CAIR working paper series
The Centre for the Analysis of Investment Risk (CAIR) working paper series showcases research by CAIR affiliates, including work in progress and papers forthcoming in academic journals. The series is ongoing and will be updated as new papers become available.
CAIR-affiliated faculty, fellows and associates who would like to contribute a paper are invited to submit it via email to Ipek Faria.
Authors: Anatoli Colicev, University of Liverpool - Management School (ULMS), Ole-Kristian Hope, University of Toronto - Rotman School of Management, Timo Mandler, NEOMA Business School, Vlad-Andrei Porumb, University of Manchester - Alliance Manchester Business School.
ESG is widely used in research, but inferences are often compromised by conceptual ambiguity and measurement heterogeneity, especially in cross-national settings. ESG (Environmental, Social, and Governance) is frequently treated as interchangeable with CSR (Corporate Social Responsibility) and CSP (Corporate Social Performance), while composite scores can obscure distinct E, S, and G mechanisms shaped by different institutional pressures.
Provider designs further complicate inference because ESG ratings rely on different information bases and exhibit uneven coverage across countries. We develop a four-pillar framework that links theory, aggregation choices, provider paradigms, and institution-contingent data properties.
An empirical illustration combining LSEG, MSCI, RepRisk, and Truvalue Labs shows substantial coverage asymmetries and only modest agreement in firm rankings. We offer reporting standards and research directions to improve the credibility and cumulative advancement of ESG-based research.
Authors: Kevin Aretz, Alliance Manchester Business School, Maria‐Teresa Marchica, The University of Manchester - Alliance Manchester Business School.
The 2002 European Insolvency Regulation (EIR) unexpectedly reassigned the insolvency jurisdiction of fully-owned foreign subsidiaries in the European Union from their own to their parents' host countries, exposing firms in the same environment to different creditor rights regimes.
Using triple-difference designs, we provide causal evidence that shifts toward stronger (weaker) creditor rights regimes raise (lower) debt-taking. Notably, most prominent creditor protection dimensions matter for borrowing but often asymmetrically.
Further tests suggest that the subsidiaries change their debt levels to adjust their financing mixes but not their real policies, and that the changes survive granular industry-location-time fixed effects, supporting a supply-side effect.
Moreover, UK-subsample tests reveal that the changes come from bank but not group or leasing debt and are conditioned by bank fundamentals, supporting a bank-induced effect. Our final tests demonstrate that our results do not arise through creditor rights proxying for enforcement, cultural, religious, and political factors.
Author: Spyridon Gkikopoulos, The University of Manchester - Alliance Manchester Business School.
We examine whether bonus depreciation provisions influence firms’ investment risk decisions. We analytically show that these provisions generate tax shields that reduce reliance on costly external finance, thereby encouraging risk-taking.
Using quasi-experimental variation in accelerated depreciation schedules created by U.S. bonus depreciation, we find that firms respond with greater investment risk. Consistent with our model’s mechanism, the effect is concentrated among financially constrained firms.
Moreover, the salience of bonus depreciation tax shields increases with the tax rate, so we observe that the mechanism is most pronounced among constrained firms facing high marginal effective tax rates. Robustness analyses, including event study and placebo designs, support the identification strategy.
Overall, the findings highlight the role of bonus depreciation in shaping firms’ risk preferences and inform policy debates on the effectiveness of tax provisions aimed at supporting firms in adverse macroeconomic conditions.
Read "Tax Policy, Financial Frictions, and Firm Risk-Taking" on SSRN >>
Authors: Xiangyu Lin, Nankai University; The University of Manchester - Alliance Manchester Business School, S. Sarah Zhang, The University of Manchester.
We study the implications of state-level data privacy legislation (DPL) on racial disparities in U.S. mortgage lending. Using a Difference-in-Difference-in-Differences model, we find that DPL reduces the mortgage denial gap between minority and non-minority borrowers by 3% and the interest rate gap by 0.08 percentage points.
These effects stem from a shift toward more automated, hard data-driven mortgage underwriting processes and increased FinTech lending, particularly in areas with high minority population, low bank branch density and high racial animus.
Our results highlight the unintended beneficial consequences of data privacy laws for minority borrower outcomes, with wider implications for credit access, financial inclusion, and the evolving mortgage lending market.
Authors: Gabriel Cabrera, The University of Manchester - Alliance Manchester Business School, Olga Kolokolova, Lancaster University Management School, S. Sarah Zhang, The University of Manchester
Firms increasingly use Analyst/Investor (A/I) days as discretionary disclosure channels. We show that announcing an A/I day leads to positive abnormal returns and a sustained pre-event price run-up. The run-up is more pronounced when firms issue additional pre-event voluntary disclosures and is followed by return reversals after the event.
In contrast, events without any incremental disclosures exhibit positive post-event returns driven by event informativeness and changes in risk expectations. Exploiting these patterns, we design implementable long-short trading strategies that earn economically and statistically significant abnormal returns.
A strategy based solely on the announcement yields positive alphas of around 0.095% before and 0.08% after transaction and borrowing costs. A deep-reinforcement-learning optimal stopping rule further improves performance, generating a positive alpha of 0.13% before costs, highlighting the importance of A/I days as a voluntary disclosure channel and the role of announcement and pre-event behaviour in shaping market prices.
Read "Save The Date: Analyst/Investor Days as a Trading Signal" on SSRN >>