Area of Expertise
- Financial and Investment Policy
- Intangible Capital
- Product Markets
Larkin, Y. (2020), "Reliance on Major Customers and Product Market Competition", Finance Research Letters, 38.
Although reliance on major customers has been growing over time, the literature has been largely silent on the determinants of customer base structure. This paper shows that low levels of product market competition in the customer industry is one important factor that can encourage supplier firms to establish relationship with major customers, and enhance existing ones. In support of the argument, we find that the fraction of suppliers’ total sales to major customers is positively associated with customer industry product market concentration. We argue that the recent increase in concentration of customer industries could have increased reliance on major customers.
Larkin, Y. and Lyandres, E. (2019), "Inefficient Mergers", Journal of Banking and Finance, 108.
Although complementarity between products and/or technologies of bidders and targets is considered a key driver of M&A deals, many observed mergers are inefficient: Complementarity gains in actual mergers are lower than the gains that could have been obtained were the targets acquired by different bidders. In this paper we propose a possible reason for the existence of inefficient mergers, which is based on search and information frictions. Our model examines three such frictions: target’s obsolescence risk, difficulties in evaluating complementarity gains, and competitive interaction among potential bidders in output markets. We test the model’s predictions using two established measures of complementarity gains in mergers: product similarity and technological overlap. Both sets of tests indicate that the degree of inefficiency in observed M&As is related to targets’ and bidders’ characteristics in ways consistent with the model’s predictions. More generally, our results suggest that search and value discovery are important determinants of merger outcomes.
Anderson, A. and Larkin, Y. (2019), "Does Noninformative Text Affect Investor Behavior?", Financial Management, 48(1), 257-289.
This article demonstrates that easily processed texts affect investor trading behavior even in the absence of any informational content. We examine the trading symbols of US firms and find that stocks with clever tickers (those that are actual words in the English language) are more liquid, as measured by higher turnover and trading volume, as well as lower spreads. Furthermore, clever ticker stocks are traded more by uninformed investors and have larger market reactions on earnings announcement days. These results suggest that ticker fluency facilitates trading by improving the firm’s visibility among retail investors through attention grabbing and memorization.
Grullon, G., Larkin, Y. and Michaely, R. (2019), "Are U.S. Industries Becoming More Concentrated?", Review of Finance, 23(4), 697-743.
Since the late 1990s, over 75% of US industries have experienced an increase in concentration levels. We find that firms in industries with the largest increases in product market concentration show higher profit margins and more profitable mergers and acquisitions deals. At the same time, we find no evidence for a significant increase in operational efficiency. Taken together, our results suggest that market power is becoming an important source of value. These findings are robust to the inclusion of (i) private firms; (ii) factors accounting for foreign competition; and (iii) the use of alternative measures of concentration. We also show that the higher profit margins associated with an increase in concentration are reflected in higher returns to shareholders. Overall, our results suggest that the US product markets have undergone a shift that has potentially weakened competition across the majority of industries.
Larkin, Y., Ng, L. and Zhu, J. (2018), "The Fading of Investment-Cash Flow Sensitivity and Global Development", Journal of Corporate Finance, 50, 294-322.
This study examines investment-cash flow (ICF) sensitivity across international markets and shows that the sensitivity has been stable in poor countries, but has experienced a sharp decline over time in firms located in rich countries. Our results suggest that the growing wealth of economies worldwide and relaxation of financial constraints at the firm level have led to the disappearance of ICF sensitivity in rich, highly developed countries but not in poor developing ones. We show that access to external finance, especially equity finance, is a key channel through which country-level development affects the sensitivity of investment to internal cash flow. Our evidence suggests that the amount of available economic resources and allocation efficiency are two necessary conditions that ensure the viability of the equity channel.
Larkin, Y., Leary, M. and Michaely, R. (2017), "Do Investors Value Dividend-Smoothing Stocks Differently?", Management Science, 63(12), 4114-4136.
It is widely documented that managers strive to maintain smooth dividends. Yet, it is not clear if this behavior reflects investors’ preferences. In this paper, we study whether investors indeed value dividend-smoothing stocks differently by exploring the implications of dividend smoothing for firms’ investor clientele, stock prices, and cost of capital. We find that retail investors are less likely to hold dividend-smoothing stocks, while institutional investors, and especially mutual funds, are more likely. However, this preference does not result in any detectable relation between the smoothness of a firm’s dividends and the expected return, or market value, of its stock. Together, the evidence suggests that firms adjust the supply of smoothed dividends to match investors’ demand. Dividend smoothing affects the composition of a firm’s shareholders but has little impact on its stock price.
Larkin, Y. (2013), "Brand Perception, Cash Flow Stability, and Financial Policy", Journal of Financial Economics, 110, 232-253.
This paper demonstrates that intangible assets play an important role in financial policy. Using a proprietary database of consumer brand evaluation, I show that positive consumer attitude toward a firm’s products alleviates financial frictions and provides additional net debt capacity, as measured by higher leverage and lower cash holdings. Brand perception affects financial policy through reducing overall firm riskiness, as strong consumer evaluations translate into lower future cash flow volatility as well as higher credit ratings for potentially volatile firms. The impact of brand is stronger among small firms, contradicting a number of reverse causality and omitted variables explanations.
Topics in Finance II (PhD course in Corporate Finance)
Topics in Finance I (PhD course in Corporate Finance)
Project Title Role Award Amount Year Awarded Granting Agency Project TitleCSR and industry restructuring RolePrinciple Investigator Award Amount$ Year Awarded2020 Granting AgencySSHRC Insight Development Grant Project TitleConcentrated product markets and their implications RolePrinciple Investigator Award Amount$ Year Awarded2019 Granting AgencySSHRC Insight Grant Project TitleShort interest and investment RolePrinciple Investigator Award Amount$ Year Awarded2017 Granting AgencySSHRC Insight Development Grant
A Schulich professor’s research on concentrated US product markets recently won the Pagano & Zechner Prize for the best non-Investments paper published in the Review of Finance journal in 2019-2020. Yelena Larkin has received the award for her work Are US Industries Becoming More Concentrated? on behalf of her coauthors at the European Finance Association 2020 annual meeting.
“Today we live in a world in which a handful of ‘superstar firms’ have grown to dominate their industries. Importantly, this is not a purely high-tech phenomenon: the increase in concentration affects around three-quarters of the US industries,” said Larkin.
“The COVID outbreak has only exacerbated the trend. While many smaller businesses have closed their doors potentially forever, Apple has reached a new high of two-trillion dollar market cap. Currently, just five companies – Amazon, Apple, Facebook, Netflix and Google parent Alphabet – make up about a quarter of the S&P 500’s value and 50% of the NASDAQ’s value.”
Larkin believes further research needs to be done. The rise in concentration is linked to higher profits, which, in turn, are transferred to shareholders in the form of high stock returns. Combined with other evidence, it is difficult to think of a scenario under which the increase in concentration and higher profit margins, enjoyed primarily by the shareholders, represents an overall economic improvement.
“This award proves the profession finds my research relevant and impactful. It is precious to know that my excitement and faith in the main message of this research work are recognized and shared by others,” Larkin said.