Ronald Giammarino


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Graduate Student Supervision

Doctoral Student Supervision (Jan 2008 - May 2019)
Agency and nominal frictions in financial markets (2015)

This dissertation examines the effects of nominal and agency frictions in three different environments. The first essay builds a New Keynesian model to analyze the effects of changes in the maturity structure of nominal government debt on the real economy and inflation. The model includes nominal frictions, a time-varying maturity structure of nominal debt and allows for variations in the interaction between the monetary and the fiscal authorities. This essay shows that when the slope of the term structure of interest rates is nonzero in a fiscally-led policy regime the irrelevance of open market operations, changing the duration of government liabilities, is violated. Furthermore, maturity restructuring policies, conditional on the slope of the term structure of interest rates, can smooth macroeconomic fluctuations and offer substantial welfare benefits.The second essay studies how agency frictions between spouses affect their consumption, asset allocation and marital decisions. To examine this nexus, a life cycle model with limited commitment between spouses is built. The model is able to endogenously produce time-varying risk aversion at the household-level through changes in the relative income between spouses that alter their relative bargaining power. Consistent with the data, changes in relative income are associated with significant shifts in the portfolios of households. Also, the model can rationalize the empirical patterns relating marital transitions to changes in portfolio allocations. Furthermore, the risk-sharing benefits of marriage in the model imply a positive link between wealth and risky asset holdings across households, which is observed in the data. The final essay presents a dynamic agency model to study the effects of firms' exposure to aggregate risk on CEOs' contracts. The model features a risk-averse representative shareholder, risk-averse managers that exert unobservable effort and firms that are heterogeneously exposed to aggregate risk. In the model, managers are incentivized by a mix of short- and long-term compensation, and the threat of being fired. The contract differs between firms with different exposure to aggregate risk. The model can explain salient features in the data; namely, the negative relation between aggregate risk and long-term compensation and the procyclicality of aggregate turnover.

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Essays on the dynamics of mergers and acquisitions (2013)

In this thesis, I present three essays on the interaction of two dynamic aspects of mergers and acquisitions. First, merger activity follows waves within industries over time. Second, acquirers' announcement returns are on average small and decline within merger waves. In the first essay, I develop a model of merger waves to study the interplay between merger timing and market anticipation of deal announcements. I show that the pattern of small and declining announcement returns for acquirers in merger waves is consistent with the notion that the market learns over time and is thus able to better anticipate deal announcements. This explanation contrasts with existing theories which attribute the declining pattern in announcement returns to a decline in deal quality. The model delivers several predictions about time-series and cross-section aspects of acquirers' stock returns during merger wave episodes. In the second essay, I test a set of the model's predictions. As a testing laboratory, I use four industries that underwent merger deregulations in the 1990s. Consistent with existing theories, high quality deals tend to be announced early in a merger wave. However, I show that this pattern in deal quality does not explain the declining pattern in acquirers' announcement effects. Consistent with the model's predictions, I find that what matters for this pattern is the unexpected portion of deal timing. I also find evidence of contagion effects on acquirers' peers that is consistent with the information channel in the model. In the third essay, I study the drivers of merger waves by examining the allocation of equity proceeds raised at times of high merger activity. My results indicate that firms do not systematically increase debt repayment or equity payout with equity proceeds raised in high merger years. This pattern does not conform with the view that managers believe the stock is overvalued at the time of the equity issue. Instead, the observed pattern of proceeds allocation is consistent with the existence of time-varying adverse selection and investment lags. The evidence supports the idea that these frictions are important elements behind the dynamics of merger and acquisition activity.

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