Zicklin College of Business
One Bernard Baruch Way
New York, NY 10010
Institutional Affiliation: Baruch College
NBER Working Papers and Publications
|October 2019||Underwriter Certification, Issuer-Underwriter Matching, and SEO Performance|
with Charles W. Calomiris, Jaime F. Zender: w26344
The introduction of deal types for issues of seasoned equity in which the offer follows quickly after its announcement highlights the role of underwriter certification in the performance of SEOs. Controlling for the matching between underwriters and issuers, underwriter quality is positively related to the announcement effect in rapidly completed SEOs. For these deal types, we also find that the discount is significantly negatively related to underwriter quality. For fully marketed deals we are unable to detect any significant relation between SEO performance and underwriter quality. Issuers pay for the value provided by high-quality underwriters with higher fees.
|November 2016||Ambiguity and the Tradeoff Theory of Capital Structure|
with David Yermack, Jaime F. Zender: w22870
We examine the importance of ambiguity, or Knightian uncertainty, in the capital structure decision. We develop a static tradeoff theory model in which agents are both risk averse and ambiguity averse. The model confirms the usual idea that increased risk—the uncertainty over known possible outcomes—leads firms to use less leverage. Conversely, greater ambiguity—the uncertainty over the probabilities associated with the outcomes—leads firms to increase leverage. Using a theoretically motivated measure of ambiguity, our empirical analysis provides results consistent with these predictions.
|March 2014||Risk, Ambiguity, and the Exercise of Employee Stock Options|
with David Yermack: w19975
We investigate the importance of ambiguity, or Knightian uncertainty, in executives' decisions about when to exercise stock options. We develop an empirical estimate of ambiguity and include it in regression models alongside the more traditional measure of risk, equity volatility. We show that each variable has a statistically significant effect on the timing of option exercises, with volatility causing executives to hold their options longer in order to preserve remaining option value, and ambiguity increasing the tendency for executives to exercise early in response to risk aversion. Regression estimates for the volatility and ambiguity variables imply similar magnitudes of economic impact upon the exercise decision, with the volatility variable being about 2.5 times stronger.
Published: Yehuda Izhakian & David Yermack, 2017. "Risk, ambiguity, and the exercise of employee stock options," Journal of Financial Economics, vol 124(1), pages 65-85.