Email: mfaulken@rhsmith.umd.edu
Office:
4411 Van Munching
Hall
Phone: 301-405-1064
Ph.D. (Finance) June 2002, Kellogg School of Management, Northwestern University
B.S. (Managerial Economics) 1994, University of California, Davis
Assistant Professor of Finance, RH Smith School of Business, University of Maryland, 2008 – present.
Visiting Assistant Professor of Finance, Kellogg School of Management, Northwestern University, 2007 – 2008.
Marcile and James Reid Professor, Olin School of Business, Washington University in St. Louis, 2006 – 2007.
Assistant Professor of Finance, Olin School of Business, Washington University in St. Louis, 2002 – 2008.
Fellow, Center for Financial Research, FDIC, 2004 – 2005.
Empirical corporate finance: capital structure, risk management, corporate
liquidity
"Hedging or Market Timing? Selecting the Interest Rate Exposure of Corporate
Debt"
Journal of Finance,
April 2005.
Nominated for 2005 Brattle Prize.
ABSTRACT:
This paper examines whether firms are hedging or timing the market when
selecting the interest rate exposure of their debt.
I use a more accurate measure of the interest rate exposure chosen by
firms by combining the initial exposure of newly issued debt securities with
their use of interest rate swaps.
The results indicate that the final interest rate exposure is largely driven by
the slope of the yield curve at the time the debt is issued.
These results suggest risk management practices are primarily driven by
speculation or myopia, not hedging considerations.
"Does the Source of Capital Affect Capital Structure?" with
Mitchell Petersen
Review of Financial Studies, Spring 2006.
Recipient of
Barclays Global Investors / Michael Brennan Best Paper
Award – Runner Up (2006)
ABSTRACT:
Prior work on leverage implicitly
assumes capital availability depends solely on firm characteristics. However,
market frictions that make capital structure relevant may also be associated
with a firm’s source of capital.
Examining this intuition, we find firms which have access to the public bond
markets, as measured by having a debt rating, have significantly more leverage.
Although firms with a rating are fundamentally different, these
differences do not explain our findings. Even after controlling for firm
characteristics which determine observed capital structure, and instrumenting
for the possible endogeneity of having a rating, firms with access have 35
percent more debt.
“Corporate Financial Policy and the Value of Cash,” with Rong Wang
Journal of Finance, August 2006.
ABSTRACT:
We examine the cross-sectional variation in the marginal value of
corporate cash holdings that arises from differences in corporate financial
policy. We begin by providing
semi-quantitative predictions for the value of an extra dollar of cash depending
upon the likely use of that dollar, and derive a set of intuitive hypotheses to
test empirically. By examining the variation in excess stock returns over the
fiscal year, we find that the marginal value of cash declines with larger cash
holdings, higher leverage, better access to capital markets, and as firms choose
cash distribution via dividends rather than repurchases.
“Inside the Black Box: The Role and Composition of Compensation Peer Groups”
with
Jun Yang, 2009.
Journal of Financial Economics, forthcoming
ABSTRACT: This paper documents the features of the newly disclosed compensation peer groups and demonstrates their significant role in explaining variations in CEO compensation beyond that of other benchmarks such as the industry-size peers. After controlling for industry, size, visibility, CEO responsibility and talent flows, we find that firms appear to select highly paid peers to justify their CEO compensation and this effect is stronger in firms where the compensation peer group is smaller, where the CEO is the Chairman of the Board of Directors, where the CEO has longer tenure, and where directors are busier serving on multiple boards.
Papers
Under Review:
“Investment and Capital Constraints: Repatriations Under the American Jobs Creation Act” with Mitchell Petersen, 2009
ABSTRACT: The American Jobs Creation Act (AJCA) significantly lowered the tax cost at which US firms could access their unrepatriated foreign earnings. We use this temporary shock to the cost of financing investment and its variation across firms, to examine the role of financial constraints in the firm’s investment decisions. Controlling for the ability to repatriate foreign earnings in a more tax efficient way under the AJCA, we find that for a majority of firms there was little change in domestic investment – the policy objective of the law. We do find, however, that for a subset of firms which are financially constrained, that a majority of the repatriated funds were invested in approved domestic investment. We find little change in financial policy (e.g. leverage and equity payouts) once we control for the ability to repatriate funds under the AJCA. These findings point out the importance of understanding finance theory when designing optimally targeted tax incentives.
“Do Adjustment Costs Impede Realization of Target Capital Structure?” with Mark Flannery, Jason Smith, and Kristine Watson Hankins, 2008.
Revising for 2nd Round Review at
Journal of Finance
ABSTRACT: We investigate the role that
adjustment costs play in keeping firms from annually reaching their target
leverage ratios. Recognizing that firm cash flow outcomes determine whether
adjustment costs are sunk or incremental, we estimate capital structure
adjustment speeds across different cash flow realizations. Adjustment speeds
approach 50% for firm-years in which adjustment costs are more likely to be sunk
compared to closer to 25% for firm-years in which adjustment costs are more
likely incremental. Relatively financially constrained firms also adjust more
slowly, consistent with such constraints impeding capital structure adjustment.
“A Panel Data Analysis of Interest Rate Risk Management”* with Sergey
Chernenko, 2008.
Revising for 2nd Round Review at
Journal of Financial and Quantitative
Analysis
ABSTRACT:
This paper explores why managers are timing the interest rate market.
We ask whether the documented sensitivity of interest rate swap usage to
the term structure is a function of managers trying to meet earnings forecasts,
of managers attempting to boost near-term results prior to raising external
capital, or of managers simply trying to increase their compensation.
Using a very large, hand-collected dataset of swap activity, our
empirical findings suggest that swap usage and the choice of interest rate
exposure is primarily driven by a desire to meet consensus earnings forecasts
and to raise managerial pay.
*Funded by a grant from the Center for Financial
Research, FDIC
Working
Papers:
“The Market Reaction to the Strategic Use of Interest Rate Swaps”
with
Nicole Thorne Jenkins and Sergey Chernenko, 2008
ABSTRACT:
We investigate the market’s response to earnings generated from changes
in current interest rate swaps. In
general, we find that firms experience significantly negative market reactions
when using swaps in steep term structure environments to meet expectations.
Upon closer inspection we find that firms that meet expectations and use
income decreasing swaps arrangements are responsible for the majority of the
apparent penalty. Firms that swap
floating for fixed rates—pay more interest expense today and less in the
future—receive a significantly larger market premium then those firms that swap
fixed for floating—pay less interest expense today and more in the future.
Our results indicate that even though swaps are arranged as zero NPV
transactions, there are specific structures that affect firm value in
predictable ways. Overall, the
market appears to appropriately identify and price the strategic use of swaps to
hedge cash flow risk versus meeting market expectations.
Professional Service:
Program Committee Member: 2008 Western Finance Association Meeting, 2007
and 2008 European Finance Association Meeting, 2006 and 2008 Financial Intermediation
Research Society Meeting
Member, American Finance Association
Member, Western Finance Association
Member, Society for Financial Studies
Ad hoc referee for
Journal of Finance,