Research
Working Papers in order of most recent update
Presentations: Banco Central de Chile (2023); FINEST (2023); Summer Workshop on Money, Banking, Payments, and Finance - Poster Session (Federal Reserve Board, 2022)*; FMA European Conference (2022); 12th Financial Markets and Corporate Governance Conference (2022)*; 2022 Annual Meeting of the Swiss Society for Financial Market Research (2022)*; Wharton-INSEAD 11th Doctoral Consortium (2022)*, 20th Annual FDIC/JFRS Banking Research Conference Poster Session*, Collegio Carlo Alberto 14th PhD Workshop in Economics*, Federal Reserve Bank of Philadelphia (2019), Wharton (2018)
* presentation by a coauthor
Abstract: We study the role of lenders’ ability to collect and process information in financial contracting. Using a large sample of corporate loans, we analyze how banks’ industry specialization affects the use of covenants and the outcomes of covenant violations among U.S. public firms. Lenders specialized in the borrower’s industry impose less restrictive financial covenants, provide more customized loan terms, and reduce the investment drop following a covenant breach without harming firms’ performance. Our results suggest that specialization improves contracting efficiency by lowering information asymmetries between borrowers and lenders.
Presentations: EEA (2024), scheduled; IAAE (2024), scheduled*; Stockholm School of Economics(2023), Workshop Banca d’Italia EIEF on Financial Intermediation (2023); Universidad Pompeu Fabra (2023)*; University of Colorado, Boulder (2023)
* presentation by a coauthor
Abstract: We present a simple model of a credit market in which firms borrow from multiple banks and credit relationships are simultaneous and interdependent. In this environment, financial and real shocks induce credit reallocation across more and less affected lenders and borrowers, propagating through the network of credit relationships. We show that the interdependence introduces a bias in the standard estimates of the effect of shocks on credit relationships. Moreover, we show that firm fixed effects do not solve the issue, may magnify the problem, and can be biased as well. We propose a novel model that nests commonly used ones, uses the same information set, accounts for and quantifies spillover effects among credit relationships. We document its properties with Monte Carlo simulations and apply it to real credit register data. Evidence from the empirical application suggests that estimates not accounting for spillovers are indeed highly biased.
Publications
Presentations: 6th Associazione per la Storia Economica Workshop (2021), Bank of Italy (2021)
Abstract: Due to a dearth of data, nineteenth century lending to sovereign borrowers was a blind date. We argue this is the reason for collateral pledges found in contemporary lending covenants, which enabled not execution, but the production of reliable fiscal data. Lawyers injected collateral clauses in sovereign debt covenants to permit credible disclosure of hard-to-access tax data. The study foregrounds the importance of big law firms as financial intermediaries and information producers. It also contributes a new view on the role played by contracts in sovereign debt.
Presentations: ESCB Third Research Cluster Workshop on Financial Stability, Macroprudential Regulation and Microprudential Supervision (2022), Chicago Financial Institutions Conference (2020 - cancelled due to COVID-19 emergency), Fourth ECB Macroprudential Policy and Research Conference (2019), Wharton (2019), University of Pennsylvania (2017, 2019), Banca d’Italia (2017, 2019)
Abstract: We study the effect on credit relationships of the Small and Medium Enterprises Supporting Factor (SME-SF), a regulatory risk weight reduction on small loans to SMEs. Employing a regression discontinuity design and matched bank-firm data from Italy, we find that a 1 percent drop in capital requirements causes an average 13 basis points reduction in the cost of credit. Moreover, with a novel measure of bank regulatory capital scarcity, we show that the drop is larger for banks facing tighter constraints. Furthermore, the drop is larger for firms with low switching costs, while the sharp assignment rule may have led to the rationing of marginal borrowers. Such findings indicate that the entire distribution of firms and banks' characteristics plays a crucial role in determining the impact of regulatory capital changes.
Work in Progress
Firms’ Organization and Financial Structure [coming soon]
Old version (Ch. 3, PhD Thesis): No country for young managers: Firm control rights and misallocation in general equilibrium
[Old version] Presentations: IBEFA Young Economist Seminar Series, Ventotene Workshop in Macroeconomics (2022), Ownership, Governance, Management & Firm Performance Conference (2020), University of Pennsylvania (2018, 2019)
[Old] Abstract: Using Bruegel data on European manufacturing firms (EFIGE), I document that the prevalence of senior leadership (over-65-year-old CEO/owner) in Italian firms cannot be explained by firm characteristics, while it is associated with a higher probability of obtaining credit. I argue that easier access to funding, likely due to weak contract enforcement rising the value of credit relationships, can give rise to an incumbent advantage and explain the prevalence of old managers in Italy. I describe and investigate this mechanism through a static general equilibrium model of firm allocation, showing how it can cause misallocation and hence help us explain Italy’s productivity lag. Finally, I use this model to determine in which cases such access to funding frictions can justify policies in favor of new managers/entrepreneurs.