Gabriele Lattanzio
Assistant Professor (Senior Lecturer) in Finance
University of Melbourne
Abstract: We construct and validate a text-based metric capturing firms' ex-ante exposure to cybersecurity risk, and we document that the rise of cyber threats is redesigning corporate innovation and appropriation strategies. As firms' exposure to cybersecurity risk increases, managers' reliance on trade-secrets declines, as they seek to protect their firm's intellectual capital under patent and intellectual property laws. Besides increasing their patenting activity, we document that firms exposed to cyber threats file for simpler patents to accelerate their innovation cycle. Finally, we show that this strategic adjustment is not costless, as it causes firms' returns to R&D investments to decline significantly.
Media Coverage: https://clsbluesky.law.columbia.edu/author/gabriele-lattanzio-and-yue-ma/
Abstract: The abnormal decline in the number of U.S. public firms is often blamed on merger activity, private equity investments, and stock market regulations. We compare the effects of these channels in a unified framework. In the U.S., an extra 100 mergers is associated with 22.01 additional missing public firms, whereas an extra 100 PE deals is associated with 3.62 fewer missing public firms. Regulatory changes contribute to the decline of U.S. listings too. We also specify the types of deals that most strongly affect listings. Finally, we document that similar listing gaps emerge in other developed economies.
- "Capitalising entrepreneurship: the rise of growth equity", 2023. With Lubomir Litov, William L. Megginson, Alina Monteanu. Journal of Applied Corporate Finance 35 (2), pp. 75-83.
Abstract: Growth equity (GE) funds have emerged asthethird major private equity asset class—alongside venture capital (VC) and buyout (B/O) funds--for investors, and as an important new source of external equity capital for private companies and entrepreneurs wishing to fund growth without surrendering control. GE funds have the same organizational and operational structure as VCand B/Ofunds,and theirprivate-firm investments generally fall on the corporate finance spectrum between late-stage VC and buyout financing.Virtually unknown before 2000,GE funds now investover $100 billion annually, have AUM of more than $1.1trillion, and dry powder totaling $350 billion. Their emergence as a key corporate finance tool has allowed entrepreneurial firms to remain private much longer than in the pastand in many ways GE financing has replaced going public as a source of growth capital.We define growth equity funding and trace the development of GE fund-raising and investmentas described in the professional literature. We also analyze a large sample of VC, GE, and B/O funds and deals drawn from the Preqin database and show that GE shares characteristics with both VC and B/O funding but should be considered a distinct new asset class and corporate finance vehicle. We conclude by briefly describing a suggested GE research agen
Abstract: By employing a novel, hand-collected sample of withdrawn and completed share issue privatizations (SIPs) we show that both groups undergo comparable restructuring processes over the three years preceding the event. We employ a matching procedure to explicitly control for the identified restructuring effect, isolating the ultimate consequences of the ownership transfer from political to private investors on corporate policies and performance. We find that, absent the ownership transfer, most of the gains realized during the restructuring process are re-absorbed over the post-treatment period. Results are robust to the use of instrumental variables, indicating that the transition from state to private ownership represents a necessary condition for the long-term success of privatization programs.
Selected Academic Publications
PUBLICATIONS
Selected Working Papers
- "Does the Stock Market Fully Value Alternative Work Arrangements? Work From Home and Equity Prices ", 2022. R&R at the Review of Corporate Finance Studies.
Abstract: We analyze the relationship between corporate reliance on alternative work arrangements and stock returns by documenting that an equal-weighted portfolio of the “100 Best Companies for Remote Working Jobs” earned an annualized four-factors alpha of 7.44% over the period 2014 to 2019. Firms included in the ranking also exhibited more pronounced positive earnings surprises and announcement returns. We conclude that even though Work From Home arrangements are beneficial to firm value through their effects on employees’ satisfaction and productivity, the stock market fails at fully valuing these contracts even when data are publicly available for a large number of corporations.
- "Identifying Classification Shifting: Evidence from a New Approach", 2022. With Wayne B. Thomas. R&R at the British Accounting Review.
Abstract: Classification shifting is defined in the literature as managers’ intentional classification of certain core expenses as income-decreasing special items with the intent to inflate reported core performance. We show that firms’ propensity to engage in this reporting strategy is persistent over time and relates to its use by peer firms. We also find that this strategy is associated with higher year-ahead firm value and stock returns. As one possible channel through which this valuation effect originates, we find that classification shifting allows firms to increase their debt capacity, consistent with firms shifting risks from shareholders to debtholders. Our tests are implemented using a new firm-year measure of classification shifting that can be broadly applied in many other research settings.
- "M&A and Cybersecurity Risk: Empirical Evidence", 2022. With Taillard J.
Abstract: Using novel measures of cybersecurity risk, we document that low cybersecurity risk firms are more likely to be involved in M&A transactions. Mergers are significantly less likely to be withdrawn if the target has a low cybersecurity risk profile. Merger premium are higher for mergers involving low cybersecurity risk acquirers. Deals involving low cybersecurity risk firms yield superior post-merger operating performance and are less likely to trigger goodwill impairments. Announcement returns have also started to reflect cybersecurity risk in recent years. These findings offer novel evidence on the economic impact of cybersecurity risk on the market for corporate control.
- "How Binding is Supervisory Guidance? Evidence From the European Calendar Provisioning", 2022. With Fiordelisi F. and Mare D.S.
Abstract: We examine whether banks respond differently to the adoption of a supervisory guidance as
compared to a similar regulatory action. By exploiting the staggered and distinct supervisory
and regulatory implementation of the European Calendar Provision, we indeed document
that while this reform achieved the intended overall goal of reducing European banks’ nonperforming loans ratios, its effect materialized during the initial release of the ECB supervisory guidance, rather than following its adoption as a Pillar 1 regulation. That is, the subsequent formalization of this supervisory initiative within a regulatory framework achieved
limited economic results, while eliminating any residual flexibility for the regulatory authority concerning the degree to which the calendar provisioning should be enforced.
Media Coverage:
Oxford Business Law Blog: https://mail.google.com/mail/u/0/#search/OXFORD/FMfcgzGpGKhRbNgBMsRsTPgpgmQHngSL
- "Corporate Purpose and Value: Evidence from a Novel Measure of Environmental Awareness", 2020. With Lubomir P. Litov. Under Review.
Abstract: We construct and validate a text-based metric capturing firms' ex-ante exposure to cybersecurity risk, and we document that the rise of cyber threats is redesigning corporate innovation and appropriation strategies. As firms' exposure to cybersecurity risk increases, managers' reliance on trade-secrets declines, as they seek to protect their firm's intellectual capital under patent and intellectual property laws. Besides increasing their patenting activity, we document that firms exposed to cyber threats file for simpler patents to accelerate their innovation cycle. Finally, we show that this strategic adjustment is not costless, as it causes firms' returns to R&D investments to decline significantly.
Data Availability: Link to Relative Social Responsibility Score.
This dataset contains the Relative Social Responsibility Score for the period 1998 to 2018 for all firms included in the KLD dataset. Conditions for the use of this dataset are as follows:
1) Please, reference the following paper which contains details on the construction and usage of the data.
"Does Competing Through Corporate Social Responsibility Engagements Lead to Superior Financial Performance?", with Lubomir P. Litov, Working Paper 2019.
2) Data may be used for non-commercial purposes free of charge. For all other uses, please contact Gabriele Lattanzio or Lubomir P. Litov.