Bennett S. LeBow College of Business

Bennett S. LeBow College of Business Finance

Cybersecurity and Boards of Directors: Who’s Watching?

With a growing reliance on technology, it is crucial that companies protect their customers’ as well as their own data against security breaches. Evidence suggests that boards of directors, those elected to represent shareholder interests in a company, are now being held more responsible for a firm’s strategy relating to data management and protection. Therefore, boards are increasingly expected to possess specific technology and cybersecurity knowledge. While prior studies evaluate specific data breaches or cybersecurity in general, little is understood about how cybersecurity relates to directors’ skill sets.

To examine this gap in the literature, we explore the effect of data breaches on the qualifications of a firm’s board of directors. Specifically, we examine firms in high-risk industries, such as Health Care, Finance, and Manufacturing, that experienced a breach in the past five years to determine if they subsequently alter their director skill sets. We find that companies with a recent cyber-attack emphasize technological and cybersecurity skills on their boards after these breaches. These results confirm that companies value directors and their specific qualifications as an integral part of managing cybersecurity risks.

Bennett S. LeBow College of Business

Muhammad Ubaid Ullah

Bennett S. LeBow

College

of Business

Finance Faculty Mentor: Dr. Gregory Nini Finance

Economics,

Impact of bank loan covenant violation on the probability of a company to be acquired or merged

Whether a company chooses to seek a potential sale or merger, in the mergers and acquisitions market, is one of the most disruptive corporate decisions it can face in its lifetime. In this study, we investigate if the company’s bank loan covenant violation is an event that would influence the company to do so. We hypothesize that bank loan covenant violation would encourage a firm to seek a merger as a way of alleviating financial distress.

We first search the SEC filings of over 13,000 firms from the time-period of 1995 to 2016 to record quarterly bank loan covenant violations, we then merge the accounting data of these firms to obtain the acquisition/merger dates. We concluded that firms with recent violations are 30% more likely to be acquired than those with no recent violations, which is a result of statistical significance, hence confirming our hypothesis.

Bennett S. LeBow College of Business

Hongye (Jarvis) Zhang

Bennett S. LeBow College of Business Finance, Business Analytics, Economics

Faculty Mentor: Dr. Gregory Nini Finance

Covenants Violation Frequency as A Macroeconomic Indicator

Lenders use loan covenants, an early warning signal of financial distress, to protect their interests. Violations to these covenants are an event of default, and they typically happen before bankruptcy. We hypothesize that the aggregate frequency of firms violating loan covenants can serve as an early indicator of macroeconomic conditions. We test this hypothesis formally by examining whether violations are correlated with and proceed the delinquency rate and the charge-of rate on Commercial and Industrial Loans.

Examining disclosures in more than 400,000 quarterly reports with the SEC to measure violation frequency, we create a 20 years aggregated time series of violation frequency and use regression to eliminate seasonality and trend that is apparent in time series. We find a statistically significant positive correlation between violation frequency, delinquency rate and charge-off rate with a lag of three to four quarters. These results serves an indictor forecasting macroeconomic conditions.

Bennett S. LeBow College of Business

Justin Luu

Bennett S. LeBow College of Business Business & Engineering

Faculty Mentor: Dr. George Tsetsekos Finance

The Photon of Finance: Can Bitcoin Be Used to Increase Financial Inclusion In Other Countries?

Recent developments in digital currencies have brought attention to Bitcoin as both a currency used for transactions and as a speculative investment. In particular, Bitcoin has been used in transferring funds across borders and saving on fees that are taken by more traditional remittance services like WesternUnion and MoneyGram. A comprehensive literature review was conducted to examine ways that Bitcoin has been used to increase financial inclusion in underbanked countries such as the Philippines. We developed a comparative study by examining the percentage of processing fees taken by traditional remittance services such as WesternUnion, MoneyGram, and Transferwise, relative to Bitcoin-based remittance services. A holistic approach of the pros and cons of using Bitcoin compared to traditional services was included as well.