Mathias Kronlund is an Assistant Professor of Finance at the University of Illinois at Urbana-Champaign Gies College of Business. His primary research areas are empirical corporate finance and financial institutions, and his recent research focuses on corporate investment, payout policy, executive compensation, credit ratings, and mutual funds.

His research is published in the leading academic journals Journal of Financial Economics, Review of Financial Studies, and Management Science, featured in major media outlets such as the Wall Street Journal and China Daily, and is frequently cited by both U.S. and European policymakers.

Prof. Kronlund holds a Ph.D. in Finance and an MBA from The University of Chicago Booth School of Business. In his spare time, he enjoys triathlon, skiing, and performing choral music.

Current Publications:

The Real Effects of Share Repurchases
(with Heitor Almeida and Vyacheslav Fos)
Journal of Financial Economics, January 2016
[SSRN working paper version]

We employ a regression discontinuity design to identify the real effects of share repurchases on other firm outcomes. The probability of share repurchases that increase earnings per share (EPS) is sharply higher for firms that would have just missed the EPS forecast in the absence of the repurchase, when compared with firms that “just beat” the EPS forecast. We use this discontinuity to show that EPS-motivated repurchases are associated with reductions in employment and investment, and a decrease in cash holdings. Our evidence suggests that managers are willing to trade off investments and employment for stock repurchases that allow them to meet analyst EPS forecasts.

Reaching for Yield by Corporate Bond Mutual Funds
(with Jaewon Choi)
Review of Financial Studies, May 2018
[SSRN working paper version]

We examine “reaching for yield” in U.S. corporate bond mutual funds. We define reaching for yield as tilting portfolios toward bonds with yields higher than the benchmarks. We find that funds generate higher returns and attract more inflows when they reach for yield, especially in periods of low interest rates. Returns for high reaching-for-yield funds nevertheless tend to be negative on a risk-adjusted basis. Funds engage in rank-chasing behavior by reaching for yield, although these incentives are moderated by the illiquid nature of corporate bonds. High reaching-for-yield funds hold less cash and less liquid bonds, exacerbating redemption risks.

Contact information:

The University of Illinois, Gies College of Business
340 Wohlers Hall
1206 South Sixth Street
Champaign, Illinois, 61820

Phone: (217) 244-2631
Email: kronlund@illinois.edu
Web: www.mathiaskronlund.com

SSRN Author Page

[CV,pdf]

Do Bond Issuers Shop for Favorable Credit Ratings?
Management Science, forthcoming

This paper provides evidence of ratings shopping in the corporate bond market. By estimating systematic differences in agencies’ biases about any given firm’s bonds, I show that new bonds are more likely to be rated by agencies that are positively biased towards the firm—a pattern that is strongest among bonds that have only one rating. The paper also shows that issuers often delay less favorable ratings until after a bond is sold. Consistent with theoretical models of ratings shopping, these effects are strongest among more complex bonds that are more difficult to rate. Bonds with upward-biased ratings are more likely to be downgraded and default, but investors account for this bias and demand higher yields when buying these bonds.

Current Working Papers:

Out of Sight No More? The Effect of Fee Disclosures on 401(k) Investment Allocations (with Veronika K. Pool, Clemens Sialm, and Irina Stefanescu)
Revise & Resubmit, Journal of Financial Economics
[Conferences: EFA (scheduled), Luxembourg Asset Management Summit (scheduled), ESMT Asset Management (scheduled), CEAR-RSI Household Finance (scheduled), FMA (scheduled), SFS Cavalcade (2019), Cherry Blossom (2019)]

We examine the effects of a 2012 regulatory reform that mandated fee and performance disclosures for the investment options in 401(k) plans. We show that participants became significantly more attentive to expense ratios and short-term performance after the reform. The disclosure effects are stronger among plans with large average contributions per participant and weaker for plans with many investment options. Additionally, these results are not driven by secular changes in investor behavior or sponsor-initiated changes to the investment menus. Our findings suggest that providing salient fee and performance information can mitigate participants’ inertia in retirement plans.

Sitting Bucks: Zero Returns in Fixed Income Funds (with Jaewon Choi and Jimmy Ji Yeol Oh)
[Conferences: AIM Investment Conference (scheduled), FMA (scheduled), World Symposium on Investment Research (2019), Kentucky Finance Conference (2019), Univ of Connecticut Finance Conference (2019), European Winter Finance Summit (2019), MFA (2019), CAFM (2018)]

Zero returns are highly prevalent in fixed-income funds: on more than 30% of trading days, net asset values (NAVs) do not change. High illiquidity of fund holdings drives this phenomenon, which is further compounded by binding minimum ticks. Consequently, NAVs are extremely stale, and fund returns are highly predictable at daily, weekly, and even monthly horizons. Investors respond by withdrawing capital from overvalued funds, exacerbating the risk of fund runs, whereas buy-and-hold investors pay substantial dilution costs when others opportunistically buy and sell at incorrect prices. Our results reveal shortcomings in existing fair valuation regulations that should correct this problem.

Do Firms Save Too Much Cash? Evidence from a Tax on Corporate Savings (with Hwanki Brian Kim and Woojin Kim)
[Conferences: BYU Red Rock (scheduled), FMA (scheduled), ESSFM Gerzensee (2019), Korea Securities Association (2019)]

Corporations have accumulated record amounts of cash. Are these savings optimal or excessive? We examine this question by exploiting a Korean tax reform that sought to discourage cash savings by imposing a surtax on earnings that were not paid out to shareholders or invested. This tax applied only to firms with book equity above 50B Won or that belonged to a \emph{Chaebol}. Differences-in-differences tests show that the treated firms reduced cash savings and increased payouts, wages, and investments. These additional investments appear profitable, and an event study analysis shows that shareholders viewed the reform as value-enhancing. These results are consistent with excessive savings before the reform, and we find evidence consistent with both agency-based and behavioral channels behind such excessive savings.

Does Equity Compensation Cause Firms to Manage EPS? Evidence from a Regression Discontinuity (with Xing Gao)
Awards: NFA 2018 Best Paper award
[Conferences: WFA (2019), FMA (2018), NFA (2018)]

Equity-based compensation causes increases in firms’ share count and depresses Earnings Per Share (EPS), which can give firms an incentive to raise EPS through repurchases or earnings management. This paper documents a causal relationship between equity-based pay and EPS management. Employing a regression discontinuity framework, we compare firms with “just-in-the-money” option exercises to firms with options that narrowly end up out-of-the-money. We find that firms engage in real- and accruals-based earnings management, but not repurchases, to boost EPS around these plausibly exogenous exercises. These effects are stronger when the increase in shares is larger, and apply only when earnings are positive.

Does Shareholder Scrutiny Affect Executive Compensation? Evidence from Say-on-Pay Voting (with Shastri Sandy)
Featured on the Harvard Law School Forum on Corporate Governance
[Conferences: SFS Cavalcade (2016), Young Scholars Finance Conference (2015), European Finance Association (2015), Paris December Finance Conference (2015), Northern Finance Association (2015), Financial Management Association (2014), Mid-Atlantic Research Conference (2014)]

We study whether shareholder scrutiny affects CEO pay. Our identification strategy exploits the fact that recent “say-on-pay” regulation allowed firms to hold votes every two or three years. Depending on their voting frequency, firms experience alternating years where scrutiny on compensation varies following a plausibly exogenous cyclical pattern. In vote-years, firms reduce salaries and golden parachutes, but compensate for these cuts by increasing less-scrutinized compensation such as pensions. Total pay is similar across vote and no-vote years, and pay-for-performance is not stronger in vote years. These results are most consistent with greater window-dressing of compensation in times when firms are subject to heightened shareholder scrutiny.

Do Short-Term Incentives Affect Long-Term Productivity? (NEW!) [with Heitor Almeida, Nuri Ersahin, Vyacheslav Fos, and Rustom M. Irani]

Previous research shows that stock repurchases that are caused by earnings management lead to reductions in firm-level investment and employment. It is natural to expect firms to cut less productive investment and employment first, which could lead to a positive effect on firm-level productivity. However, using Census data, we find that firms make cuts across the board irrespective of plant productivity. This pattern seems to be associated with frictions in the labor market. Specifically, we find evidence that unionization of the labor force may prevent firms from doing efficient downsizing, forcing them to engage in easy or expedient downsizing instead. As a result of this inefficient downsizing, EPS-driven repurchases lead to a reduction in long-term productivity.

Older Working Papers:

The Market Reaction to Stock Split Announcements: Earnings Information After All (with Alon Kalay)