 Welcome. My name is Kristi Bear. I'm the Assistant Director of the Center on Finance Law and Policy. Welcome to our first Blue Bag Launch Talk of the 2021-22 academic year. These talks were founded when the center was founded seven years ago, and the purpose of them is to take advantage of the strength of U of M, where every sidewalk leads to a top 10 program, and allow faculty from different schools to present their ideas, and before a friendly, supportive, and yet wicked smart and super supportive but helpful audience. So these talks have been happening for a really long time. The topics vary super wildly, widely, either way. And these are a chance for, you know, faculty to say what they're working on, sometimes before they get to a published paper, sometimes when they just have a working paper. And so I hope that you'll view this as a chance to ask every question that occurs to you. If you read the paper already, fantastic. If you didn't, you don't even need to worry about it because Professor Yimfer is going to tell you all about it, and then you can go back and read it after. So our speaker today is Professor Emmanuel Yimfer from the Ross School of Business. He joined the Ross School during COVID, and so is meeting people in real life this year. So if you haven't seen him in person in the faculty lounge, you're like, who is that guy you should go and talk to him because he doesn't know what you look like in 3D. His research is focused on Empirical Corporate, Empirical Corporate Finance with a focus on financial intermediation, capital formation, entrepreneurial finance. And he's specifically interested in how information frictions affect the ability of startups to raise external financing. He is not teaching this semester. So if you're a student and you were hoping to sign up for his class, you have to wait till next semester. Next semester, though, he's all yours. He's going to be teaching venture capital, private equity, global private equity and entrepreneurial finance courses next semester. He's a master's from rice. He has a master's from Kent State. And though he did spend a significant amount of time in Ohio, he is thrilled to be a Michigan Wolverine now. So, his talk today is he has a fancy title for it but we're going to think of it as employee misconduct and an investment firm context because we all want to hear about when employees behave badly. And he will now tell you what his talk is actually about. He's going to present for a little bit and at the end, everyone will have a chance to just ask questions either in the chat. You can send them to everyone in the chat or you can raise your hand at the end. And so, from here, let me turn it over to Professor for thanks for being with us today. Thank you for the wonderful introduction Christy. Let me get my slides to full screen mode. Can you see him. All right, excellent. So today I'm going to be discussing new work with Heather took shoes at Yale. And in this paper what we're looking at is the relationship between corporate control transactions and employee behavior. And finance were were very interested in allocating capital to his most productive use. Now that's no different when it comes to mergers and acquisitions, as far as investments go. Mergers are one of the largest investments that a firm would ever make. And so it's very natural that a lot of academic papers have kind of asked the question. Mergers are mergers a profitable investment. Now how have these papers done that what they have looked at various things like for issuers for firms that are publicly traded they've looked at things like announcement period returns post takeover stock returns changes in profitability. But there's really no evidence on the exact precise mechanisms through which the synergies are realized. We're going to take a different approach and we're going to get into the weeds here and ask, you know, can can emanate this corporate control transactions, can they improve the behavior of rank and file employees. Now the investment advisory industry is a very useful laboratory because as I would show you registration and licensing requires that the information about investment advisory firms and more specifically investment advisors be be public. Now I'm going to talk a lot about employee behavior. I'm going to talk a lot about misconduct sometimes I'm going to call them disclosures. Let me give you a little bit of a feel for what these are. Let's look at an example. So here, the New Jersey Bureau of Securities here's something that I'll call a regulatory disclosure. The New Jersey Bureau of Securities brought an action against a Saviano. I'm going to be calling him an advisor, an investment advisor. And, you know, the alleged that he engaged in dishonest or unethical behavior. It's a relation to boring money from from his clients. Right. And for this defined him about $20,000. So here's an example of a regulatory disclosure. Another example maybe is a customer dispute so here the customer was unhappy with a kind of investments that the advisor purchase for the customer, they complained about it and this particular dispute ended up being settled for about $45,000. So here are the actions and customer disputes. Those are the most popular categories of disclosures that constitute essentially what I'm going to also be calling misconduct, and it will be a little bit more specific about about why I will be calling some of this disclosures misconduct in a few months. Now you should know that about 7% of all brokers so these are individual advisors employed between 2004 and 2019 have at least one such disclosure. Our paper is not going to be the first to talk about these disclosures right the paper is about corporate control transactions MNA and the effect they have on on these disclosures but you know what have people kind of looked at in the past so you know, this is very popular paper that Egan Madbus and Siru published in the JPE should that you know this misconduct is widespread one in 13 advisors has has a misconduct disclosure and they show that they're costly. The mean fine so the fine is like you know I showed you a fine for for the two examples that we looked at earlier, the average fine if you look at the cross section of these disclosures is about half a million dollars and the median settlement is about $40,000. I think that I want to come back to this that I want you to hold that in your minds for now. Okay, one third of this advisors with misconduct actually repeat offenders. So if I know that you committed misconduct today there's a very high chance that I know that you're going to repeat in the future, given that a lot of this advisors with misconduct repeat offenders. We also know that misconduct is contagious. Right in a paper by by demo Gherkin and co authors. What they show is that when advisory firms marriage, for example, and a co worker that doesn't have a misconduct record is exposed to a new co worker that has a misconduct record that is more likely to commit misconduct in the next three years and so the interpretation there is that fraud is contagious right and so a this misconduct events are costly be this misconduct events are contagious. If we zoom out a little bit right with what is the consequence of this misconduct related disclosures on the investment advisory industry in general. There's a really cool paper by by Guru and stuff man and younger that show that actually this things can be very costly to the investment advisory industry. They use the Bernie made of Bernie made of by the way on an investment advisory firm. I think that how did his clients react when he was revealed as as as being a fraudster and the show that a lot of those clients were with drew the assets from investment advisors so even those that were not directly affected. But those, for example, that new people who are directly affected with drew their money from investment advisors and instead took that money to what they believe was safety to banks. Disclosures events are a costly be contagious and see they can have broad reaching impacts on the investment advisory industry in general. And so with that at the back of our mind again going to our specific question of how this corporate control transactions affect employee behavior we're going to we're going to frame our test through the lens of existing theory what do I mean by that well. Let's look back at the theory and the theory kind of suggests which type of targets and acquirers would merge with each other is a there's a broad theory that I titled the market discipline hypothesis right that that suggests that better behave firms will buy poorly performing firms right and there's a lot of empirical support for this idea. So for example people have found that firms that have high market to book if you don't know what market to book is just think about that as better firms. They tend to buy firms that have low market to book maybe poor performing firms right. And so then I'm going to get in a second to what this specifically implies for for our specific context which is mergers in the investment advisory industry, and this misconduct related disclosures that will be we've been talking about, but just hold that market discipline hypothesis better behave firms will buy poorly performing firms. The compliment hypothesis suggests instead that you would have a like buys like in mergers and acquisition so if two firms maybe have similar cultures, those two firms are more easy to integrate post the murder, merger, and it's easy to realize this synergies following the merger and so you really have two conflicting empirical predictions about who buys home. So this hypothesis imply for our context again which is corporate control transactions in the investment advisory industry as a function of employee behavior either the target or the acquire. Well the market discipline hypothesis actually has some pretty specific predictions right. We would predict that high misconduct firms will be more likely to be targets and low misconduct firms, the better behave ones will be more likely to be acquirers to will predict in terms of matching that low misconduct acquirers again will better behave would match with high misconduct targets. So again, if you're a little bit confused, what's the difference between the first and the second. The first one is about who gets to enter the market for mergers and acquisitions. The second one is conditional and entry. How do they match. Right. And the third one says, any post merger reductions in misconduct to the extent that they are value relevant right will be driven by changes related to the target firm employees because again remember, according to the market discipline hypothesis, the target firm employees are not well behaved and that's one of the reasons why they entered into the into the M&A market in the first place. Well there's no real prediction about who gets to enter the markets for mergers and acquisition because it just suggests that you know firms with similar culture firms that I like would match with each other. A main variable of interest is employing misconduct so there's a specific prediction about how they match conditional and entry targets and acquirers should match according to levels of employee wrongdoing. And the compliments hypothesis also suggests that if you get any post merger reductions in misconduct, it could be driven by changes related to the target firm employee, the acquiring firm employee or maybe even even both. Let me tell you very briefly about our data. So the first data set I kind of briefly discussed we need the disclosure records of each of these advisors so we wrote a script to collect that data for about 1.2 million advisors I believe. Obviously obviously is data on mergers. And so we're going to collect that from a few different sources. I'm not going to bore you with the details but just so you know we have 419 mergers in our sample from 2004 to 2020. You should also know that the target and their prior US based investment advisors. All right, now as I keep talking about employee misconduct I showed you a specific example in general they have a 23 different categories right the most, the most frequent categories are regulatory disclosures which I showed you and customer disputes that are that are settled or awarded some kind of judgment. So we can see here that, you know, we could use all 23 categories of disclosure and call them misconduct, but as you can my most and Siru have shown some of these are not a mile disclosures right they don't want the title of misconduct, necessarily. And so they did a lot of the work for us and they separated this character this category of disclosures into ones that are a little bit more severe that would be more related to this condom and these are the six categories that I have over here. And so I'm going to really be using to we are going to be using two measures of this disclosures at the employee level. The all measure is going to count the total number of these disclosures over the past two years. And the EMS measure short for Egan, my most and Siru is going to count just the six categories that are more severe the most severe categories essentially of disclosures. And I know that the authors Egan, my most and Siru they show that advisors that have committed any one of these other disclosures are also more likely to have committed a misconduct under the more rigorous definitions. So we're going to interpret changes in either the all measure, which encompasses all the 23 categories, or just the more strict categories that Egan, my most and Siru think are more egregious right as as misconduct. Now, I told you we have 419 mergers here and so here we're looking at some statistics of targets and acquirers that are in our sample. I don't think it's surprising. Excuse me. I don't think it's surprising that, you know, on average targets tend to be a lot larger than acquirers, they tend to have a lot more assets under under management. Right. Now related to the hypothesis one thing that's really interesting here is that you can already kind of see some evidence against the market discipline hypothesis right you can see here that targets and not better behave necessarily relative to acquirers. Set that backwards. Acquirers are not better behave relative to targets. You can see that there's almost no difference in the employee disclosures of acquirers and targets, if anything, acquirers have experienced more recent growth in employee disclosures relative to targets. And so this is already a little bit of evidence against the market discipline hypothesis of why of why firms merge, and maybe this kind of suggests the compliment hypothesis of light by slight, but I'm going to do a lot more digging in the next few slides. And then we'll get into, okay, who gets to enter the M&A industry as a function of their misconduct history. How do they match, and is there any drop in misconduct following the merger event. Let me first try to like convince you just suggest the value relevance of misconduct and how exactly are we going to do that. What we're going to do that by looking at the relationship between employee misconduct. This is just, if you have 100 employees, 10 of them have this misconduct related disclosures in the last two years, for example, right, then that variable is going to be 10%. That's exactly how we're measuring misconduct. A unit of observation here is an investment advisor year, right, we're going to be looking at the cross section of investment advisors and we're going to ask, if you have more of this employee misconduct, does that predict your level of assets under management, and you're changing assets under management or whether or not you fail in the future. And what we find is, if you have this misconduct related disclosures, you have lower future assets under management. And so here, the estimates imply that a one standard deviation increase in this employee disclosures is associated with 8.3% lower future assets under management, right. So again, I'm not making a causal statement here, I'm just trying to convince you by showing you some correlations that misconduct is value relevant. If we look at change in assets under management, so here we're looking at the recent change in misconduct and how is that related to future changes in assets under management, we find the same effect. Relative to the unconditional mean here, the estimates here imply that a one standard deviation change in recent employee disclosures is associated with between a 3.5 and a 4.5% decrease in future changes in assets under management. Now if you're not familiar with the investment advisory industry, you should know that the way most of these advisors, the investment advisory firms earn their revenue is by charging a fraction of assets under management as a fee. So they charge one or 2% of assets under management as a fee. And so assets under management here is very value relevant. The next thing we look at is failures, right. So we say, for example, if you have this recent employee disclosures are you more likely to fail. And here again relative to the unconditional mean because failure is very rare in the sample, you're anywhere from 5 to 7% more likely to close if you have more of these employee employee disclosures. And so this is just to convince you that there is a relationship, misconduct can be value relevant. Even if you don't believe that misconduct is necessarily causing these variables to change. At the very least, misconduct is associated with something that's value relevant to the extent that that's true. Maybe it is a variable that potential acquirers will focus on when they're doing the merger. Okay. And so the next thing we're going to look at is the first test that I showed you when we're talking about the hypothesis which is who gets to enter the investment advisory market as a function of their of their misconduct history. Now, again, remember that the market discipline hypothesis would predict that if you're an acquirer and you have a high level of employee disclosures, you're more like if you're a target. You're more likely to have a high level of misconduct related disclosures, your employees are not well behaved. And that's why people are trying to take you over so that they can realize the synergies by improving the behavior of your employees. On the other hand, the market discipline hypothesis would predict that as an acquirer, you're going to have better behaved employees and as such your misconduct related disclosures should be low. What do we find? Well, we don't find evidence that's consistent with the market discipline hypothesis. Here, the estimates imply that if you have a once in the deviation increase in employee disclosures, relative to their unconditional company, you're about 12% less likely to be a target for an acquisition, again, which is not consistent with the market discipline hypothesis. We expect the signs to be the opposite of what they are. When we look at the target, the relationship is the same, although when we do put control variables is not as significant. And so here, when we're looking at entry into the market for M&As, what we conclude really is that the evidence is not consistent with the market discipline hypothesis. It seems to point more towards potential complementarities in misconduct, especially if you group this with the statistics that I showed you at the start. What we just looked at, what does employee disclosures for the target look like? What do employees' disclosures for the acquirer look like? They didn't seem to be that different from each other. If anything, targets seem to have recent growth in employee disclosures. And so what we're going to do next is we're going to test for assertive matching on this employee disclosures. It's really true that we really have a like-buys-like work where firms with high levels of employee disclosure are more likely to match with other firms with the same level of employee disclosures. Now, how are we going to do that? I'm going to walk you through it because it could be counterintuitive when we first hear about it. So what we're doing now is, is there matching on employee misconduct in M&A? To do that, let's start with a very simple example. So here are two mergers in our sample in 2015. So Washington acquired Halsey and Pinnacle acquired Enrichment. Now, how are we going to do the counterfactual mergers in an ideal world? We would like to see all the targets that Washington consider, right? We would like to see all the targets that Pinnacle consider. And we would ask, how does Halsey differ, for example, from all the other targets that Washington consider? Well, we're empiricists and we don't observe that counterfactual. So we're going to approximate it by doing the following. We're going to take Halsey and we're going to pair Halsey with Washington and Pinnacle. We'll do the same thing for Enrichment. And so two of these mergers actually happen and two of them did not. Now we can observe employee disclosures for Halsey and for all the firms here. And so what we're going to do is we're going to create four buckets. We're going to create, our first bucket is where the acquirer and the target both have this misconduct related disclosures. The second bucket, the target has misconduct related disclosures, but the acquirer doesn't. The third bucket, neither of them do. And the fourth bucket, only the target has this misconduct related disclosures. And we're going to ask, in each of these buckets, what fraction of these firms are actually true merging pairs to test for evidence of matching and misconduct. So here's what that figure looks like. So again, recall that here, for example, this tall bar would be the acquirer has some type of disclosure and the target has some type of disclosure. And so we see here that 4.15% of all pairs in this bucket are true merging firms. When we create this counterfactual pairs, the unconditional merger rate is about 2.25%. So this is 83% larger. And so when we look at target and acquirer pairs with no disclosure, we also see that that's higher. And so the evidence here does seem to suggest matching on misconduct. We could be a little bit more rigorous. How? We could actually run a regression where we can hold different things fixed. So I showed you the counterfactual pairing, right? Some of them are fake mergers, others are real. What we're going to ask is, is if the distance in disclosure between the acquirer and the target is high, right? And we have assertive matching on misconduct, then we would expect that to be negatively related to the probability of a merger. We're going to hold all the characteristics of the target and the acquirer fixed. So how should you interpret retail clients here, for example? Retail clients would be an indicator that equals one if both the target and acquirer both serve retail clients. We're going to do the same thing for the other control variables. Now what we find there again is evidence of assertive matching on misconduct. So here, a standard deviation increase, for example, in the distance in employee disclosures between the acquirer and the target relative to the unconditional mean here is associated with about a 20% decrease in the probability of a merger, which does support the like bias like hypothesis, the complement hypothesis of mergers in the investment advisory industry. Now the next thing we're going to move to is, does misconduct dropped following the merger? Is there evidence, what we're going to be calling, is there evidence of misconduct synergies? And this misconduct synergies, I should come back to this again and recall that I actually need some suggested evidence that this misconduct related disclosure is a value relevant, right? If you had higher levels of employee misconduct, you're more likely to close, which is costly, not just to the firm, but to the firm's clients. If you had a higher level of employee disclosures, your future assets under management were likely to be low and even the change in assets under management as a function of a change in employee misconduct, those things were negatively related. And so, does misconduct drop following the merger? Now, before I show you, you know, the finding, I want to set the stage a little bit by showing you a little bit of the detail. So remember Halsey and Washington from earlier, right? They emerged in 2015. Now to conduct this test, we're going to assume, for example, that they merged in 2012, right? And then we're going to track the merger all the way to 2018. So three years before the merger, three years after the merger. Of course, we can observe the disclosure for Halsey up until the merger when it gets absorbed by Washington. We can observe the disclosures for Washington. And all we're going to do is we're going to say, what is the weighted average of employee misconduct for the target? And this is my simple example here, they had an equal number of employees, so the average is going to be 1.5. Obviously, after the merger, we're just going to be tracking the combined firm here. And so the target is not going to have a value for disclosures. If you have questions about this, we can always get back to it. But what we find, what we find a drop in misconduct following the merger by anywhere from 25 to 34%, depending on the measure of misconduct that you use. There's also a decline in the growth of recent misconduct following the merger. And in the paper, we do a lot of gymnastics, essentially, to make sure that this result is robust. If you have questions about that, we can come back to it, or you can take a look at the paper, which is posted on my website. Now, misconduct falls following the merger. Is that an artifact of the way we constructed the sample? You know, in order to find out whether the drop in misconduct is actually as a result of the merger, we need to go after the mechanism. Why does misconduct essentially fall following the merger? All right, now there are a few reasons why misconduct may fall following the merger, right? It could be the case that existing employees of the combined target and acquiring firm suddenly start to behave better. Hey, after the merger, I met this other guy who turns out does something that's very similar to me. Lunch was all nice and fun, but they might lay me out and keep him instead. I better get my app together, and so everybody starts behaving better. Or it could be the case that after the merger, the combined firm, they let go suddenly of a lot of employees that have this misconduct related disclosures. And so we're going to call that the separation hypothesis. And that's what we're going to test next. Here in this new set of tests, a unit of observation is going to be an employee, an individual advisor working for either the target or the acquirer in the five years before the merger, right? Worker will simply ask, if you have misconduct related disclosures, recent instances of misconduct, right? Are you more likely to get fired after the merger? So post is going to be an indicator equals one for the years following the merger. And so what we find is, indeed, you are more likely to be fired following the merger. So here are the results for target firm employees only. If we look, for example, at the sensitivity of these disclosures to separation before the merger happened, we see that they're not statistically significant. Suddenly after the merger happens, employees with these disclosures are more likely to be fired irrespective of the measure of misconduct that we use. Now, one way to interpret this result is, you know, the target firm manager, for example, had maybe close relationships with some of these employees. Maybe they should be let go, but he was bearing significant costs. If he let them go, maybe they might be backlash against him. A new manager has no such problems and he can easily let these employees go. And so you would imagine intuitively that this sensitivity to separations as a function of disclosures would be more severe, ex ante for acquirers that are more sensitive to these disclosures. For example, if Christie, right, if Christie were an acquirer, and it turns out that, you know, before she acquired the Emmanuel firm, she has a habit of letting go of employees that have these disclosures because she knows that it's costly. It is easy to imagine that after she acquires Emmanuel, she's going to implement the same thing. And so what we're going to do is we're going to try to get a sense of how strict Christie is before the merger. To do so, we're going to run this test at the individual acquirer level. So we're going to use the cross-section of employees that work for a given acquirer A and estimate this beta one coefficient. How sensitive is Christie, my simple example here, to employee misconduct related disclosures. We're going to sort acquirers and say, do those acquirers that seem to be more sensitive are they the ones who are more for lack of a better word, trigger happy, more happy to let go of employees with this misconduct related disclosures after the merger. And that's exactly what we find, right? So like HSD, there's like high separation for disclosures there, that beta coefficient. When it's higher, those acquirers are more likely to separate with their employees. And so we'll find evidence consistent with stricter disciplining mechanisms after the merger leading to this, to this separation after the merger. Now, I laid out two possible mechanisms through which misconduct could drop following the merger. One was employee separations. The other, if you remember, were existing employees behaving better. And so I've shown you results for separation here. And so how much do separations contribute to the drop that we showed earlier? We showed a drop from anywhere from 25 to 34%, depending on the measure of misconduct. Zero, for example, the right benchmark of the contribution of separation to that drop. Well, to like get a sense of just how much the separation contribute to that drop, we're going to do what I think is a pretty interesting exercise. So, so that's going to come back, come back to that. So what we're going to do is we're going to say, look, let's let's look at the employees that either work for the target or acquiring from and let's track them as before. Right. What fraction of employees have a new instance of this misconduct related disclosure, and we track the fraction from negative three before the merger to three years following the merger. Now we're going to do a counterfactual exercise. We're going to say, okay, now we know that you let Aaron go. We know that you fired him at T equals zero in the year of the merger. But let's assume you did not fire him. Let's assume that you had kept him. If you had kept him and all the other employees that you had, you let go. What would your misconduct have looked like, right? Let's bring back those separated employees do not just vanish into thinner. A lot of them got jobs at other firms. So let's keep them back and assign their misconduct to the merge firm and see what misconduct would have looked like. And what we find is if anything, you would have observed an increase in misconduct following the merger if you had kept the employees that you separated with. And so this leads us to believe that most, if not all of the drop in misconduct following the merger is really through this channel of employee separations. Now the thing that I skipped over before is really to show you that a lot of the separations are really happening for target firm employees, not necessarily for acquiring from employees. Remember the earlier figure I showed you showed that most of the drop came in the first year after the merger. So let's just zoom in in the months to the merger and look at the probability of separation here. So this is really for acquiring from employees and for target firm employees, you can see for acquiring from employees is almost no change after the merger. But for target firm employees, you can see a huge spike in the probability of separation, especially for employees that have this misconduct related disclosures. And so, you know, we conclude that this corporate control transactions can discipline the labor force, right. This misconduct declined by anywhere from 25 to 34% following the merger and it is driven by separations, especially by acquiring from employees that are sensitive to these disclosures. Employees of the target have a better misconduct record, however, the sensitivity to separation increases following the merger again consistent with improved disciplinary mechanisms. The market discipline hypothesis that evidence really is more consistent with the compliments hypothesis of like buying like right and it's interesting to know that M&A can be disciplinary, even in the world in which like is buying like there's no specific prediction about the compliments hypothesis on employee behavior following corporate control transactions. And so even though the compliments hypothesis describes our evidence of matching and entry into the market for mergers. It is nice to know that you know M&A can improve behavior, even even in the world in which in which like best like. Thank you very much. Terrific. Who wants do we want to who wants to kick us off with questions. I can see you're talking Professor Pritchard but you're not I can't hear you. I was trying to figure out how to raise my hand I succeeded now we're a year and a half into zoom and I know how to work it. So, my background with regard to this is from the broker dealer industry rather than investment advisor industry but I think that that there are a lot of similarities between the the two fields. And the, when you were explaining the market discipline hypothesis. It, it's not your hypothesis it's out there, but it didn't make any sense to me, because I understood from the broker dealer industry that the way you deal with employee misconduct is through firing right, and there are differences among firms in their willingness to fire. Overall, I would say, big firms are more willing to fire than small firms, and it doesn't make a lot of sense to acquire a firm and improve it by firing the advisors, because you're buying a firm and then losing a bunch of assets under management because a lot of those accounts will leave when you fire them. So, I wonder how much of the effect you have from mergers, creating greater sensitivity. If a firm grew through organic growth, right, to a larger size, and had a more intrusive compliance program, because larger firms have more rigorous compliance controls, would you see a similar increase in sensitivity to employee misconduct right, because if my intuition is the way you deter employee misconduct is by firing, and you vary on that basis, based on whether or not you've detected it, and bigger firms can afford better internal controls. So, I'm not sure what my question is that's my point. Yeah, yeah, it was more of a point I was like I didn't get a question. Well, is there a way of comparing your merged firms to firms that grew organically. So, one, one thing that we do in a paper that I did not present here today is we do a matching exercise when we're looking at the drop in, in an employee misconduct following merger. So what we do is we say, let's take another, another firm say an investment advisory firm that was not in the market for me. We had a firm that was in the same state, maybe had a similar level of this employee misconduct, and we match on three other variables. Now let's do the same thing for the acquirer. So we're creating essentially a pseudo merger here. Let's find an advisory firm that was not in the market at all, but that looks very similar to the acquire. Now that we have this our pseudo merge firms, let's track their misconduct history alongside our merge firm. And what we find is that there is really no change in the pseudo merge in misconduct in the pseudo merge merger pair. And the change really seems to come from the actual merge pair. That makes any sense. So we do we do this matching exercise where we try to find a similar potential target similar potential acquire. That should be just as large as the combined merge firm and we don't, we don't find any changing disclosures there. But, but it's not as large. So they haven't had the change in infernal controls is my point. Oh, in the in this counterfactual. Your pseudo merged firm is not actually merged. There were no changes in the compliance department. And the changes in the compliance department. That's our main point, right? Like when you when you have this two merge firms, and there's changes in compliance, then suddenly you have this drop in employee misconduct. And against the backdrop of previous literature, if you read the prior literature, you would get the sense that disclosures really go unpunished. Like the Egan paper, for example, says half of this advisors just get jobs with other firms, right. And so it doesn't get the sense that there's some disciplinary mechanism through which this disclosures get enforced, even if you fire them they can just find a job someplace else. And so when you look at this corporate control transactions, we come in and say look this corporate control transactions really impose discipline in a big way rather than just like firing of employees at different firms. Hi, it was a very interesting presentation so just piggyback on the internal control improvements. One thing you might want to explore is internal whistle blowing or the information that sometimes the employees they pass it to OSHA or other places that there has been financial misconduct or there has been some other things. So those are some reported documentation that could also lead to some litigation. So maybe one of the channels that you were talking about the separation, whether that leads to an improvement in compliance or not, you can use this internal whistle blowing as a complimentary data to understand that the argument, maybe if that's any help, does any help to your, to your channel that you might want to explore. Thank you. That's not something that we have thought about. Certainly, certainly looking to that I made a note about. Thank you. Professor again for this is probably a dumb question but my job is to make everybody else feel better about how much they know. So, I don't, I'm not familiar with M&A generally. But I don't know. I'm curious, like, when I assume that there are dozens of factors that acquirers are looking at when they're looking to acquire somebody, and that this employee misconduct is just one small factor out of dozens. And so I'm just wondering, like, how big is this if you could provide me. Yeah, like how big of a factor is this five to 7% sounds like it could be a lot when you're talking about millions or billions of dollars but I don't know. If there are other bigger factors that I don't I don't have a sense of how big that is as compared to the other factors that acquirers might be considering. That's actually an excellent question so in the paper we to motivate essentially our focus on misconduct we do two things. So we're going to talk about its potential value relevance by showing that you know this are some variables that is advisory firms would care about my failures levels of assets and the management, but in generally more specifically your question is about hey what are you looking if Chris is looking to buy the manual fund. What are some of the top things I should consider this and so we read an industry report that suggested that 30% of this transactions failed because the acquiring firm didn't think the culture will be compatible. Right. And so when you think about what what the culture is right that that is very related to this because there might be some firms that might be more aware that's just their culture they think you should be aggressive at all costs, even if you can cure some of this disclosure some of my other the other firms I don't don't think that way they think you know maybe it's, it's a negative. It's not good publicity when we have so many of these disclosures. And so the culture, the culture and firm culture as a reason for merger they're really again led us to believe that this conduct is really relevant, not just in M&A but for value in general. Thank you. So anyone else want to chime in. It's okay I thought he explained it really well too so if you all feel like you got it, you know. Okay. Thank you, everyone for coming can we have a moment to acknowledge Professor for for his talk today, either with your virtual icons or you can turn on your camera and clap. I like it a little party signs. Thank you so much for participating today for joining us. Please come back next month. I do. I do have one little promo because you know we're in the business of promoting side projects, which is I'm hiring. So, most the center has about 20 research assistants from five schools who work with us each semester. It's a huge, more than half of our group last year to graduation. And so I am still hiring to law students and I'm still hiring a Ross MBA, or possibly PhD student to work on some projects the postings are listed there. If you know some students who would be fantastic. Please have them hurry up and apply because I'm starting to get nervous. So, thanks. Thanks again for that, and I hope that you will join us again at a future talk. And with that, we will return to all of you 11 minutes of your time. So thanks everyone. I'm Professor for if you don't mind to hold on a second I wanted to ask you about something else. Right. Jeremy we stay to manual I just want to say, thank you for for being here and apologize for not being there for most of the talk I had a conflict earlier. And so sorry to miss. You know it's tough when you only jump in for q amp a made the talk sound very interesting makes me interested in wanting to find out more about the projects on sorry to to have missed it but thank you very much. Thank you. I think we met in person but I'm, you know, at Ross as well I'm co faculty director of the center. So I look forward to having you involved in more center projects as we go forward.