New Working Papers

• Auto Finance in the Electric Vehicle Transition  (with Elizabeth Klee and Chaehee Shin)

Abstract: Financing cost differentials tilt the calculus for households toward electric vehicles (EVs).  Previous research shows that incentives and costs of owning and operating EVs---for example, tax incentives and maintenance costs---influence consumer decisions to transition from traditional cars to EVs. We show that auto finance---auto loans and the auto ABS that pool those loans---is also a key channel to support the transition.  We use 85 million monthly observations on auto loans backing publicly-placed auto ABS to show three things.  After controlling for borrower risk characteristics, auto loans backing EVs default 30 percent less in percentage change terms relative to combustion engine vehicles.  The pricing market seems to know this; EVs have, on average, 2 percentage point lower interest rates than combustion vehicles, equivalent to a  $2,000 lower price on the vehicle.  Part of the lower default rate is attributable to insulation from gasoline price shocks: a one standard deviation increase in gas prices results in 1 percentage  point lower default rate for EV borrowers relative to combustion engine borrowers.  These lower default rates are reflected in higher initial prices for auto ABS, although the pass-through is incomplete for lower-rated tranches. 

• Climate Postures

Abstract: Climate-induced industrial transformations should cause sectors to undergo competitive market sorting into those optimally positioned to remain in the status quo economy and those optimally undertaking transition opportunities. Drawing inspiration from Roy (1951) – where the best fishers focus on fishing, and the best hunters focus on hunting – we define climate postures as the focus of firm climate efforts, where those in the status quo economy focus on costs, and those undertaking opportunities focus on transition. We identify the existence of climate postures in the industrial base sectors by inferring signals from managers’ manual editing of ESG data and the accompanying market reaction. We find priced evidence for both optimal status quo and transition opportunity firms in both energy and industrials/basic materials sectors. The sorting following the signal of a climate posture towards transition opportunities yields a 2.7% excess two-week return for European energy companies and a 1.5% return for industrials in North America. Our design also identifies across-sector market penalties in signals of climate costs. 

• What Sustainability Skills do Corporations Value: Evidence from and for Management Hiring (with Katherine Baird)

Abstract: Using survey data from the 2023 ‘Sustainability Industry and Career Skills Survey’ administered by the UC Berkeley Haas School of Business, our paper’s revealed preference approach looks at how corporate leaders and recruiters today view sustainability skills in the spirit of corporate value creation and transitions for value-relevant needs. We find that most firms are immediately hiring for sustainability skills, especially in Strategy, Communications, Reporting, Finance, Operations, and Data Analysis, but not equally across disciplines. We thus reject a value irrelevance and a holistic integration theory, instead supporting deeper integration for some disciplines. We also find that reporting as an accounting discipline stands out with its integration trending toward deeper integration in all corporations. Finally, we debunk the Centralized Sustainability Offices theory that sustainability functions are most valued in a silo organizational design; instead, sustainability offices are part of integrating sustainability skills throughout disciplines. Our conclusions point to opportunities and mandates for higher education institutions to further develop sustainability training in advanced management education courses within disciplines and in executive offerings toward existing talent upskilling

• Venture Debt

Abstract: The provision of venture debt financing to growth-oriented startups which are backed by venture capital (VC) equity has been a bit of a puzzle given the lack of positive cash flows or traditional collateral of such startups. This short paper lays out the hurdles for debt to overcome to be a viable source of finance and casts the three types of venture debt – patent loans, venture leverage, and bridge loans – as solutions to such hurdles, casting the literature in terms of financial innovation. Finally, the paper addresses the risks implied by venture debt and discusses whether the demise of Silicon Valley Bank speaks to whether innovation ecosystem risk transmutes to the financial system through debt and the extent to which innovation ecosystem risk remains unstudied.

• When cryptomining comes to town: High electricity-use spillovers to the local economy (with Matteo Benetton and  Giovanni Compiani)

Abstract: Cryptomining, the clearing of cryptocurrency transactions, uses large quantities of electricity. We document that cryptominers' use of local electricity implies higher electricity prices for existing small businesses and households. Studying the electricity market in Upstate NY and using the Bitcoin price as an exogenous shifter of the part of the supply curve faced by the community, we estimate the electricity demand functions for small businesses and households. Based on our estimates, we calculate counterfactual electricity bills, finding that small businesses and households paid an extra $92 million and $204 million annually in Upstate NY because of increased electricity consumption from cryptominers. Local governments in Upstate NY realize more business taxes, but this only offsets a small portion of the costs from higher community electricity bills. Using data on China, where electricity prices are fixed, we find that rationing of electricity in cities with cryptomining entrants deteriorates wages and investments, consistent with crowding-out effects on the local economy. Our results point to a yet-unstudied negative spillover from technology processing to local communities, which would need to be considered against welfare benefits.