Cesare Fracassi

Assistant Professor of Finance


McCombs School of Business

The University of Texas at Austin

Finance Department

2110 Speedway Stop B6600

Austin, TX, 78712

(map it)


E-mail: cesare.fracassi@mccombs.utexas.edu

Office: GSB 5.165

Work phone: 512-232-6843

Fax: 512-471-5073


Curriculum Vitae (pdf)




Published Papers


         External Networking and Internal Firm Governance [2012] with Geoffrey Tate. The Journal of Finance, Vol. 67 Issue 1 pp. 153-194

We use panel data on S&P 1500 companies to identify external network connections between directors and CEOs. We find that firms with more powerful CEOs are more likely to appoint directors with ties to the CEO. Using changes in board composition due to director death and retirement for identification, we find that CEO-director ties reduce firm value, particularly in the absence of other governance mechanisms to substitute for board oversight. We also find that firms with more CEO-director ties engage in more value-destroying acquisitions. Overall, our results suggest that network ties with the CEO weaken the intensity of board monitoring.

Online Appendix

         Lost In Translation? The Effect of Cultural Values on Mergers Around the World [2015] with Kenneth R. Ahern and Daniele Daminelli Journal of Financial Economics, 2015, Vol. 117 Issue 1 pp. 165-189. Winner of the CEG Research Prize in Corporate Finance at the Finance Down Under Conference

We find strong evidence that three key dimensions of national culture (trust, hierarchy, and individualism) affect merger volume and synergy gains. The volume of cross-border mergers is lower when countries are more culturally distant. In addition, greater cultural distance in trust and individualism leads to lower combined announcement returns. These findings are robust to year and country-level fixed effects, time-varying country-pair and deal-level variables, as well as instrumental variables for cultural differences based on genetic and somatic differences. The results are the first large-scale evidence that cultural differences have substantial impacts on multiple aspects of cross-border mergers.

Online Appendix


         Shopping for Information? Diversification and the Network of Industries  [2015] with Fernando Anjos Management Science Vol. 61 Issue 1 pp 161-183

We propose and test a view of corporate diversification as a strategy that exploits internal information markets, by bringing together information that is scattered across the economy. First, we construct an inter-industry network using input-output data, to proxy for the economy's information structure. Second, we introduce a new measure of conglomerate informational advantage, named "excess centrality", which captures how much more central conglomerates are relative to specialized firms operating in the same industries. We find that high-excess-centrality conglomerates have greater value, and produce more and better patents. Consistent with the internal-information-markets view, we also show that excess centrality has a greater effect in industries covered by fewer analysts and in industries where soft information is important.

Online Appendix


         Business Microloans for U.S. Subprime Borrowers  [May 2015] with Mark J. Garmaise, Shimon Kogan, and Gabriel Natividad Forthcoming on the Journal of Financial and Quantitative Analysis

We show that business microloans to U.S. subprime borrowers have a very large impact on subsequent firm success. Using data on startup loan applicants from a lender that employed an automated algorithm in its application review, we implement a regression discontinuity design assessing the causal impact of receiving a loan on firms. Startups receiving funding are dramatically more likely to survive, enjoy higher revenues and create more jobs. Loans are more consequential for survival among subprime business owners with more education and less managerial experience. 


         Does Rating Analyst Subjectivity Affect Corporate Debt Pricing? [June 2015] with Stefan Petry and Geoffrey Tate. - Forthcoming at the Journal of Financial Economics.

We find evidence of systematic optimism and pessimism among credit analysts, comparing contemporaneous ratings of the same firm across rating agencies. These differences in perspectives carry through to debt prices and negatively predict future changes in credit spreads, consistent with mispricing. Moreover, the pricing effects are the largest among firms that are the most opaque, likely exacerbating financing constraints. We find that MBAs provide higher quality ratings; however, optimism increases and accuracy decreases with tenure covering the firm. Our analysis demonstrates the role analysts play in shaping investor expectations and its effect on corporate debt markets.

Online Appendix


Working Papers


         Technological Specialization and the Decline of Diversified Firms [May 2015] with Fernando Anjos

We document a strong decline in corporate-diversification activity since the late 1970's, and we develop a dynamic model that explains this pattern, both qualitatively and quantitatively. The key feature of the model is that synergies endogenously decline with technological specialization, leading to fewer diversified firms in equilibrium. The model further predicts that segments inside a conglomerate should become more related over time, which is consistent with the data. Finally, the calibrated model also matches other empirical magnitudes well: output growth rate, market-to-book ratios, diversification discount, frequency and returns of diversifying mergers, and frequency of refocusing activity.


         Corporate Finance Policies and Social Networks [Apr 2014] Revise and Resubmit at the Journal of Financial and Quantitative Analysis

This paper shows that managers are influenced by their social peers when making corporate policy decisions. Using a matrix of social ties from current and past employment, education, and other activities for US executives and directors, we find that more social connections two companies share with each other, more similar their capital investments are. To address endogeneity concerns, we find that two companies invest less similarly when an individual connecting them dies. The results extend to other corporate finance policies. Furthermore, companies positioned centrally in the social network invest in a less idiosyncratic way, and exhibit better economic performance.

Online Appendix


         Stock Price Sensitivity to Dividend Changes [July 2008]

This paper examines the sensitivity of stock prices to dividend changes. The Dividend Signaling, Free-Cash-Flow, Maturity and Catering Hypotheses all predict an average positive (negative) reaction to announcement of a dividend increase (decrease). However, these hypotheses have different cross-sectional predictions. This paper documents that the positive stock price response to dividend increases is due primarily to the signaling of higher future earnings, to the managers catering to the time-varying premium assigned by the market to dividend paying stocks, and partially to the reduction of agency problems. By contrast, the negative price response to dividend decreases is mainly due to the transition from a mature life-cycle stage to a decline stage with higher systematic risk, as maintained by the Maturity Hypothesis.





         Empirical Corporate Finance PhD FIN 395 Spring 2015

         Valuation MBA FIN 286 Spring 2015/Fall 2013/Spring 2012/Fall 2010/Spring 2010

         Valuation MBA FNCE 728 (Wharton) Fall 2012

         Financial Planning for Large Corporations Undergraduate FIN 374C - Fall 2010