Bo Becker
Assistant Professor of Business Administration
Bo Becker is an assistant professor in the Finance Unit and has taught in the MBA curriculum and in executive programs. He currently teaches creating value through corporate restructuring in the second year of the MBA program. His research, which has been published in The Journal of Finance and the Journal of Financial Economics and other journals examines corporate credit markets and corporate ownership structure. His recent work on credit markets has concerned institutions such as credit ratings and bankruptcy law. His work on ownership concerns the determinants of payout policy and the role of large owners. Professor Becker is a Faculty Research Fellow in the National Bureau of Economic Research’s Corporate Finance program.
Professor Becker received a Ph.D. from the University of Chicago Booth School of Business and an undergraduate degree from the Stockholm School of Economics. He has taught at the University of Illinois. Before beginning his doctoral studies, he worked as a consultant and as an advisor to the prime minister of Sweden.
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Article
| Journal of Financial Economics
| Forthcoming
Payout Taxes and the Allocation of Investment
Bo Becker, Marcus Jacob and Martin Jacob
When corporate payout is taxed, internal equity (retained earnings) is cheaper than external equity (share issues). If there are no perfect substitutes for equity finance, payout taxes may therefore have an effect on the investment of firms. High taxes will favor investment by firms that can finance internally. Using an international panel with many changes in payout taxes, we show that this prediction holds well. Payout taxes have a large impact on the dynamics of corporate investment and growth. Investment is "locked in" in profitable firms when payout is heavily taxed. Thus, apart from any level effects, payout taxes change the allocation of capital.
Keywords: Taxation;
Investment;
Equity;
Growth and Development Strategy;
Resource Allocation;
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Journal Article
| Review of Corporate Finance Studies
| Forthcoming
Financial Development, Fixed Costs and International Trade
Bo Becker, David Greenberg and Jinzhu Chen
Exporting firms face significant up-front costs in product design, marketing, and distribution, which likely would be difficult to finance externally. We argue that a developed financial system can facilitate exports, and we test three implications. First, a more developed financial system is associated with higher exports. Second, the impact of financial development is higher where fixed costs are large due to either product characteristics or the distance between exporter and importer. Finally, we find that in countries with well-developed finance, total exports and the allocation of exports across importers are more sensitive to exchange rates than in countries with lower financial development.
Citation: Becker, Bo, David Greenberg, and Jinzhu Chen. "Financial Development, Fixed Costs and International Trade." Review of Corporate Finance Studies (forthcoming).
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Article
| Journal of Law & Economics
| Forthcoming
Does Shareholder Proxy Access Improve Firm Value? Evidence from the Business Roundtable Challenge
Bo Becker, Guhan Subramanian and Daniel B. Bergstresser
We use the Business Roundtable's challenge to the SEC's 2010 proxy access rule as a natural experiment to measure the value of shareholder proxy access. We find that firms that would have been most vulnerable to proxy access, as measured by institutional ownership and activist institutional ownership in particular, lost value on October 4, 2010, when the SEC unexpectedly announced that it would delay implementation of the Rule in response to the Business Roundtable challenge. We also examine intra-day returns and find that the value loss occurred just after the SEC's announcement on October 4. We find similar results on July 22, 2011, when the D.C. Circuit ruled in favor of the Business Roundtable. These findings are consistent with the view that financial markets placed a positive value on shareholder access, as implemented in the SEC's 2010 Rule.
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Article
| Review of Financial Studies
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Fiduciary Duties and Equity-Debtholder Conflicts
Bo Becker and Per Stromberg
We use an important legal event as a natural experiment to examine the effect of management fiduciary duties on equity-debt conflicts. A 1991 Delaware bankruptcy ruling changed the nature of corporate directors' fiduciary duties in firms incorporated in that state. This change limited managers' incentives to take actions favoring equity over debt for firms in the vicinity of financial distress. We show that this ruling increased the likelihood of equity issues, increased investment, and reduced firm risk, consistent with a decrease in debt-equity conflicts of interest. The changes are isolated to firms relatively closer to default. The ruling was also followed by an increase in average leverage and a reduction in covenant use. Finally, we estimate the welfare implications of this change and find that firm values increased when the rules were introduced. We conclude that managerial fiduciary duties affect equity-bond holder conflicts in a way that is economically important, has impact on ex ante capital structure choices, and affects welfare.
Keywords: Equity;
Conflict of Interests;
Managerial Roles;
Borrowing and Debt;
Insolvency and Bankruptcy;
Motivation and Incentives;
Crisis Management;
Investment;
Risk and Uncertainty;
Bonds;
Capital Structure;
Value;
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Article
| Journal of Financial Economics
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How Did Increased Competition Affect Credit Ratings?
Bo Becker and Todd Milbourn
The credit rating industry has historically been dominated by just two agencies, Moody's and S&P, leading to longstanding legislative and regulatory calls for increased competition. The material entry of a third rating agency (Fitch) to the competitive landscape offers a unique experiment to empirically examine how, in fact, increased competition affects the credit ratings market. Increased competition from Fitch coincides with lower quality ratings from the incumbents: rating levels went up, the correlation between ratings and market-implied yields fell, and the ability of ratings to predict default deteriorated. We offer several possible explanations for these findings that are linked to existing theories.
Keywords: Credit;
Governing Rules, Regulations, and Reforms;
Competition;
Forecasting and Prediction;
Theory;
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Article
| Journal of Finance
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Local Dividend Clienteles
Bo Becker, Zoran Ivkovic and Scott Weisbenner
We exploit demographic variation to identify the effect of dividend demand on corporate payout policy. Retail investors tend to hold local stocks, and older investors prefer dividend-paying stocks. Together, these tendencies generate geographically varying demand for dividends. Firms headquartered in areas where seniors constitute a large fraction of the population are more likely to pay dividends, initiate dividends, and have higher dividend yields. We also provide indirect evidence as to why managers may respond to the demand for dividends from local seniors. Overall, these results are consistent with the notion that the investor base affects corporate policy choices.
Keywords: Business Headquarters;
Demographics;
Investment;
Geographic Location;
Policy;
Business and Shareholder Relations;
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Article
| Journal of Financial and Quantitative Analysis
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Estimating the Effects of Large Shareholders Using a Geographic Instrument
Bo Becker, Henrik Cronqvist and Rudiger Fahlenbrach
Large shareholders may play an important role for firm performance and policies, but identifying this empirically presents a challenge due to the endogeneity of ownership structures. We develop and test an empirical framework, which allows us to separate selection from treatment effects of large shareholders. Individual blockholders tend to hold blocks in public firms located close to where they reside. Using this empirical observation, we develop an instrument-the density of wealthy individuals near a firm's headquarters-for the presence of large, non-managerial individual shareholders in firms. These shareholders have a large impact on firms, controlling for selection effects.
Keywords: Business and Shareholder Relations;
Performance;
Policy;
Ownership;
Selection and Staffing;
Business Headquarters;
Geography;
Framework;
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Article
| B.E. Journal of Economic Analysis & Policy
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The Effect of Financial Development on the Investment Cash Flow Relationship: Cross-Country Evidence from Europe
Bo Becker and Jagadeesh Sivadasan
We investigate financing constraints in a large cross-country data set covering most of the European economy. Firm-level investment sensitivity to cash flow is used to identify financing constraints. We find that the sensitivities are significantly positive, on average, controlling for country and industry fixed effects, as well as firm-level controls. Most importantly, the cash flow sensitivity of investment is lower in countries with better-developed financial markets. This suggests that financial development may mitigate financial constraints. This effect is weaker in conglomerate subsidiaries, which are likely to have access to internal capital markets and depend less on the outside financial environment, and possibly for firms in industries with highly liquid assets as well. This result sheds light on the link between financial and economic development.
Keywords: Growth and Development;
Development Economics;
Investment;
Cash Flow;
Cross-Cultural and Cross-Border Issues;
Relationships;
Economy;
Financial Markets;
Business Subsidiaries;
Capital Markets;
Assets;
Financing and Loans;
Europe;
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Journal Article
| Journal of Financial Economics
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Geographical Segmentation of U.S. Capital Markets
Bo Becker
Demographic variation in savings behavior can be exploited to provide evidence on segmentation in US bank loan markets. Cities with a large fraction of seniors have higher volumes of bank deposits. Since many banks rely heavily on deposit financing, this affects local loan supply and economic activity. I show a positive effect of local deposit supply on local outcomes, including the number of firms, the number of manufacturing firms, and the number of new firms started. The effect is stronger in industries that are heavily dependent on external finance. The deregulation of intrastate branching reduced the effect of local deposit supply by approximately a third.
Keywords: Age Characteristics;
Economy;
Capital Markets;
Banks and Banking;
Financing and Loans;
Local Range;
United States;
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Article
| Journal of Finance
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Wealth and Executive Compensation
Bo Becker
Using new data on the wealth of Swedish CEOs, I show that higher wealth CEOs receive stronger incentives. Since high wealth (excluding own-firm holdings) implies low absolute risk aversion, this is consistent with a risk aversion explanation. To examine whether wealth is likely to proxy for power, I use lagged wealth (typically measured before the CEO was hired), and the results remain for one of two incentive measures. Also, the wealth–incentive result is not stronger for CEOs likely to face limited owner oversight. Finally, wealth is unrelated to pay levels, and is hence unlikely to proxy for skill.
Keywords: Wealth;
Executive Compensation;
Motivation and Incentives;
Power and Influence;
Risk Management;
Competency and Skills;
Wages;
Sweden;
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Working Paper
| HBS Working Paper Series
| 2012
Reaching for Yield in the Bond Market
Bo Becker and Victoria Ivashina
Reaching-for-yield—the propensity to buy riskier assets in order to achieve higher yields—is believed to be an important factor contributing to the credit cycle. This paper analyses this phenomenon in the corporate bond market. Specifically, we show evidence for reaching for yield among insurance companies, the largest institutional holders of corporate bonds. Insurance companies have capital requirements tied to the credit ratings of their investments. Conditional on ratings, insurance portfolios are systematically biased toward higher yield, higher CDS bonds. This behavior appears to be related to the business cycle, being most pronounced during economic expansions. It is also more pronounced for the insurance firms for which regulatory capital requirements are more binding. The results hold both at issuance and for trading in the secondary market and are robust to a series of bond and issuer controls, including issuer fixed effects as well as liquidity and duration. Comparison of the ex-post performance of bonds acquired by insurance companies does not show outperformance, but higher volatility of realized returns.
Keywords: fixed income;
Reaching for yield;
financial intermediation;
insurance companies;
Insurance;
Bonds;
Assets;
Risk Management;
Investment Return;
Investment Portfolio;
Insurance Industry;
Citation: Becker, Bo, and Victoria Ivashina. " Reaching for Yield in the Bond Market." Harvard Business School Working Paper, No. 12–103, May 2012. (Revised December 2012. NBER Working Paper Series, No. 18909, March 2013)
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Working Paper
| HBS Working Paper Series
| 2012
Payout Taxes and the Allocation of Investment
Bo Becker, Marcus Jacob and Martin Jacob
When corporate payout is taxed, internal equity (retained earnings) is cheaper than external equity (share issues). If there are no perfect substitutes for equity finance, payout taxes may therefore have an effect on the investment of firms. High taxes will favor investment by firms who can finance internally. Using an international panel with many changes in payout taxes, we show that this prediction holds well. Payout taxes have a large impact on the dynamics of corporate investment and growth. Investment is "locked in" in profitable firms when payout is heavily taxed. Thus, apart from any level effects, payout taxes change the allocation of capital.
Keywords: Business Earnings;
Equity;
Financing and Loans;
Investment;
Taxation;
Business and Shareholder Relations;
Motivation and Incentives;
Citation: Becker, Bo, Marcus Jacob, and Martin Jacob. " Payout Taxes and the Allocation of Investment." Harvard Business School Working Paper, No. 11–040, October 2010. (Revised November 2010, March 2011, September 2011, April 2012.)
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Working Paper
| HBS Working Paper Series
| 2011
Cyclicality of Credit Supply: Firm Level Evidence
Bo Becker and Victoria Ivashina
Theory predicts that there is a close link between bank credit supply and the evolution of the business cycle. Yet fluctuations in bank-loan supply have been hard to quantify in the time-series. While loan issuance falls in recessions, it is not clear if this is due to demand or supply. We address this question by studying firms' substitution between bank debt and non-bank debt (public bonds) using firm-level data. Any firm that raises new debt must have a positive demand for external funds. Conditional on issuance of new debt, we interpret firm's switching from loans to bonds as a contraction in bank credit supply. We find strong evidence of substitution from loans to bonds at times characterized by tight lending standards, high levels of non-performing loans and loan allowances, low bank share prices and tight monetary policy. The bank-to-bond substitution can only be measured for firms with access to bond markets. However, we show that this substitution behavior has strong predictive power for bank borrowing and investments by small, out-of-sample firms. We consider and reject several alternative explanations of our findings.
Keywords: Business Cycles;
Borrowing and Debt;
Credit;
Banks and Banking;
Bonds;
Financial Markets;
Financing and Loans;
Banking Industry;
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Supplement
| HBS Case Collection
|
2013
Preem (B) (CW)
Bo Becker
Citation: Becker, Bo. " Preem (B) (CW)." Harvard Business School Spreadsheet Supplement 213-716, February 2013.
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Supplement
| HBS Case Collection
|
2013
Preem (A) (CW)
Bo Becker
Citation: Becker, Bo. " Preem (A) (CW)." Harvard Business School Spreadsheet Supplement 213-715, February 2013.
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Supplement
| HBS Case Collection
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2012
Identifying Firm Capital Structure, Spreadsheet Supplement
Bo Becker
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Teaching Note
| HBS Case Collection
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2012
Preem (A) and (B) (TN)
Bo Becker
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Teaching Note
| HBS Case Collection
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2012
L'Occitane en Provence (TN)
Bo Becker and Scott Mayfield
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Supplement
| HBS Case Collection
|
2013
(Revised from original 2012 version)
Preem (B)
Bo Becker
Preem's creditors and owners made a deal with an 18 month extension of debt maturities and a minor equity injection in 2009. Now, in 2010, the new maturity is approaching, and refinancing is again unlikely. This time, all the firm's debt is coming due. What went wrong in the first restructuring and what should PCP do to facilitate a more permanent solution?
Keywords: Restructuring;
Equity;
Problems and Challenges;
Mining Industry;
Energy Industry;
Europe;
Citation: Becker, Bo. " Preem (B)." Harvard Business School Supplement 213-014, March 2013. (Revised from original August 2012 version.)
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Case
| HBS Case Collection
|
2013
(Revised from original 2012 version)
Preem (A)
Bo Becker, Annelena Lobb and Aldo Sesia
High yield bond fund Proventus Capital Partners (PCP) has invested in underwater bonds issued by Preem, a large oil refinery. As maturity approaches, in the midst of financial crisis, Preem appear unlikely to be able to refinance. Meanwhile, Prreem has a complicated multi-currency capital structure with both senior, secured bank loans and junior bonds. PCP has to decide whether to push for bankruptcy in a European court, or to push for out of court renegotiations. The case is a tool for studying the difference between liquidity problems and solvency problems, weighing bankruptcy vs. out of court restructuring, and dealing with negotiations between creditors.
Keywords: Insolvency and Bankruptcy;
Financial Liquidity;
Restructuring;
Courts and Trials;
Negotiation;
Bonds;
Mining Industry;
Energy Industry;
Europe;
Citation: Becker, Bo, Annelena Lobb, and Aldo Sesia. " Preem (A)." Harvard Business School Case 213-008, March 2013. (Revised from original August 2012 version.)
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Supplement
| HBS Case Collection
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2012
(Revised from original 2012 version)
L'Occitane en Provence
Bo Becker, Daniela Beyersdorfer, Scott Mayfield and Mayuka Yamazaki
Citation: Becker, Bo, Daniela Beyersdorfer, Scott Mayfield, and Mayuka Yamazaki. " L'Occitane en Provence." Harvard Business School Spreadsheet Supplement 212-707, June 2012. (Revised from original March 2012 version.)
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Case
| HBS Case Collection
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2012
(Revised from original 2011 version)
A New Financial Policy at Swedish Match
Bo Becker and Michael Norris
Swedish Match is a profitable smokeless tobacco company with low debt compared to other firms in its industry. The firm's CFO now wants to revise the firm's conservative financial policy.
Keywords: Capital Structure;
Corporate Finance;
Sweden;
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Teaching Note
| HBS Case Collection
|
2012
(Revised from original 2012 version)
Kroll Bond Rating Agency (TN)
Bo Becker
Keywords: Bonds;
Citation: Becker, Bo. " Kroll Bond Rating Agency (TN)." Harvard Business School Teaching Note 212-065, March 2012. (Revised from original January 2012 version.)
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Case
| HBS Case Collection
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2012
(Revised from original 2011 version)
L'Occitane en Provence
Bo Becker, Daniela Beyersdorfer, Scott Mayfield and Mayuka Yamazaki
Cosmetics company L'Occitane en Provence must decide if it is the right time to go public, and, if so, where to list. The firm could list on Euronext in Paris, close to the firm's headquarters in southern France, on one of the large exchanges in the U.S., or perhaps in Asia, where much of the firm's future growth is expected. The case provides opportunities to discuss the benefits and costs of going public, including valuation implications, and illustrates the choices faced by a prospective IPO firm that operates in a global setting.
Keywords: Initial Public Offering;
France;
Citation: Becker, Bo, Daniela Beyersdorfer, Scott Mayfield, and Mayuka Yamazaki. " L'Occitane en Provence." Harvard Business School Case 212-051, November 2012. (Revised from original November 2011 version.)
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Case
| HBS Case Collection
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2013
(Revised from original 2011 version)
Kroll Bond Rating Agency
Bo Becker
The established credit raters were criticized for inflating the mortgage credit bubble that imploded in 2008. A new rating agency, KBRA, is considering how to capitalize on the opportunity this presents and how to enter the industry. A small group of managers have to decide on a business model, how to meet hiring and funding needs, and what types of ratings to start with: municipal, corporate, or structured. Where are the needs for new ratings stronger? How can investors be convinced to use the new ratings? How can KBRA compete with Fitch, Moody's, and S&P?
Keywords: Financial Instruments;
Financial Management;
Financial Services Industry;
Citation: Becker, Bo. " Kroll Bond Rating Agency." Harvard Business School Case 212-034, April 2013. (Revised from original October 2011 version.)
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Teaching Note
| HBS Case Collection
|
2012
(Revised from original 2012 version)
A New Financial Policy at Swedish Match (TN)
Bo Becker
Keywords: Finance;
Policy;
Sweden;
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Supplement
| HBS Case Collection
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2012
A New Financial Policy at Swedish Match (CW)
Bo Becker
Keywords: Finance;
Policy;
Sweden;
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Case
| HBS Case Collection
|
2011
(Revised from original 2011 version)
Identifying Firm Capital Structure
Bo Becker
Students are asked to link concealed balance sheets with firm descriptions. The case helps students understand how balance sheets reflect industry and firm characteristics.
Keywords: Financial Statements;
Business Ventures;
Capital Structure;
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Case
| HBS Case Collection
|
2011
(Revised from original 2010 version)
Roches Acquisition of Genentech
Carliss Y. Baldwin, Bo Becker and Vincent Marie Dessain
Franz Humer, CEO of the Roche Group, must decide whether to mount a hostile tender offer for the publicly-owned shares of Roche's biotechnology subsidiary, Genentech. The case provides opportunities to analyze Roche's strategy with respect to Genentech, the pros and cons of merging the two companies with different cultures, the value of Genentech, and the tactics of a hostile tender offer.
Keywords: Mergers and Acquisitions;
Business Subsidiaries;
Negotiation Offer;
Organizational Culture;
Corporate Strategy;
Biotechnology Industry;
Pharmaceutical Industry;
Switzerland;
Citation: Baldwin, Carliss Y., Bo Becker, and Vincent Marie Dessain. " Roches Acquisition of Genentech." Harvard Business School Case 210-040, September 2011. (Revised from original February 2010 version.)
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Teaching Note
| HBS Case Collection
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2010
Roche's Acquisition of Genentech (TN)
Bo Becker and Carliss Y. Baldwin
Teaching Note for 210-040.
Keywords: Mergers and Acquisitions;
Stock Shares;
Opportunities;
Strategy;
Organizational Culture;
Value;
Negotiation Tactics;
Biotechnology Industry;
Health Industry;
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