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Fenghua Song |
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CV | Research |
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Fenghua
Song Smeal College of Business Penn State University University Park, PA 16802 Tel: 814.863.4905 Email: song@psu.edu Academic Experience Education |
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Corporate Finance, Financial Intermediation |
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Research Publications 1.
Strategic
Flexibility and the Optimality of Pay for Sector Performance, (with R.
Gopalan and T. Milbourn), 2010, Review
of Financial Studies 23(5), 2060-98. ·
Winner
of Citigroup Award for the best paper at the 2009 CAF Summer Research
Conference ·
Summarized in Harvard
Law School Forum on Corporate Governance and Financial Regulation and
Smeal Research with Impact ·
Centre for Analytical Finance Summer
Research Conference (2009) ·
Financial Management Association (FMA) Annual
Conference (2008, top ten session) ·
Fifth Annual UBC Summer Finance Conference (2008) ·
China International Conference in Finance (2008) Abstract: While standard contract theory
suggests that a CEO should be paid relative to a benchmark that removes the
effects of sector performance, there is evidence that CEO pay is strongly and
positively related to such sector performance. Many have coined this
relationship as pay for luck. In this paper we offer an explanation. We model
a CEO charged with selecting the firm's strategy which determines the firm's
exposure to sector performance. To incentivize the CEO to choose optimally,
pay contracts will be positively and sometimes asymmetrically related to
sector performance. Consistent with our prediction, our empirical analysis
indicates that the observed sensitivity of pay to sector performance is
almost fully confined to multi-segment firms and is greater in firms that
offer greater strategic flexibility to alter sector exposure, for more
talented CEOs, and for CEOs as compared to their subordinate executives. Our
evidence is robust to alternate explanations such as CEO entrenchment. 2.
Financial System
Architecture and the Co-evolution of Banks and Capital Markets, (with
A.V. Thakor), 2010, The
Economic Journal 120(547), 1021-55. Media
briefings: a non-technical summary of the paper ·
Summarized in VoxEU
(a policy portal by the Centre for Economic
Policy Research (CEPR)) ·
American Economic Association (AEA) Annual
Conference (2009) ·
Third Singapore International Conference on
Finance (2009) ·
Financial Intermediation Research Society (FIRS)
Annual Conference (2008) Abstract: We study how financial system architecture
evolves through the development of banks and financial markets. The
predominant existing view is that banks and markets compete, which often
contradicts actual patterns of development. We show that banks and markets
exhibit three forms of interaction: they compete, they complement each other,
and they co-evolve. Co-evolution is generated by two elements missing in
previous analyses of financial system architecture: securitization and bank
equity capital. As banks evolve via improvements in credit screening, they
securitize higher-quality credits in the capital market. This encourages
greater investor participation and spurs capital market evolution. And, if
capital market evolution is spurred by exogenous shocks that cause more
investors to participate, banks find it cheaper to raise equity capital to
satisfy endogenously-arising risk-sensitive capital requirements. Bank
evolution is thus stimulated as banks consequently serve previously-unserved high-risk borrowers. Numerous additional results
are drawn out. 3.
Relationship Banking,
Fragility, and the Asset-Liability Matching Problem, (with A.V. Thakor),
2007, Review of Financial Studies
20(6), 2129-77. ·
Banco de
Portugal Conference on Financial Fragility and Bank Regulation (2005) Abstract: We address a fundamental question in
relationship banking: why do banks that make relationship loans finance
themselves primarily with core deposits and when would it be optimal to
finance such loans with purchased money? We show that not only are
relationship loans informationally opaque and
illiquid, but they also require the relationship between the bank and the
borrower to endure in order for the bank to add value. However, the
informational opacity of relationship loans gives rise to endogenous
withdrawal risk that makes the bank fragile. Core deposits are an attractive
funding source for such loans because the bank provides liquidity services to
core depositors and this diminishes the likelihood of premature deposit
withdrawal, thereby facilitating the continuity of relationship loans. That
is, we show that banks will wish to match the highest value-added liabilities
with the highest value-added loans and that doing so simultaneously minimizes
the bank’s fragility owing to withdrawal risk and maximizes the value the
bank adds in relationship lending. We also examine the impact of interbank
competition on the bank’s asset-liability matching and extract numerous
testable predictions. 4.
Information Control,
Career Concerns, and Corporate Governance, (with A.V. Thakor), 2006, Journal of Finance 61(4), 1845-96. Abstract: We examine corporate governance
effectiveness when the CEO generates project ideas and the board of directors
screens these ideas for approval. However, the precision of the board’s
screening information is controlled by the CEO. Moreover, both the CEO and
the board have career concerns that interact. The board’s career concerns
cause it to distort its investment recommendation procyclically,
whereas the CEO’s career concerns cause her to sometimes reduce the precision
of the board’s information. Moreover, the CEO sometimes prefers a less able
board, and this happens only during economic upturns, suggesting that
corporate governance will be weaker during economic upturns. 5.
The
Effect of Taxes on the Pricing of Defaultable Debt,
(with KG Lim and M. Warachka), 2003, Journal of Risk 6(2), 1-29. ·
Lead article ·
Quantitative Methods in Finance Annual Conference
(Sydney, 2001) Abstract: Empirical
studies have documented the dependence of corporate credit spreads on default
risk, equity premiums, and taxes. However, taxes have previously not been
incorporated into reduced-form credit risk models. Therefore, we first extend
the existing literature by considering a default intensity that depends on
taxes as well as the default-free short rate and a market index.
Consequently, we establish a theoretical basis to explain previous empirical
findings regarding the significant impact of taxation on defaultable
bond prices. Unlike previous models, tax implications for defaultable
debt cannot be constructed from a sum of tax effects on zero coupon bonds.
Our empirical tests then illustrate the importance of taxation. In
particular, the impact of taxation increases as a function of the debt’s
maturity and coupon rate. Selected Working Papers 1.
The Optimal Duration of Executive Compensation:
Theory and Evidence (with R. Gopalan, T. Milbourn, and A.V. Thakor) ·
American
Finance Association (AFA) Annual Conference (2012, scheduled) ·
Winner of the 2011 Olin Award:
Recognizing Research that Transforms Business ·
Summarized in Harvard
Law School Forum on Corporate Governance and Financial Regulation ·
Frontiers in Finance 2011 Conference ·
Financial Intermediation Research Society (FIRS)
Annual Conference (2011) 2.
Debt Maturity Structure and Credit Quality
(previous title: “Do Credit Rating Agencies Underestimate Liquidity Risk?”)
(with R. Gopalan and V. Yerramilli) ·
Financial Intermediation Research Society (FIRS)
Annual Conference (2011) ·
FDIC-JFSR joint conference on Finance and
Sustainable Growth: 10th Annual Bank Research Conference (2010) ·
CAREFIN-Bocconi
Conference on Matching
Stability and Performance: The Impact of New Regulations on Financial
Intermediary Management (2010) ·
NY Fed-RCFS joint conference on Financial
Stability and Financial Intermediary Firms’ Behavior (2010) ·
Texas Lone Star Finance Conference (2010) ·
European Finance Association (EFA) Annual Meeting
(2010) ·
Financial Management Association (FMA) Annual
Conference (2010, top session, semifinalist for best paper) 3.
CEO Longevity and Corporate Performance 4.
Correlated Leverage and Its Ramifications
(previous title: “Infectious Leverage”) (with A.M. Goel and A.V. Thakor) ·
Western Finance Association (WFA) Annual
Conference (2011, scheduled) ·
American Economic Association (AEA) Annual
Conference (2011) ·
NY Fed-NYU Stern Conference on Financial
Intermediation (2010) ·
NBER Summer Institute (2009) ·
CAREFIN-Bocconi
Conference on Matching
Stability and Performance: The Impact of New Regulations on Financial
Intermediary Management (2010) ·
Financial Intermediation Research Society (FIRS)
Annual Conference (2010) ·
Banco de
Portugal Conference on Financial Intermediation (2009) ·
Deutsche Bundesbank-Imperial
College London Conference on the Future of Banking Regulation (2009) |
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Professional Activities ·
Referee:
Review
of Financial Studies, Journal of Financial Economics, Journal of Financial
Intermediation, Journal of Financial and Quantitative Analysis, Journal of
Financial and Services Research, Journal of Corporate Finance, Journal of
Business Research ·
Program
Committee: Financial Intermediation Research Society (FIRS)
Annual Conferences (2008 – 2012), Washington University Annual Conference on
Corporate Finance (2010 - 2011), Financial Management Association (FMA)
Annual Conference (2011) ·
External
Grant Reviewer: Hong Kong Research Grants Council (2008, 2010) Teaching ·
Financial
Management of the Business Enterprise (undergraduate, Penn State, Fall 2007,
Fall 2008, Fall 2009, Fall 2010) ·
Corporate
Finance (PhD, Penn State, Fall 2010) Honors and Awards ·
Winner
of the 2011 Olin Award: Recognizing Research that Transforms Business ·
Winner
of Citigroup award for the best paper at the 2009 CAF Summer Research
Conference ·
Smeal Small Research Grant (2007) ·
Hubert
C. Moog Scholar for academic excellence, Washington University in St. Louis
(2005, 2006) ·
American
Finance Association (AFA) student travel award (2005) |
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