Email: m-faulkender@northwestern.edu
Office: Jacobs 4201, Northwestern
University
Phone: 847-491-5861
Ph.D. (Finance) June 2002, Northwestern University, Kellogg School of Management
B.S. (Managerial Economics) 1994, University of California, Davis
Assistant Professor of Finance, R.H. Smith School of Business, University of Maryland, 2008-.
Visiting Assistant Professor of Finance, Kellogg School of Management, Northwestern University, 2007-2008.
Marcile and James Reid Professor, Olin Business School, Washington University in St. Louis, 2006-2007.
Assistant Professor of Finance, Olin Business School, Washington University in St. Louis, 2002-2007.
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. 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.
Papers Under
Review:
“A Panel Data Analysis of Interest Rate Risk
Management”* with Sergey Chernenko, 2008.
Under 1st round review at the
Journal of Financial Economics
ABSTRACT: Using a large, hand-collected panel data
set of debt structure and interest rate swap usage by non-financial firms over a
ten year period, we examine which characteristics are stable in explaining
variation in interest rate risk management relative to those that are more
transitory, and therefore more likely to be associated with speculation. We find that previously documented
executive compensation results are transitory effects, driven by variation in
the term structure, more consistent with incentivizing speculation than with
hedging. Average interest rate
exposures are partially driven by hedging motivations, but only for high
investment firms, consistent with costly external financing affecting
derivatives usage.
*Funded by a grant from the Center for Financial
Research, FDIC
Do Adjustment Costs Impede the Realization of Target Capital Structure? With Mark Flannery, Kristine Watson Hankins, and Jason Smith, 2008.
Under 1st round review at the
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.
“The Market Reaction to the Strategic Use of Interest Rate Swaps” with Sergey Chernenko and Nicole Thorne Jenkins, 2007.
Under 1st round review at the
Journal of Accounting and Economics
ABSTRACT: In this paper, we
find that the previously documented relation between term structure and swap
usage intensifies when firms are engaging in earnings management. In response, we investigate the
market’s response to earnings generated from changes in current swap
usage. 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.
Working Papers:
Inside the Black Box: The Role and
Composition of Compensation Peer Groups with Jun
Yang, 2007.
ABSTRACT: This paper documents the features of compensation peer groups and demonstrates that they play a significant role in understanding variation in CEO compensation. We hand-collect a sample of 83 (373) of the S&P 500 firms that provided explicit lists of compensation peer firms in their proxy statements in fiscal year 2005 (2006). Results show that inclusion of the group’s median compensation more than doubles the portion of the variation in CEO salary that can be explained, dominating measures such as size and firm performance. Univariate analysis suggests that firms forego lower paid potential peers in their same industry in favor of higher paid peers outside of their industry when constructing the peer groups. In multivariate regression analysis, this result carries through as we find that even after controlling for industry and size, peer group composition is significantly affected by the level of compensation of the potential peers. Firms appear to select highly paid peers to justify greater CEO compensation and this effect is strongest in firms where the CEO is the chairman of the Board, when the firm is larger, has greater market share, is more complex, has poorer governance, and when Towers Perrin is the firm’s compensation consultant.
Professional Service:
Conference
Program Committees: Western Finance
Association, European Finance Association, Financial Intermediation Research
Society
Member of: American
Finance Association, Society of Financial Studies, Western Finance Association
Ad-Hoc Referee for: Journal of Finance, Review of Financial Studies, Journal of
Financial Economics, American Economic Review, Journal of Financial
Intermediation, Journal of Financial and Quantitative Analysis, Journal of
Money, Credit, and Banking, Financial Management, Finance Research Letters, The
Financial Review, Journal of Banking and Finance, Journal of Business Finance
and Accounting, Journal of Futures Markets
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