London Business School

About: London Business School is a education organization based out in London, England, United Kingdom. It is known for research contribution in the topics: Portfolio & Equity (finance). The organization has 1138 authors who have published 5118 publications receiving 437980 citations. The organization is also known as: LBS.

Blockholders and Corporate Governance

Abstract: This paper reviews the theoretical and empirical literature on the different channels through which blockholders (large shareholders) engage in corporate governance. In classical models, blockholders exert governance through direct intervention in a firm’s operations, otherwise known as “voice.” These theories have motivated empirical research on the determinants and consequences of activism. More recent models show that blockholders can govern through the alternative mechanism of “exit” – selling their shares if the manager underperforms. These theories give rise to new empirical studies on the two-way relationship between blockholders and financial markets, linking corporate finance with asset pricing. Blockholders may also worsen governance by extracting private benefits of control or pursuing objectives other than firm value maximization. I highlight the empirical challenges in identifying causal effects of and on blockholders, and the typical strategies attempted to achieve identification. I close with directions for future research.

Earnings and Price Momentum

Abstract: This paper examines whether earnings momentum and price momentum are related. Both in time-series as well as in cross-sectional asset pricing tests, we find that price momentum is captured by the systematic component of earnings momentum. The predictive power of past returns is subsumed by a zero-investment portfolio that is long on stocks with high earnings surprises and short on stocks with low earnings surprises. Further, returns to the earnings-based zero-investment portfolio that is long on stocks with high earnings surprises. Further, returns to the earnings-based zero-investment portfolio are significantly related to future macroeconomic activities, including growth in GDP, industrial production, consumption, labor income, inflation, and T-bill returns. Our results have implications for the Carhart four-factor model and suggest that the price-momentum factor in the Carhart model is merely a noisy proxy for the earnings-momentum based hedge portfolio, PMN.

Returns to shareholder activism: evidence from a clinical study of the Hermes UK Focus Fund

Abstract: This article reports a unique analysis of private engagements by an activist fund. It is based on data made available to us by Hermes, the fund manager owned by the British Telecom Pension Scheme, on engagements with management in companies targeted by its UK Focus Fund. In contrast with most previous studies of activism, we report that the fund executes shareholder activism predominantly through private interventions that would be unobservable in studies purely relying on public information. The fund substantially outperforms benchmarks and we estimate that abnormal returns are largely associated with engagements rather than stock picking.

Short-term forecasts of euro area GDP growth

Abstract: Summary This paper evaluates models that exploit timely monthly releases to compute early estimates of current quarter GDP (now-casting) in the euro area. We compare traditional methods used at institutions with a new method proposed by Giannone et al. The method consists in bridging quarterly GDP with monthly data via a regression on factors extracted from a large panel of monthly series with different publication lags. We show that bridging via factors produces more accurate estimates than traditional bridge equations. We also show that survey data and other ‘soft’ information are valuable for now-casting.