Research

Published and Accepted Papers

Fifty Shades of QE: Comparing Findings of Central Bankers and Academics (with Brian Fabo, Martina Jancokova, and Lubos Pastor)

Journal of Monetary Economics, 2021, 120: 1-20. Lead Article.

Abstract: We compare the findings of central bank researchers and academic economists regarding the macroeconomic effects of quantitative easing (QE). We find that central bank papers find QE to be more effective than academic papers do. Central bank papers report larger effects of QE on output and inflation. They also report QE effects on output that are more significant, both statistically and economically, and they use more positive language in the abstract. Central bank researchers who report larger QE effects on output experience more favorable career outcomes. A survey of central banks reveals substantial involvement of bank management in research production.

Internet Appendix

Coverage: Wall Street Journal, Bloomberg, Bloomberg Opinion, Fazit - das Wirtschaftsblog, Finansavisen, VOX, ProMarket, BFI Research Brief, Brookings, Central Banking, The Chicago Maroon, Chicago Booth Review

Partisan Professionals: Evidence from Credit Rating Analysts (with Margarita Tsoutsoura)

Journal of Finance, 2021, 76(6): 2805-2856

Financial Research Association (FRA) Best Paper Award 2018

Abstract: Partisan perception affects the actions of professionals in the financial sector. Using a novel dataset linking credit rating analysts to party affiliations from voter records, we show that analysts who are not affiliated with the U.S. president’s party downward-adjust corporate credit ratings more frequently. By comparing analysts with different party affiliations covering the same firm in the same quarter, we ensure that differences in firm fundamentals cannot explain the results. We also find a sharp divergence in the rating actions of Democratic and Republican analysts around the 2016 presidential election. Our results show analysts’ partisan perception affects firms’ cost of capital and investment policies.

Internet Appendix

Coverage: Bloomberg, Bloomberg Opinion, CNBC, CNBC Squawk Box, The Economist, VOX, Crain's Chicago Business, CBR Comic, Irish Times, Barron's

The Job Rating Game: Revolving Doors and Analyst Incentives

Journal of Financial Economics, 2020, 135(1): 41-67

AQR Top Finance Graduate Award 2016

WFA Cubist Systematic Strategies PhD Candidate Award for Outstanding Research 2016

Young Scholars in Finance Consortium Best Ph.D. Student Paper Award 2016

Abstract: Investment banks frequently hire analysts from rating agencies. While many argue that this "revolving door" creates captured analysts, it can also create incentives to improve accuracy. To study this issue, I construct an original dataset, linking analysts to their career paths and the securitized finance ratings they issue. First, I document that accurate analysts are more frequently hired by underwriting investment banks. Second, I exploit two distinct sources of variation in the likelihood of being hired by a bank. Both indicate that, as this likelihood rises, analyst accuracy improves. The findings suggest policymakers should consider incentive effects alongside capture concerns.

Internet Appendix

Coverage: ProMarket Blog, Chicago Booth Review, Harvard Law School Forum on Corporate Governance and Financial Regulation

Distracted Shareholders and Corporate Actions (with Alberto Manconi and Oliver Spalt)

Review of Financial Studies, 2017, 30(5): 1660-1695

Abstract: Investor attention matters for corporate actions. Our new identification approach constructs firm-level shareholder "distraction" measures, by exploiting exogenous shocks to unrelated parts of institutional shareholders' portfolios. Firms with "distracted" shareholders are more likely to announce diversifying, value-destroying, acquisitions. They are also more likely to grant opportunistically-timed CEO stock options, more likely to cut dividends, and less likely to fire their CEO for bad performance. Firms with distracted shareholders have abnormally low stock returns. Combined, these patterns are consistent with a model in which the unrelated shock shifts investor attention, leading to a temporary loosening of monitoring constraints.

Internet Appendix Data

Coverage: Bloomberg Opinion, Harvard Law School Forum on Corporate Governance and Financial Regulation, Chicago Booth Review


Working Papers

The Political Polarization of U.S. Firms (with Vyacheslav Fos and Margarita Tsoutsoura)

Abstract: Executive teams in U.S. firms are becoming increasingly partisan, leading to a political polarization of corporate America. We establish this new fact using political affiliations from voter registration records for top executives of S&P 1500 firms between 2008 and 2018. The rise in political partisanship is explained by both an increasing share of Republican executives and increased sorting by partisan executives into firms with like-minded individuals. Further, we find that within a given firm-year, executives whose political views do not match those of the team's majority have a higher probability of leaving the firm. The increase in partisanship is taking place despite executive teams becoming more diverse in terms of gender and race.

Internet Appendix

On the program of AFA 2022, London POLFIN workshop 2021

Does Political Partisanship Cross Borders? Evidence from International Capital Flows (with Mancy Luo, Larissa Schäfer, and Margarita Tsoutsoura)

Abstract: Does partisan perception shape the flow of international capital? We provide evidence from two settings, syndicated corporate loans and equity mutual funds, to show that ideological alignment with foreign governments affects the cross-border capital allocation by U.S. institutional investors. Moreover, we find that ideological alignment with foreign countries also affects investments of non-U.S. investors and can explain patterns in bilateral FDI flows. Our empirical strategy ensures that direct economic effects of foreign elections or bilateral ties between countries are not driving the result. Combined, our findings imply that partisan perception is a global phenomenon and its economic effects transcend national borders.

Internet Appendix

On the program of London POLFIN workshop 2021, Texas Finance Festival 2021

Attracting the Sharks: Corporate Innovation and Securities Class Action Lawsuits (with Oliver Spalt)

Abstract: This paper provides novel evidence suggesting that securities class action lawsuits, a central pillar of the U.S. litigation and corporate governance system, can constitute an obstacle to valuable corporate innovation. We first establish that valuable innovation output makes firms particularly vulnerable to costly low-quality class action litigation. Exploiting judge turnover in federal courts, we then show that changes in class action litigation risk affect the value and number of patents filed, suggesting firms take into account that risk in their innovation decisions. A new perspective we provide is that innovation success, not only innovation failure, can increase firms' securities class action litigation risk.

Internet Appendix

On the program of AFA 2019, NBER SI Law & Economics 2019, EFA 2020

Coverage: Columbia Law School's Blue Sky Blog, Chicago Booth Review

Learning by Doing: The Value of Experience and the Origins of Skill for Mutual Fund Managers (with Alberto Manconi and Oliver Spalt)

Abstract: Learning by doing matters for professional investors. We develop a new methodology to show that mutual fund managers outperform in industries where they have obtained experience on the job. The key to our identification strategy is that we look "inside" funds and exploit heterogeneity in experience for the same manager at a given point in time across industries. As fund managers become more experienced, they pick better stocks, and their trades become better predictors for abnormal stock returns around subsequent earnings announcements. Our approach identifies experience as a first-order driver of observed mutual fund manager skill.

On the program of WFA 2015, EFA 2014, CEPR Gerzensee 2014, FIRS 2014, FRA 2013