Working Papers
We document significant deposit interest rate differentials along the income distribution - moving from the bottom to the top income decile increases deposit rates by 55% of the sample median rate. These spreads persist independent of banking competition, and instead appear to arise from banks internalizing households' participation in nondeposit markets. Consistent with this hypothesis, only income components related to participation can explain our baseline findings, and quasi-exogenous reductions in participation incentives through increases in capital gains taxes are associated with lower spreads along the participation distribution. Our findings highlight lack of participation as a source of deposit market power.
We show that U.S. firms cut imports by 29.9% when their international suppliers experience environmental and social (E&S) incidents. These trade cuts are larger for publicly listed U.S. importers facing high E&S investor pressure and lead to cross-country supplier reallocation, suggesting that E&S preferences in capital markets can be privately costly but have real effects in far-flung economies. Larger trade cuts around the incident result in higher supplier E&S performance in subsequent years, and in the eventual resumption of trade. Our results highlight the role of investors in ensuring suppliers' E&S compliance along global supply chains.
Smokestacks and the Swamp, with Stefan Lewellen, Arkodipta Sarkar, and Xiao Zhao, Revisions Requested at Review of Financial Studies
We examine whether politicians use soft influence to affect local firms’ industrial pollution, and whether such influence is transmitted through plant-level networks to affect pollution in other regions. We first document that plants decrease emissions following close Democrat wins in U.S. congressional races, especially when politicians have strong pro-environmental preferences. Firms respond by reallocating emissions away from Democrats, leading to spillovers in other districts. However, reallocation is imperfect: firm-level costs increase and M/B ratios decline after firms’ representation becomes more Democratic. Pollution-related illnesses decrease around plants in Democratic districts and spill over through firms’ production networks to other communities.
We argue that the deregulation of the U.S. banking sector in the late 1980s played an important role in facilitating risk build-up and cross-sectional differences in bank performance prior to the Global Financial Crisis. Deregulation increased deposit competition, squeezing banks’ net interest margins. Banks responded by increasing risk-taking, engaging in M&A activity, and developing new sources of income. Banks in early-deregulating states were compelled to make risk-taking and business model changes that provided long-term advantages over banks in late-deregulating states. Using network-based measures of bank deregulation intensity, we verify these patterns in the data.
We examine monetary policy transmission when deposit market structure is endogenous. Expansionary monetary policy stimulates bank entry, especially when entry barriers are low. Banks' deposit quantity sensitivities are increasing in entry barriers, but the number of local banks is decreasing in entry barriers, and this channel dominates. Hence, higher entry barriers are associated with reduced monetary policy transmission. We test this prediction using novel, network-based measures of entry barrier shocks stemming from U.S. bank deregulation. Consistent with the model, local establishment and employment growth increase more in response to expansionary monetary policy when entry barriers are lower.