Fall 2021 - Blue Sky Talks

November 3, 2021 (Wed)
12:10 PM EST

Elisabeth de Fontenay

Visiting Professor of Law, Fall 2021
Columbia Law School

Professor of Law
Duke Law School

Location: Jerome Greene Hall, Room 602

Contractual Complexity in Debt Agreements: The Case of EBITDA

Adam Badawi, UC Berkeley Law School
Scott Dyreng, Duke Fuqua School of Business
Robert Hills, Smeal College of Business, Pennsylvania State University

We document significant variation in the contractual definition of EBITDA across syndicated loans and develop a permissiveness score based on the number of adjustments included in EBITDA definitions. We show that permissiveness is associated with tighter covenants but fewer violations. Market responses to covenant violations are more negative when permissiveness is higher. We also find that permissiveness is positively (negatively) related to accrual (cash flow) volatility, suggesting accruals may be less informative about borrowers’ underlying ability to meet their obligations. Our findings suggest that permissiveness in EBITDA definitions enhances the informativeness of covenant realizations by refining EBITDA to better reflect the borrower’s true financial condition.

November 17, 2021 (Wed)
12:10 PM EST

Adriana Robertson

Honourable Justice Frank Iacobucci Chair in Capital Markets Regulation
Associate Professor of Law & Finance
University of Toronto Law Faculty

Location: Jerome Greene Hall, Room 502 & via Zoom.
                 Contact cmark@law.columbia.edu for meeting link.

Noisy Factors

Pat Akey, Univ. of Toronto, Rotman School of Management
Mikhail Simutin, Univ. of Toronto, Rotman School of Management

The Fama-French factors are ubiquitous in empirical finance, industry, and law. We find that factor returns differ substantially depending on when the data were downloaded. The effects of these retroactive changes are large. Holding the sample period constant and varying only factor vintages, we show this in three contexts. First, in cross-sectional equity pricing, unconditional alphas of a third of long-short `anomaly' portfolios lose statistical significance. Second, in mutual fund analyses, we show that annual alphas of almost half of individual funds and even portfolios of funds change by more than 1%. Third, in the context of testing asset pricing models, F-statistics from GRS tests of the three-factor model on standard test portfolios vary by up to 40% due only to changes in factor vintages. Our results do not suggest that any particular factor vintage is dominant but point to a source of latent noise that is ignored in conventional tests. We provide suggestions to empiricists on dealing with the noise. Our findings have significant implications for the replicability and robustness of finance research and have a direct bearing on a variety of empirical contexts.