Jonathan B. Cohn

 

Assistant Professor of Finance

McCombs School of Business

The University of Texas at Austin

 


 

 

 

Jonathan Cohn picture Contact information
Office: CBA 6.278
Email: jonathan.cohn@mccombs.utexas.edu
Phone: 512-232-6827
Address:

McCombs School of Business

The University of Texas at Austin

2110 Speedway Stop - B6600

Austin, TX 78712

       
Curriculum Vitae      

Research

Accepted and Published Papers
On Enhancing Shareholder Control: A (Dodd-) Frank Assessment of Proxy Access, with Stu Gillan and Jay Hartzell (October 2013)
- Forthcoming,
Journal of Finance

We use events related to a proxy access rule passed by the SEC in 2010 (but never implemented) as natural experiments to study the valuation effects of exogenous changes in the degree of shareholder control. We find that increases (decreases) in perceived control have positive (negative) effects, and that the effects are strongest for poorly-performing firms, for firms with shareholders likely to exercise control, and for firms where acquiring a stake is relatively cheap. We also find evidence that the benefits of increased shareholder control are muted for firms with shareholders who might have interests other than shareholder value maximization. Our results overall suggest that an increase in shareholder control from its current level would generally benefit shareholders.

The Evolution of Capital Structure and Operating Performance After Leveraged Buyouts: Evidence from U.S. Corporate Tax Returns, with Lillian Mills and Erin Towery (2014)
-
Journal of Financial Economics, 111(2): 469-494.
- Recipient of Charles River Associates Award for Best Paper on Corporate Finance, 2012 WFA

 

This study uses corporate tax return data to examine the evolution of firms' financial structure and performance after leveraged buyouts for a comprehensive sample of 317 LBOs taking place between 1995 and 2007.  We find little evidence of operating improvements subsequent to an LBO, although consistent with prior studies, we do observe operating improvements in the set of LBO firms that have public financial statements.  We also find that firms do not reduce leverage after LBOs, even if they generate excess cash flow.  Our results suggest that effecting a sustained change in capital structure is a conscious objective of the LBO structure.

Optimal Corporate Governance in the Presence of an Activist Investor, with Uday Rajan (2013)
-
Review of Financial Studies, 26(4): 985-1020

We provide a model of governance in which a board arbitrates between an activist investor and a manager facing reputational concerns. The optimal level of internal board governance depends on both the severity of the agency conflict and the strength of external governance. Internal governance creates a certification effect, so greater intervention by the board can lead to worse managerial behavior. Internal and external governance are substitutes when external governance is weak (the board commits to an interventionist policy to induce participation from the activist) and complements when external governance is strong (the board relies to a greater extent on the activist's information).

Working Papers

Firm Financing and Workplace Safety, with Malcolm Wardlaw (February 2014)
- Revise and resubmit,
Journal of Finance

This paper studies the impact of a firm's financial structure and condition on workplace safety using establishment-level injury data. We find that injury rates increase with leverage, controlling for a number of other factors (including establishment fixed effects). They also increase (decrease) in response to plausibly exogenous negative (positive) cash flow shocks, especially in more leveraged firms. We interpret these results as evidence that firms cut investment in activities that enhance workplace safety when they lack financing. This represents a previously unexplored channel through which a firm's finances can impact the well-being of its employees, an important set of non-financial stakeholders in the firm.

Do Stock Analysts Influence Merger Completion? An Examination of Post-Merger Announcement Recommendations, with David Becher and Jennifer Juergens (May 2014)
- Revise and resubmit, Management Science

This paper investigates the effects of analyst recommendations issued after a merger announcement on deal completion.  We find the probability of completion increases (decreases) with the favorability of acquirer (target) recommendations.  Results from instrumental variables tests support causality running from recommendations to merger outcomes.  Additional tests suggest that these relations are driven by target shareholders reassessing the merger offer in response to movements in acquirer and target valuations.  We also find that favorably-recommended firms in a proposed merger underperform following deal resolution, suggesting that investors overreact to post-merger announcement recommendations.

Micro-Level Value Creation Under CEO Short-termism, with Umit Gurun and Rabih Moussawi (May 2014)

Using novel data on new client and product announcements by U.S. firms, we find that stock price response to a new project announcement is muted when the firm's CEO has incentives to focus on the short run (shorter compensation duration, stronger career concerns, nearing retirement). We find confirmatory evidence in a smaller sample of announcements by non-U.S. firms. The texts of project announcements use more vague and generically positive language when CEOs face these incentives. The results are consistent with CEOs facing short-termist incentives setting a lower threshold for accepting projects, and the market discounting their projects accordingly.

The Determinants and Consequences of Private Equity Buyouts of Private Firms: Evidence from U.S. Corporate Tax Returns, with Erin Towery (December 2013)

This paper uses corporate tax return data to study the determinants and consequences of private equity (PE) buyouts of U.S. private firms between 1995 and 2009. In contrast with prior evidence that PE acquirers target public firms facing overinvestment problems, we find that PE acquirers target private firms facing underinvestment problems due to financing constraints.  We then provide evidence that PE buyouts create value through their real effects on private firms in two ways: by leading to operational turnarounds in struggling firms and by relaxing financing constraints that limit the exercise of growth options in healthier firms.

Credit Ratings: Strategic Issuer Disclosure and Optimal Screening, with Uday Rajan and GŁnter Strobl (November 2013)

We study a model in which an issuer can manipulate the information obtained by a credit rating agency (CRA) seeking to screen and rate the quality of its asset. In some equilibria, more intense CRA screening leads to more manipulation by the issuer, since it improves the payoff to surviving the screening.  As a result, the CRA may optimally abandon screening, even though the direct marginal cost of screening is zero. This result suggests that strategic disclosure and issuer moral hazard may have played an important role in recent ratings failures.

How Much Do Analysts Influence Each Other's Forecasts?, with Jennifer Juergens (November 2013)

This paper develops and applies a new approach to disentangling the influence of analysts on each otherís earnings forecasts from the effects of correlated information shocks.  We estimate that a new forecast by an analyst that is c cents above (below) another analystís forecast causes the other analyst to revise her forecast upwards (downwards) by a substantial 0.21c to 0.36c cents on average.  More reputable analysts are more influential, while those that tend to be optimistic are less influential and are influenced more by the forecasts of other analysts.  We do not find support for career concerns-driven herding.  Finally, we find that more influential analysts are more likely to subsequently be ranked as All-Stars and to move from a less to more prestigious brokerage house, and less likely to leave the analyst profession, suggesting that influence is a desirable characteristic.

Financial Reporting Accountability (November 2012)

This paper analyzes the real consequences of making a firm's executives more accountable for the fidelity of a firm's financial reports using a basic model of investment under asymmetric information with reporting. Greater accountability generally leads to less underinvestment but more overinvestment. The level of accountability that maximizes investment efficiency is low enough to allow some misreporting to occur in equilibrium. The results yield a sharp testable implication and have implications for reporting regulation.

Capital Gains Lock-in and Share Repurchases, with Stephanie Sikes (June 2011)

Anecdotal and empirical evidence suggest that price is an important determinant of firmsí share repurchase decisions. We investigate a factor that could affect a firmís stock price around a repurchase and thus the number of shares a firm repurchases. We predict that tax-sensitive investorsí reluctance to sell stocks for which they have unrealized capital gains reduces the supply of a firm's shares available in the market, and thus raises the price at which the firm can repurchase its shares. Using unique data on the tax-sensitivity of a sample of institutional investors, we find evidence consistent with our prediction. Moreover, as expected, the negative relation between capital gains lock-in and the number of shares repurchased is only present when the supply of a firmís shares is inelastic.

Corporate Taxes and Investment: The Cash Flow Channel (January 2011)

Existing literature focuses on how corporate taxation affects firms' investment decisions by altering after-tax returns. This paper instead examines how corporate taxation affects investment by reducing the cash flow a firm has available to invest in the current period. I use a sharp nonlinearity in the mapping from pre-tax profitability to taxes created by the tax loss carryforward feature of the tax code to identify the cash flow effect of taxes. The results indicate that firms reduce investment when they pay more taxes, especially when unfavorable capital market conditions create a greater dependence of investment on internal sources of cash.

The Temporal Structure of Equity Compensation, with Sugato Bhattacharyya (June 2009)

It is well accepted that aligning managerial incentives with those of stock holders enhances shareholder value. In theory models, such alignment is usually modeled as giving managers a stake in the realized cash flows of the firm's projects. However, such a stake, which entails a manager holding on to her equity position until all cash flow uncertainty is resolved, can lead a risk averse manager to turn down risky positive NPV projects. In this paper, we argue that equity-linked incentives can mitigate the manager's bias against assuming risk, provided the manager is allowed the flexibility of trading out her equity position early. Thus, allowing managers to hedge away partially the risks associated with their firm's stock price may actually be in the shareholders' best interests. However, it can lead to excessive risk-taking when the firm has debt in its capital structure.

Work in Progress

Optimal Disclosure with Market Feedback, with Uday Rajan

Corporate Mergers and Workplace Safety, with Nicole Nestoriak and Malcolm Wardlaw

Personal Taxes and Capital Structure, with Sheridan Titman and Gary Twite

Post-bankruptcy performance: evidence from corporate tax returns, with Edie Hotchkiss and Erin Towery