. Whitby
Assistant Professor of Finance
Jon M. Huntsman School of Business
Utah State University
3565 Old Main Hill
Logan, UT 84322
Office: BUS 618
- Option Backdating and Board Interlocks with John Bizjak and Michael Lemmon, Review of Financial Studies, 2009, 22, 4821-4847.
We examine the role of board connections in explaining how the controversial practice of backdating employee stock options spread to a large number of firms across a wide range of industries. The increase in the likelihood that a firm begins to backdate stock options that can be explained by having a board member who is interlocked to a previously identified backdating firm is approximately one-third of the unconditional probability of backdating in our sample. Our analysis provides new insight into how boards function and the role that they play in providing managerial oversight and determining corporate strategy.
- Evidence of Motives and Market Reactions to Sale and Leasebacks with Kyle Wells, Journal of Applied Finance, 2011, 2, 1-14.
A sale and leaseback is an alternative to traditional financing in which the owner of an asset contracts to sell the asset and then to lease it from the buyer. This paper focuses on some of the motivations behind this decision. We find evidence supporting the primary theoretical reason for leasing, namely taxes. We also find evidence supporting liquidity needs and capital constraints as motivators. Results are mixed for financial distress and there is little support for asymmetric information motivations.
- Price Discovery in the Treasury-Bill When-Issued Market with Jeffrey M. Mercer, Mark E. Moore, and Drew B. Winters, Financial Review, 2013, 48, 1-24.
When-issued (i.e., forward) trading in T-bills yet to be auctioned provides a unique environment for examining price discovery. T-bills are auctioned in a sealed-bid process so participants in concurrent when-issued trading cannot observe a spot market price, yet the forward price ultimately must converge on the auction outcome price. While the evidence in this study indicates that traders in the when-issued market “discover” the ultimate auction price, little evidence is found showing that standard order flow variables contribute to price discovery. Instead, the ability to observe a few trades with relatively small volume in the when-issued market is sufficient to learn the ultimate auction price from the sealed-bid process.
- Market Responses to Sale-and-Leasebacks, Real Estate Finance, 2013, 29(6).
A sale-and-leaseback occurs when an asset that was previously purchased by a company is sold to a third party and then simultaneously leased back from the third party. Historically, the majority of sale-and-leaseback transactions have involved real estate. This paper examines the market response of publicly traded firms that announce a sale-and-leaseback transaction. Transactions are also separated by the type of asset, the declared motive, and the property type involved. The market responds more favorably to transactions involving real estate and especially to real estate associated with manufacturing, retail, and hotels. Furthermore, the market also responds more favorably to transactions motivated by debt reduction compared to alternative motives.
- REIT Momentum and Characteristic-Related REIT Returns with Paul R. Goebel, David M. Harrison, and Jeffrey M. Mercer, Journal of Real Estate Finance and Economics, Forthcoming.
Recent evidence confirms that in factor-model examinations of the cross- section of REIT returns, REIT momentum emerges as the dominant driver. Acknowledging the importance of momentum, the current study explores whether and how REIT return patterns are linked to the underlying characteristics of the REITs themselves, in the manner of Daniel and Titman’s (1997) characteristics model. Over the period 1993 through 2009, we find that after controlling for momentum, book-to- market, institutional ownership, and illiquidity are all strongly associated with REIT returns while size and analyst coverage are not. We further extend prior research by examining the influence of changes in interest rate cycles on REIT returns, and find that the characteristic-return relationships are heavily influenced by interest rates.
- Do Leases Expand Debt Capacity? (2013) with James Schallheim and Kyle Wells
Theoretically and empirically, debt and leases have been shown to be both substitutes and complements. To explore the relation, we divide our sample into two subsets: those that exhibit a complementary relation (43% increase debt after increasing leases), and those that exhibit a substitutionary relation (57% decrease debt after increasing leases). For complement firms, we find a significant negative relation between leasing and the firm’s size, marginal tax rate, and z-score, consistent with “complementary” theories. For substitute firms, we find a positive and significant relation between leasing, the marginal tax rate and changes in cash. We also find a significant positive stock market reaction to the announcement of the SLB, which is stronger for the complement subset of firms.
- Speculative Trading in REITs (2013) with Ben Blau
The role of speculative trading in markets is often debated. The recent extremes in the real estate economic cycle has created an ideal setting to investigate the role of speculative trading in the marketplace. Specifically, we focus on speculative trading in REITs during the recent boom and bust in real estate. While we find a strong relationship between speculative trading in REITs and the economic cycle, we do not find evidence that speculative trading is related to future returns. Increased speculative trading is apparent in REITs during the boom years, but the level of speculative trading in REITs is unrelated to the negative returns in REITs exhibited after the bust.
- Does it Pay to Have Fat Tails? Examining Kurtosis and the Cross-Section of Stock Returns (2013) with Ben Blau and Abdullah Masud
The recent financial turmoil in markets has been a reminder that stock returns tend to be leptokurtic, or have fait tails. The outcomes associated with a fat tailed distribution are similar to those of a distribution with a larger standard deviation or more risk. All else equal, investors should prefer less kurtosis to more kurtosis, given the same expected return. Thus, assets that increase the kurtosis of a portfolio are less desirable and should have higher expected returns. We find that the average stock has a leptokurtic distribution and that the kurtosis of a stock is negatively related to size and positively related to volatility and turnover. However, while the raw returns of stocks that have fatter tails is indicative of a kurtosis premium, once we control for size, fat tails do not appear to be priced.
- The Volatility of Bid-Ask Spreads (2013) with Ben Blau
This paper provides evidence that supports the original hypothesis of Chordia, Subrahmanyam, and Ashuman (2001) that greater variability in liquidity should lead to higher expected returns. While prior research has often found a negative relation between the volatility of liquidity and expected stock returns, we find that the volatility of the bid-ask spread is positively related to future returns. The average risk-adjusted return for stocks in the highest spread volatility quintile is around 1.7 percent per month, with returns from High-Low quintiles as high as 2.7 percent per month. Furthermore, the spread volatility premium is robust to a variety of multivariate tests that control for the market risk factor, SMB, HML, momentum, and illiquidity risk. Our findings provide support for the hypothesis that variability in liquidity affects expected returns and is an important component of illiquidity.
- The Information Content of Option Ratios (2013) with Ben Blau and Nga Nguyen
A broad stream of research shows that information flows into underlying stock prices through the options market. For instance, prior research shows that both the Put-Call Ratio (P/C) and the Option-to-Stock Volume Ratio (O/S) predict negative future stock returns. In this paper, we compare the level of information contained in these two commonly used option volume ratios. Our comparison of the return predictability contained in these ratios yields some new results. First, we find that P/C ratios contain more predictability about future stock returns at the daily level than O/S ratios. Second, in contrast to our first set of results, O/S ratios contain more predictability about future returns at the weekly and monthly levels than P/C ratios. In fact, our tests show that while P/C ratios contain predictability about future daily returns and, to some extent, future weekly returns, the return predictability in P/C ratios is fleeting. O/S ratios, on the other hand, significantly predict negative returns at both the weekly and monthly levels, respectively.
- Friends with Benefits (2013) with George Cashman, Stuart Gillan, and David Harrison.
Relationships play a central role across the spectrum of real estate deals. Whether negotiating prices, securing funding, or acquiring permits, knowing the right people provides multiple channels to facilitate deal making. To better understand the role of relationships in real estate markets, we examine how the connectedness of REIT directors is associated with deal making, growth, and profitability. We find strong evidence that REIT connections are positively associated with both deal making and accounting based measures of profitability, however, those relations do not translate into better market returns or higher valuations. One explanation of these somewhat contradictory results is that connections also increase firm risk. Preliminary support for this conjecture is found through our examination of each firm’s cost of equity capital, as connectedness is associated with higher cost of equity capital, which appears to offset some of the advantages associated with connectedness. Thus, connections appear to offer both advantages and disadvantages to REIT managers and shareholders.
- Expertise, Connections, and the Labor Market for Corporate Directors (2012) with George D. Cashman and Stuart L. Gillan
To better understand the role of individual directors on corporate boards, we examine how director attributes affect the likelihood of receiving additional board seats. We find evidence that general skills are valued in the director labor market, as individuals with an MBA, S&P 500 board experience, and more connections to other corporate boards are more likely to receive additional board seats. At the same time, replacement directors tend to have greater financial expertise and individuals with financial backgrounds are less likely to lose board seats. We also find evidence that who a director knows is more important than what they know in that connected directors, regardless of skill, are more likely to receive an additional appointment while highly skilled, unconnected directors are not. Additionally, we find that only director connections mitigate the negative consequences associated with serving on the board of firms that restate their financials.
- Gambling in the Options Market and the Stability of Underlying Stock Prices (2013) with Ben Blau and T. Boone Bowles
- Skewness, Price Convexity, and Short-Sale Constraints (2013) with Ben Blau and J. Michael Pinegar
- Examining the Efficiency of Commodity Index Exposure (2011) with Gerald Jensen and Jeffrey M. Mercer
The benefits of holding commodities in a diversified portfolio are well known. The most efficient method to add commodities to a portfolio, however, remains unclear. In this paper we explore whether benefits beyond those found in prior studies can be attained by disaggregating the GSCI index and allowing the individual constituent contracts to contribute to the asset allocation in a time varying manner. We also utilize an ex ante signal of changes in the interest rate and monetary policy environment to trigger tactical asset reallocations that could have been replicated historically in real time. These alternative weighting methods have clear benefits – up to a 19% difference in cumulative wealth in a diversified portfolio over a 35 year period.
Works In Progress
- Exploring Your Strategic Alternatives (with Josh Fairbanks, Yung-Yu Ma, and Michael Stegemoller)
- The Impact of Dynamic and Static Allocation Skill (with Jason C. Hsu, Vitali Kalesnik, and Brett Myers)
- Momentum Echoes in REITs (with Paul Goebel, David Harrison, and Jeffrey Mercer)
- Powerful Politicians, Political Connections, & Firm Performance (with Stuart Gillan and Brett Myers)
- Industry Regulation & Its Effects on Capital Structure (with Brett Myers)
- Price Efficiency in IPO Stocks (with Jack Cooney and Junyoup Lee)
- REIT Liquidity (with Ben Blau and Nga Nguyen)
- Transparency of Federal Reserve Lending Programs (with Ben Blau and Scott Hein)
- Dividend Valuation (with Keith Jakob)
- Speculative Trading, Market Liquidity, and the Efficiency of Stock Prices (with Ben Blau)