If portfolio managers didn’t have enough to worry about these days, they now have more.
Micah Officer, an incoming associate professor at Loyola Marymount University’s College of Business Administration, and a team of researchers examined bankrupt companies to see what impact their troubles had on the stock prices of their customers and suppliers.
“What we found was that the impact on supplier companies was significant. Their stock prices go down 2 to 3 percent on average when one of their customers goes bankrupt. And the effect is even greater when it appears that the customer’s industry is in distress,” said Officer.
“If I am a portfolio manager during a recession (like we are in now), I have to be worried about the linkages between firms,” said Officer. “It’s not just the bankruptcy of the companies they own stock in that should worry a portfolio manager; they also have to worry about bankruptcy of the customer firms that those companies supply. The default of a customer can affect a supplier very dramatically.”
The paper, “Inter-Firm Linkages and the Wealth Effects of Financial Distress Along the Supply Chain,” was published in the Journal of Financial Economics, whose readers voted it the best research paper of 2008 in the asset pricing category and awarded it the 2009 Fama-DFA Prize; one of the highest honors in finance.
Dennis Draper, dean of CBA, said,” We are happy to welcome an outstanding professor and researcher to our faculty.”
Officer specializes in corporate finance and corporate governance issues, including capital structure, dividend policy, corporate governance, stockholder voting rights and the contractual features of merger agreements. He has published articles in Journal of Financial Economics, Journal of Finance, Journal of Business and Journal of Corporate Finance.
He earned a Bachelor of Commerce degree from the University of Auckland, New Zealand, and an M.S. and Ph.D. from the University of Rochester in New York. He joins the College of Business Administration in the Department of Finance after eight years at USC.
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