Saurin Patel

• Doshi, H.; Patel, S.; Ramani, S.; Sooy, M., 2023, "Uncertain tone, asset volatility and credit default swap spreads", Journal of Contemporary Accounting & Economics, December 19(3): 100380 - 100380.
  Abstract: We examine the relationship between uncertain linguistic tone and credit default swap (CDS) spreads. Using an event study approach, we first show that uncertain linguistic tone in 10-Q/K filings is positively associated with CDS spread changes incremental to positive and negative tone and incremental to the response implied by equity market reactions to the same information. We further demonstrate that the relationship of uncertain tone to CDS spreads manifests largely through its impact on asset volatility. We show that this effect is driven by firms with high leverage and is stronger among firms with shorter relative to longer maturities. Our findings contribute to growing research into credit market reactions to non-quantitative information by demonstrating a positive relationship between credit market responses and uncertainty disclosure language, and that this relationship is mediated by investors’ implied asset volatility estimates.

  Link(s) to publication:

  https://www.sciencedirect.com/science/article/pii/S1815566923000309

  http://dx.doi.org/10.1016/j.jcae.2023.100380

• El Ghoul, S.; Karoui, A.; Patel, S.; Ramani, S., 2023, "The green and Brown performances of mutual fund portfolios", Journal of Cleaner Production, January 384: 135267 - 135267.
  Abstract: The past decade has seen an increasing interest in socially responsible investing (SRI) in the mutual fund industry. Central to this development is whether SRI funds underperform conventional funds. Using a novel approach and a sample of 2,255 mutual funds, we decompose fund portfolios into socially responsible (green) and non-socially responsible (brown) components. We find that, in comparison to the non-socially responsible component, the socially responsible portion exhibits a lower raw return, lower risk-adjusted return (alpha), lower Sharpe ratio, and similar degree of performance reversal. The magnitude of this underperformance is, however, relatively small. The results align with SRI having a limited negative impact on fund performance while potentially offering some diversification benefits.

  Link(s) to publication:

  http://dx.doi.org/10.1016/j.jclepro.2022.135267

• Li, Z. F.; Patel, S.; Ramani, S., 2021, "The Role of Mutual Funds in Corporate Social Responsibility", Journal of Business Ethics, December 174(3): 715 - 737.
  Abstract: This paper examines the role of mutual funds in corporate social responsibility (CSR). Using a fund-level, holdings-based CSR score, we find that CSR-friendly mutual funds improve firms’ CSR standings. This effect is more pronounced for firms with higher mutual fund ownership and stronger corporate governance. We further show that while CSR-friendly mutual funds have influence on almost all CSR categories, they focus on increasing CSR strengths rather than reducing CSR concerns. We also discover that CSR-friendly funds are more likely to vote in favor of CSR proposals, and that firms owned by CSR-friendly funds are more likely to link their CEO compensation to CSR outcomes. These results suggest that actively managed mutual funds, which were previously thought to be indifferent (or even detrimental) to social and ethical issues, play a significant role in corporate social outcomes of the firms they invest in.

  Link(s) to publication:

  https://link.springer.com/article/10.1007/s10551-020-04618-x#article-info

  http://dx.doi.org/10.1007/s10551-020-04618-x

• Patel, S.; Sarkissian, S., 2021, "Portfolio Pumping and Managerial Structure", The Review of Financial Studies, January 34(1): 194 - 226.
  Abstract: Using U.S. equity mutual fund data, we show that portfolio pumping – an illegal trading activity that artificially inflates year-end and quarter-end portfolio returns – is more pronounced among single-managed than team-managed funds. The return inflation by team-managed funds is 45% lower than by single-managed funds at year-ends. Also, portfolio pumping decreases as team size increases. These results are driven by peer effects among teams and, in some cases, amplified by less convex flows – performance relation in team-managed funds. Our findings are robust to differences in fund governance, manager career concerns, local networks, fund-family policies, and the SEC enforcement.

  Link(s) to publication:

  https://ssrn.com/abstract=2149088

  http://dx.doi.org/10.1093/rfs/hhaa027

• Patel, S.; Karoui, A., 2020, "What drives Active Share? Active Stock Selection or Active Stock Weights", Journal of Investment Management, March 18(4)
  Abstract: Active Share is a popular measure of active management. However, it is not clear what drives Active Share. To improve our understanding, we decompose Active Share into Active Stock Selection (ASE) and Active Stock Weights (ASW). ASE captures portfolio weights in stocks outside the portfolio benchmark and correlates positively (88%) with Active Share. ASW captures portfolio weight deviations from market capitalization weights and correlates negatively (-55%). Furthermore, we find some evidence that ASE positively predicts performance, while ASW negatively predicts performance. Our results suggest that the benefits of Active Share stem from the selection decision rather than the weighting decision.

  Link(s) to publication:

  https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3544445

• Champagne, C.; Karoui, A.; Patel, S., 2019, "Portfolio turnover activity and mutual fund performance", Managerial Finance, March 44(3): 326 - 356.
  Abstract: Purpose
  The purpose of this paper is to propose a new measure of portfolio activity, the modified turnover (MT), which represents the portion of the portfolio that the manager changes from one quarter to the next. Compared with the traditional turnover, the MT measure has a distinct interpretation, relies on portfolio holdings, includes the effects of flows and ignores the effects of offsetting trades.
  
  Design/methodology/approach
  Using quarterly holdings data, the authors examine the relationship between fund turnover, performance, and flows for a sample of 2,856 actively managed mutual funds over the period 1991-2012. The authors provide numerical examples to illustrate how the suggested measure, MT, is different from the traditional turnover measure. The authors use panel regressions, simple and double sorts to examine the predictability of performance.
  
  Findings
  The authors find evidence that high MT predicts lower performance. The comparison between the highest and lowest quintiles sorted based on MT reveals a difference of −2.41 percent in the annual risk-adjusted return. Furthermore, high MT predicts lower net flows. The authors also find that MT relates positively to other activeness measures while volatility, flows, size, number of stocks, and the expense ratio are significant determinants of MT. Overall, the results suggest that frequent churning of a portfolio is value destroying for investors and signals a manager’s lack of skill.
  
  Originality/value
  The authors offer a simple measure, namely, MT, for estimating the fraction of a portfolio that changes from one quarter to the next. Armed with this tool, the authors investigate whether funds deviate from their previous quarter’s holdings because of valuable or noisy information, and whether such signals are exploited by fund investors.

  Link(s) to publication:

  http://dx.doi.org/10.1108/MF-01-2017-0003

• Col, B.; Patel, S., 2019, "Going to Haven? Corporate Social Responsibility and Tax Avoidance", Journal of Business Ethics, February 154(4): 1033 - 1050.
  Abstract: This study examines the endogenous relation between corporate social responsibility (CSR) and tax avoidance by focusing on a common strategy of corporate tax avoidance, i.e., establishing entities in offshore tax havens. Using hand-collected data on a sample of U.S. firms, we find that firms’ CSR ratings increase substantially in the two years after they first open tax haven affiliates. We provide evidence by using the controlled foreign corporations (CFC) look-through rule enacted by Congress in 2006 that facilitates offshore profit shifting. We find that firms that are affected by the CFC legislation increase their CSR practices in response. Overall, our results are consistent with the risk management theory, which argues that firms hedge against the potential negative consequences of aggressive tax avoidance practices through an increase in positive CSR activities.

  Link(s) to publication:

  http://dx.doi.org/10.1007/s10551-016-3393-2

• Patel, S.; Sarkissian, S., 2017, "To Group or Not To Group? Evidence from Mutual Funds", Journal of Financial and Quantitative Analysis, October 52(5): 1989 - 2021.
  Abstract: Despite the overwhelming trend in mutual funds towards team management, empirical studies find no performance benefits for this phenomenon. We show it is caused by large discrepancies in reported managerial structures in CRSP and Morningstar Principia datasets versus SEC records, resulting in up to 50 bps underestimation of the team impact on fund returns. Using more accurate Morningstar Direct data, we find that team-managed funds outperform single-managed funds across various performance metrics. The relation between team size and fund performance is nonlinear. Also, team-managed funds take no more risk than single-managed funds. Overall, team management benefits the fund industry performance.

  Link(s) to publication:

  http://dx.doi.org/10.2139/ssrn.2047094

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