Essays on empirical finance

This thesis contains three essays on empirical finance. The first essay examines racial differentials in the most popular online home valuation algorithm and studies how the algorithmic valuation information affects racial price differentials in the U.S. housing market. I find that valuations from the algorithm display some racial differentials, but such differentials are much smaller in magnitude compared to the racial differentials in transaction prices. In addition, the availability of the algorithmic information significantly reduces racial differentials in transaction prices in terms of the overpayment of Black buyers relative to White buyers. The findings suggest that an algorithm exhibiting some racial differentials may still help reduce racial disparity in a market if its differentials are much smaller than those in transaction prices, cautioning against regulations targeting algorithms solely based on the existence of racial differentials from the algorithms. The second essay studies how housing prices react to an information shock due to the update in the home valuation algorithm studied in the first essay. I find that housing prices react gradually to the information shock. While the reaction in the first month is small, a 1% increase in the online valuations leads to a 0.65% increase in sale prices 12 months after the shock. The findings provide direct evidence that housing prices react gradually to information. I also examine the factors that affect the reactions. I find stronger reactions in ZIP Codes with higher average trading volumes, more homogenous homes, and lower education levels. The third essay, coauthored with Dale Griffin, Omrane Guedhami, and Kai Li, examines why corporate social responsibility (CSR) practices vary across countries and firms, and the value implications of such variation. We find that the cultural dimension of individualism is positively associated with firm-level CSR practices, with three country-level channels—freedom of the press, income inequality, and protection of equal rights—and three firm-level channels—managerial discretion, board diversity, and corporate transparency—linking individualism to CSR. We find a positive association between firm-level CSR practices and value, with three firm-level channels—cash flows, cash flow variability, and cost of equity—linking CSR practices to firm value.Business, Sauder School ofGraduat