Publications
[10] Indirect Costs of Financial Distress, with Emilia Garcia-Appendini and Miguel Ferreira. 2023, Review of Finance forthcoming
Abstract: We estimate the indirect costs of financial distress due to lost sales by exploiting real estate shocks and cross-supplier variation in real estate assets and leverage. We show that for the same client buying from different suppliers, the client’s purchases from distressed suppliers decline by an additional 13% following a drop in local real estate prices. The effect is more pronounced in more competitive industries, manufacturing, durable goods, less-specific goods, and when the costs of switching suppliers are low. Our results suggest that clients reduce their exposure to suppliers in financial distress.
link to ssrn: here
[9] Supporting Small Firms Through Recessions and Recoveries, with Diana Bonfim and Clara Raposo, 2023, Journal of Financial Economics 147 (3): 658-688
Abstract: We use variation in the access to a government credit certification program to estimate the financial and real effects of supporting small firms. This program was first implemented during the global financial crisis, but has remained active ever since, allowing us to analyze its effects both during recessions and recoveries. Eligible firms have access to government loan guarantees and a credit quality certification. We estimate real effects using a multidimensional regression discontinuity design. We find that eligible firms borrow more and at lower rates than non-eligible firms, allowing them to increase investment and employment during crises. Industry-level analysis shows reduced productivity heterogeneity in more exposed industries, which is consistent with improved credit allocation. However, when the economy is recovering the effects of the program are less pronounced and centered on the certification component. The cost-per-job in the recovery period is half of the one estimated for the crisis period (5784€ and 11,788€, respectively).
link to published version: here
link to ssrn: here
Winner of “Internacionalização da Economia Portuguesa no Pós-Covid-19” - GEE/AICEP Paper Award
– Media mentions:
(In portuguese) Eco - PME reduziram dependência da banca na última década: here
(In Portuguese) Expresso - Bancos ainda são a principal fonte de financiamento das PME, mas têm vindo a perder relevância: here
(In Portuguese) Jornal de negocios - Apoios a pme tem efeito inexpressivo fora de crises: here
[8] CEO Compensation and Real Estate Prices: Pay for Luck or Pay for Action, with Ana Albuquerque, Benjamin Bennett and Dragana Cvijanovic, 2022, Review of Accounting Studies
Abstract: This paper uses variation in real estate prices to study Chief Executive Officer (CEO) pay for luck. We distinguish between pay for luck and pay for responding to luck (action) by exploiting US GAAP accounting rules, which mandate that real estate used in the firm’s operations is not marked-to-market. This setting allows us to empirically disentangle pay for luck from pay for action, as a change in the value of real estate is only accounted for when the CEO responds to changes in property value. We show that CEO compensation is associated with the following two managerial responses to changes in real estate values: (i) real estate sales and (ii) debt issuance. Overall, we show that CEOs are rewarded for taking value-enhancing actions in response to luck.
link to published version: here
link to ssrn: here
[7] Are CEOs More Likely to Be First-Borns?, 2020, with Stephen Siegel, PLoS ONE 15(6): e0234987
Abstract: We investigate the link between birth order and the career outcome of becoming Chief Executive Officer (CEO) of a company. CEOs are more likely to be the first-born, i.e., oldest, child of their family relative to what one would expect if birth order did not matter for career outcomes. Both male and female CEOs are more likely to be first-born. However, the first-born advantage seems to largely reflect the absence of an older brother, but not of an older sister. These results are more pronounced for family firms, where traditionally the oldest child is appointed to run the family business, but also hold for non-family firms.
link to ssrn: here
link to published version: here
– Media mentions
NPR - Hidden Brain: here
Forbes: here
Smallbusiness.com: here
[6] Do General Managerial Skills Spur Innovation? 2019, with Miguel Ferreira and Pedro Matos, Management Science 65(2): 459-476
Abstract: We show that firms with chief executive officers (CEOs) who gain general managerial skills over their lifetime work experience produce more patents. We address the potential endogenous CEO-firm matching bias using firm-CEO fixed-effects and variation in the enforceability of non-compete agreements across states and over time during the CEO’s career. Our findings suggest that generalist CEOs spur innovation because they have skills that can be applied elsewhere should innovation projects fail. We conclude that an efficient labor market for executives can promote corporate innovation by providing a mechanism of tolerance for failure.
link to published version: here
link to ssrn: here
– Media mentions
Financial Times: here
Data for General Ability Index from 1993-2012: here (please email for more recent data )
[5] Mergers and Acquisitions Accounting and the Diversification Discount, 2014, Journal of Finance
Abstract: q-based measures of the diversification discount are biased upward by mergers and acquisitions and its accounting implications. Under purchase accounting, acquired assets are reported at their transaction value, which typically exceeds the target's pre-merger book value. Thus, measured q tends to be lower for the merged firm than for the portfolio of pre-merger entities. Because conglomerates are more acquisitive than focused firms, their q tends to be lower. To mitigate this bias, I subtract goodwill from the book value of assets and a substantial part of the diversification discount is eliminated. Market-to-sales-based measures do not have this bias.
link to published version: here
link to ssrn: here
[4] Financial Expert CEOs: CEO’s Work Experience and Firm’s Financial Policies with Daniel Metzger, 2014, Journal of Financial Economics
Abstract: We study CEOs with a career background in finance. Firms with financial expert CEOs hold less cash, more debt, and engage in more share repurchases. Financial expert CEOs are more financially sophisticated: they are less likely to use one companywide discount rate instead of a project-specific one, they manage financial policies more actively, and their firm investments are less sensitive to cash flows. Financial expert CEOs are able to raise external funds even when credit conditions are tight, and they were more responsive to the dividend and capital gains tax cuts in 2003. Analyzing CEO-firm matching based on financial experience, we find that financial expert CEOs tend to be hired by more mature firms. Our results are consistent with employment histories of CEOs being relevant for corporate policies. However, we cannot formally rule out that our findings are partly explained by endogenous CEO-firm matching.
link to published version: here
link to ssrn: here
[3] How do CEOs Matter? The Effect of Industry Expertise on Acquisition Returns, with Daniel Metzger, 2013, Review of Financial Studies
Abstract: This paper shows how CEO characteristics affect the performance of acquirers in diversifying takeovers. When the acquirer's CEO has previous experience in the target's industry, acquirer's abnormal announcement returns are between two and three times larger than those generated by a CEO who is new to the target's industry. This is driven by the industry-expert CEO's ability to capture a larger fraction of the merger surplus. Industry-expert CEOs negotiate better deals and pay a lower premium for the target. This effect is stronger when information asymmetry is high and in bilateral negotiations compared to auctions. We also find that industry-expert CEOs on average select lower surplus deals. This evidence is consistent with industry-experts having superior negotiation ability.
link to published version: here
link to ssrn: here
[2] Generalists vs. Specialists: Lifetime Work Experience and CEO Pay, with Miguel Ferreira and Pedro Matos, 2013, Journal of Financial Economics
Abstract: We show that pay is higher for chief executive officers (CEOs) with general managerial skills gathered during lifetime work experience. We use CEOs' résumés of Standard and Poor's 1,500 firms from 1993 through 2007 to construct an index of general skills that are transferable across firms and industries. We estimate an annual pay premium for generalist CEOs (those with an index value above the median) of 19% relative to specialist CEOs, which represents nearly a million dollars per year. This relation is robust to the inclusion of firm- and CEO-level controls, including fixed effects. CEO pay increases the most when firms externally hire a new CEO and switch from a specialist to a generalist CEO. Furthermore, the pay premium is higher when CEOs are hired to perform complex tasks such as restructurings and acquisitions. Our findings provide direct evidence of the increased importance of general managerial skills over firm-specific human capital in the market for CEOs in the last decades.
link to published version: here
link to ssrn: here
Media coverage:
Harvard Business Review (September 2013); - here
HBR Blog Network- The Daily Stat (June 14 2013) - here
Data: General Ability Index (1993-2012) - here
(please email me for updated GAI index to 2022)
[1] Why are U.S. Firms Using More Short-Term Debt?, with Miguel Ferreira and Luis Laureano, 2013, Journal of Financial Economics
Abstract: We show that corporate use of long-term debt has decreased in the US over the past three decades and that this trend is heterogeneous across firms. The median percentage of debt maturing in more than 3 years decreased from 53% in 1976 to 6% in 2008 for the smallest firms but did not decrease for the largest firms. The decrease in debt maturity was generated by firms with higher information asymmetry and new firms issuing public equity in the 1980s and 1990s. Finally, we show that demand-side factors do not fully explain this trend and that public debt markets' supply-side factors play an important role. Our findings suggest that the shortening of debt maturity has increased the exposure of firms to credit and liquidity shocks.
link to published version: here
link to ssrn: here