Research
Published and Accepted Papers
Fifty Shades of QE: Robust Evidence (with Brian Fabo, Martina Jancokova, and Lubos Pastor)
Journal of Banking & Finance, 2024, 159: 107065.
Abstract: Fabo, Jancokova, Kempf, and Pastor (2021) show that papers written by central bank researchers find quantitative easing (QE) to be more effective than papers written by academics. Weale and Wieladek (2022) show that a subset of these results lose statistical significance when OLS regressions are replaced by regressions that downweight outliers. We examine those outliers and find no reason to downweight them. Most of them represent estimates from influential central bank papers published in respectable academic journals. For example, among the five papers finding the largest peak effect of QE on output, all five are published in high-quality journals (Journal of Monetary Economics, Journal of Money, Credit and Banking, and Applied Economics Letters), and their average number of citations is well over 200. Moreover, we show that these papers have supported policy communication by the world's leading central banks and shaped the public perception of the effectiveness of QE. New evidence based on quantile regressions further supports the results in Fabo et al. (2021).
Coverage: SUERF Policy Brief
Political Ideology and International Capital Allocation (with Mancy Luo, Larissa Schäfer, and Margarita Tsoutsoura)
Journal of Financial Economics, 2023, 148(2): 150-173.
Abstract: Does investors' political ideology shape international capital allocation? We provide evidence from two settings---syndicated corporate loans and equity mutual funds---to show ideological alignment with foreign governments affects the cross-border capital allocation by U.S. institutional investors. Ideological alignment on both economic and social issues plays a role. Our empirical strategy ensures direct economic effects of foreign elections or government ties between countries are not driving the result. Ideological distance between countries also explains variation in bilateral investment. Combined, our findings imply ideological alignment is an important, omitted factor in models of international capital allocation.
Internet Appendix, Replication Package
Coverage: BFI Research Brief, Chicago Booth Review, ProMarket
Attracting the Sharks: Corporate Innovation and Securities Class Action Lawsuits (with Oliver Spalt)
Management Science, 2023, 69(3): 1323-1934
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.
Coverage: Columbia Law School's Blue Sky Blog, 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.
Coverage: Wall Street Journal, Bloomberg, Bloomberg Opinion, CNBC, CNBC Squawk Box, The Economist, VOX, Crain's Chicago Business, CBR Comic, Irish Times, Barron's, MarketWatch
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.
Coverage: Wall Street Journal, Bloomberg, Bloomberg Opinion, Bloomberg Opinion, Fazit - das Wirtschaftsblog, Finansavisen, VOX, ProMarket, BFI Research Brief, Brookings, Central Banking, The Chicago Maroon, Chicago Booth Review
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.
Coverage: ProMarket, 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.
Coverage: Bloomberg Opinion, Harvard Law School Forum on Corporate Governance and Financial Regulation, Chicago Booth Review
Working Papers
The Political Polarization of Corporate America (with Vyacheslav Fos and Margarita Tsoutsoura)
Revise & Resubmit, Journal of Finance
Abstract: Executive teams in U.S. firms are becoming increasingly partisan. We establish this new fact using political affiliations from voter registration records for top executives of S&P 1500 firms between 2008 and 2020. The new fact is explained by both an increasing share of Republican executives and increased assortative matching by executives on political affiliation. Executives who are misaligned with the political majority of their team are more likely to leave the firm, especially in recent years, and their company's stock price responds negatively to the announcement of their departure. Combined, our findings indicate that the increasing political polarization of corporate America may not be in the financial interest of shareholders.
Coverage: NBER Digest, Wall Street Journal, Washington Post, Washington Post Opinion, New York Times, Bloomberg, Los Angeles Times, MarketWatch, Marketplace, Forbes, Oxford Business Law Blog, BFI Research Brief, ProMarket, Corriere della Sera, Aftenposten, Wirtschaftswoche, Harvard Gazette, HBS Working Knowledge
On the program of NBER Corporate Finance Spring Meeting 2024, EFA 2024, Challenges in American Institutions Conference 2023 (Hoover), CEPR/Study Center Gerzensee European Summer Symposium in Financial Markets 2023, Berkeley Conference on Political Economy and Governance 2023, AFA 2022, USC Social and Behavioral Finance Conference 2022, Miami Behavioral Finance Conference 2022, London POLFIN workshop 2021
Political Polarization and Finance (with Margarita Tsoutsoura)
In preparation for the Annual Review of Financial Economics
Abstract: We review an empirical literature that studies how political polarization affects financial decisions. We first discuss the degree of partisan segregation in finance and corporate America, the mechanisms though which partisanship may influence financial decisions, and available data sources to infer individuals’ partisan leanings. We then describe and discuss the empirical evidence. Our review suggests an economically significant and growing partisan gap in the financial decisions of households, corporate executives, and financial intermediaries. Partisan alignment between individuals explains team and financial relationship formation, with initial evidence suggesting that high levels of partisanship may be associated with economic costs. We conclude by proposing several promising directions for future research.
Partisan Corporate Speech (with William Cassidy)
[draft available upon request]
Abstract: We develop a novel measure of partisan corporate speech using techniques from natural language processing. Using all tweets sent by companies in the S&P 500, we establish a large increase in the amount of partisan corporate speech between 2011 and 2022. Before 2020, this increase in partisan speech is driven by both Republican and Democratic-sounding speech but, after 2020, it is disproportionately driven by companies using speech commonly associated with Democratic politicians. Partisan corporate speech is associated with both positive and negative mentions from federal legislators on social media, but only negative mentions are associated with significant stock price reactions. Our findings highlight a previously undocumented cost of partisan corporate speech in the form of negative attention from politicians.
Coverage: The Economist
On the program of NBER SI Big Data and High-Performance Computing for Financial Economics 2024, EFA 2024
Corporate Actions as Moral Issues (with Oliver Spalt and Zwetelina Iliewa)
[draft available upon request]
Abstract: We study how a representative sample of the U.S. population evaluates the morality of a broad range of corporate actions. The corporate actions we consider include decisions recently emphasized in relation to environmental, social, and governance (ESG) concerns, as well as other classic textbook decisions related to maximizing firm value. Our core findings are that: (i) all corporate actions we consider are perceived to be not just financial but also moral issues; (ii) many classic finance textbook issues, such as CEO pay, value-enhancing layoffs, wage reductions, legal corporate tax avoidance, and outsourcing decisions, are perceived to be significantly more of a moral issue than the ESG components emphasized in current executive pay contracts (e.g., renewable energy usage and workforce diversity); (iii) participants trade off moral concerns against monetary costs; (iv) shareholders have a greater willingness to pay for morally desirable corporate actions than customers or employees. Although we observe significant and plausible heterogeneity across participants in the absolute importance given to moral considerations, the relative ranking of the morality of different corporate actions is surprisingly stable across participants. Our results have broad implications for theoretical and empirical work in financial economics, as well as for finance practitioners.
On the program of WFA 2024, FIRS 2024, Global Corporate Governance Colloquium 2024 (Columbia Law), AFA 2025
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