Charles J. Hadlock

Bio: Charles J. Hadlock is an academic researcher from Michigan State University. The author has contributed to research in topics: Investment (macroeconomics) & Equity (finance). The author has an hindex of 29, co-authored 53 publications receiving 6768 citations. Previous affiliations of Charles J. Hadlock include University of Virginia & Saint Petersburg State University.

New Evidence on Measuring Financial Constraints: Moving Beyond the KZ Index

Abstract: We collect detailed qualitative information from financial filings to categorize financial constraints for a random sample of firms from 1995 to 2004. Using this categorization, we estimate ordered logit models predicting constraints as a function of different quantitative factors. Our findings cast serious doubt on the validity of the KZ index as a measure of financial constraints, while offering mixed evidence on the validity of other common measures of constraints. We find that firm size and age are particularly useful predictors of financial constraint levels, and we propose a measure of financial constraints that is based solely on these firm characteristics.

New Evidence on Measuring Financial Constraints: Moving Beyond the KZ Index

Abstract: We collect detailed qualitative information from financial filings to categorize financial constraints for a random sample of firms from 1995 to 2004. Using this categorization, we estimate ordered logit models predicting constraints as a function of different quantitative factors. Our findings cast serious doubt on the validity of the KZ index as a measure of financial constraints, while offering mixed evidence on the validity of other common measures of constraints. We find that firm size and age are particularly useful predictors of financial constraint levels, and we propose a measure of financial constraints that is based solely on these firm characteristics. The Author 2010. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org., Oxford University Press.

Do Banks Provide Financial Slack

Abstract: We study the decision to choose bank debt rather than public securities in a firm's marginal financing choice. Using a sample of 500 firms over the 1980 to 1993 time period, we find that firms are relatively more likely to choose bank loans when variables that measure asymmetric information problems are elevated. The sensitivity of the likelihood of choosing bank debt to information problems is greater for firms with no public debt outstanding. These results are consistent with the hypothesis that banks help alleviate asymmetric information problems and that firms weigh these information benefits against a wide range of contracting costs when choosing bank financing. WHY DO SOME FIRMS BORROW from public sources while others rely exclusively on private lenders? The answer to this question is not well understood. Existing theories suggest that a firm must consider the tradeoff between the benefits and costs of bank debt financing relative to other potential financing choices. The potential benefits of bank financing include low moral hazard and adverse selection costs and ease of renegotiation in financial distress.1 The potential costs of bank financing include monitoring costs, suboptimal liquidation outcomes, and distortions induced by information monopolies.2 The goal of this paper is to identify whether adverse selection problems influence a firm's choice between new bank debt, public debt, or common stock. In particular, we are interested in assessing the empirical validity of the hypothesis that banks have the ability to accurately price a firm's claims, thus inducing a preference for firms that are undervalued by the market to

Managers with and without Style: Evidence Using Exogenous Variation

Abstract: In a large panel of Compustat firms, we find that firm policy changes after exogenous CEO departures do not display abnormally high levels of variability, casting doubt on the presence of idiosyncratic-style effects in policy choices. After endogenous CEO departures, we do detect abnormally large policy changes. These changes are larger when the firm is likely to draw from a deeper pool of replacement CEO candidates, suggesting the presence of causal-style effects that are anticipated by the board. Our evidence suggests that managerial styles are not transferred across employers and that standard F-tests are inappropriate for identifying style effects. The Author 2013. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.

Raids, Rewards, and Reputations in the Market for Managerial Talent

Abstract: We find that executives who jump to chief executive officer (CEO) positions at new employers come from firms that exhibit aboveaverage stock price performance. This relationship is more pronounced for more senior executives. No such relationship exists for jumps to non-CEO positions. Stock options and restricted stock do not appear to significantly affect the likelihood of jumping ship, but the existence of an "heir apparent" on the management team increases the likelihood that executives will leave for non-CEO positions elsewhere. Hiring grants used to attract managers are correlated with the equity position forfeited at the prior employer and with the prior employer's performance. Copyright 2003, Oxford University Press.

The Provision of Incentives in Firms

Abstract: I NCENTIVES ARE the essence of economics. Despite many wide-ranging claims about their supposed importance, there has been little empirical assessment of incentive provision for workers. The purpose of this paper is to critically overview existing work on the provision of incentives. Since the interests of workers and their employers are not always aligned, a large theoretical literature has emphasized how firms design compensation contracts to induce employees to operate in the firm's interest. This literature has reached into many areas of compensation and has pointed to a multitude of different mechanisms that can be used to induce workers to act in the interests of their employers. These include piece rates, options, discretionary bonuses, promotions, profit sharing, efficiency wages, deferred compensation, and so on. My objective here is to evaluate this literature in the light of a growing empirical literature on compensation. Where possible, I will address the literature from two perspectives. First, an underlying assumption of this literature is that individuals respond to contracts that reward performance. Accordingly, I consider whether agents behave in this way, and whether these responses are always in the firm's interest. Second, I address whether firms write contracts with these responses in mind. In other words, do contracts look like the predictions of the theory? Incentives are provided to workers

CEO Overconfidence and Corporate Investment

Abstract: We argue that managerial overconfidence can account for corporate investment distortions. Overconfident managers overestimate the returns to their investment projects and view external funds as unduly costly. Thus, they overinvest when they have abundant internal funds, but curtail investment when they require external financing. We test the overconfidence hypothesis, using panel data on personal portfolio and corporate investment decisions of Forbes 500 CEOs. We classify CEOs as overconfident if they persistently fail to reduce their personal exposure to company-specific risk. We find that investment of overconfident CEOs is significantly more responsive to cash flow, particularly in equity-dependent firms.

New Evidence on Measuring Financial Constraints: Moving Beyond the KZ Index

Abstract: We collect detailed qualitative information from financial filings to categorize financial constraints for a random sample of firms from 1995 to 2004. Using this categorization, we estimate ordered logit models predicting constraints as a function of different quantitative factors. Our findings cast serious doubt on the validity of the KZ index as a measure of financial constraints, while offering mixed evidence on the validity of other common measures of constraints. We find that firm size and age are particularly useful predictors of financial constraint levels, and we propose a measure of financial constraints that is based solely on these firm characteristics.

Applied Longitudinal Data Analysis Modeling Change And Event Occurrence

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Corporate social responsibility and access to finance

Abstract: We investigate whether superior performance on corporate social responsibility (CSR) strategies leads to better access to finance. We hypothesize that better access to finance can be attributed to (1) reduced agency costs due to enhanced stakeholder engagement and (2) reduced informational asymmetry due to increased transparency. Using a large cross-section of firms, we find that firms with better CSR performance face significantly lower capital constraints. We provide evidence that both better stakeholder engagement and transparency around CSR performance are important in reducing capital constraints. The results are further confirmed using several alternative measures of capital constraints, a paired analysis based on a ratings shock to CSR performance, an instrumental variables approach, and a simultaneous equations approach. Finally, we show that the relation is driven by both the social and environmental dimension of CSR. Copyright © 2013 John Wiley & Sons, Ltd.