Draft:Tim Loughran

Tim Loughran (born 1962) is the C.R. Smith Professor of Finance at the University of Notre Dame’s Mendoza College of Business. He is best known for his research on textual analysis of financial documents (evaluating the tone conveyed by the use of specific words and their frequency of use), initial public offerings (IPOs), and the long-run performance of stocks after corporate events. Two of his articles are among the 50 most-cited articles that the Journal of Finance has published. On Google Scholar, he has over 35,000 citations.

Loughran double-majored in history and chemistry at the University of Illinois and received an MBA from Indiana University in 1989. He received a PhD in finance from the University of Illinois in 1993. He then joined the University of Iowa business school faculty before moving to Notre Dame in 1999. He was appointed the C.R. Smith Professor of Finance in 2007. At Notre Dame, he has won numerous teaching awards.

From 2006-2019, Loughran was an associate editor of the Journal of Financial Economics. He has also been an associate editor at numerous other academic journals.

Research

With Bill McDonald, Loughran published an article in the 2011 Journal of Finance entitled “When Is a Liability Not a Liability? Textual Analysis, Dictionaries, and 10-Ks”. The article pointed out that certain words that in many contexts have a negative connotation, such as the word “liability,” do not have such an interpretation in financial documents, where assets and liabilities appear on a company’s balance sheet. In the article, they propose an alternative set of word lists that are applicable to financial documents. The Loughran-McDonald word lists have become widely used.

With Jay Ritter, Loughran published several articles regarding the short-run and long-run returns on IPOs. Their 1995 Journal of Finance article “The New Issues Puzzle” documents the low long-run stock market performance of companies that issue equity. Their 2002 Review of Financial Studies article “Why Don’t Issuers Get Upset about Leaving Money on the Table in IPOs” proposes a behavioral argument based on Kahneman and Tversky’s prospect theory to explain why issuing company executives do not get upset when the company sells stock for a price far below what the market is willing to pay. Loughran and Ritter’s 2004 Financial Management article “Why Has IPO Underpricing Changed Over Time?” hypothesizes that the average first-day returns on IPOs increased from the 1980s to the 1990s due to an increasing emphasis by issuers on hiring an underwriter that would provide influential research coverage. The article’s empirical work included using the age of the firm as a control variable. An updated list of the founding dates used in computing company age is available on Ritter’s IPO Data website.

With Anand Vijh, Loughran published “Do Long-term Shareholders Benefit from Corporate Acquisitions?” in the 1997 Journal of Finance. The article documents that the post-merger stock returns are much higher when the acquisition was made with cash as compared to acquisitions that exchange stock in the target company for stock in the acquiring company.