Working Papers

Please find here my current working papers:

Credit ratings and quarterly investment spikes

(First draft May 16 2024, last update August 27 2025) [presentation slides]

We examine how credit rating downgrades impact firms' investment efficiency. Using spikes in the firm's fourth fiscal quarter capital expenditures, typically linked to "use it or lose it" budgeting constraints, we show firms reduce their abnormal investments by -24.5% following downgrades, suggesting improvements in internal capital allocation. This decrease is especially pronounced for financially constrained firms and those facing budgeting complexity, e.g., firms with more operating segments and larger deviations in investments, sales, and number of employees. Moreover, stock market reaction is more muted around downgrade announcements when firms have larger investment spikes, suggesting downgrades efficiently discipline corporate investment decision-making.

The Dynamics of Credit Rating Report Content

(co-authored with Darren J. Kisgen, updated October 13 2025)

We examine the variation in information contained in rating reports, distinct from the letter rating. Specifically, we examine the clarity, length, numerical content, uncertainty, and uniqueness of rating reports. We first document that rating content matters. Stock market reactions to rating changes are significantly affected by rating content, and rating content predicts future rating changes. We next show that analyst fixed effects explain about 20% of content variation. Finally, we find that the information quality contained in rating reports significantly improves with increased litigation risk following the Dodd-Frank Act, especially for ratings that diverge from expectations.

Do Firms Care About ESG Ratings? Evidence from Refinitiv's Scoring Adjustment

(co-authored with Jan Schnitzler, first version August 01 2024) [presentation slides]

This paper examines the impact of Refinitiv's revised ESG scoring methodology in 2020, which penalizes firms neglecting sustainability reporting, on corporate ESG practices. Firms with large negative ESG score revisions show significant improvements in their scores post-adjustment, reflected in sub-scores and scores from other providers. They achieve this by professionalizing ESG disclosures and processes, including introducing sustainability reports, establishing CSR committees, and participating in ESG surveys. There are, however, signs that these trends started already prior to Refinitiv's scoring adjustment. Firms with positive ESG score revisions, in contrast, have established ESG disclosures but tend to have higher carbon emissions, even though they improve their carbon intensity subsequently.

Shareholder-connected Director Appointments: Evidence from Cross-ownership

(co-authored with Yang Cao, updated May 16 2024) [presentation slides]

We explore how cross-ownership affects non-executive director appointments. Using investor cross-ownership to proxy candidate connections to shareholders, we analyze 18,371 appointed directors against a pool of 329,521 potential counterfactual candidates. Our findings show a positive link between shareholder connections and director appointments. Firms with governance concerns tend to appoint connected directors, which shareholders perceive favorably, leading to improved stock returns and voting support. These appointments improve corporate governance and increase capital expenditures. Directors benefit from increased external job prospects and higher internal compensation.

Brown Bonds in a Green World: Are Investors Punishing High-Carbon Issuers with Illiquidity?

(co-authored with Alexander Schöffel, Martin Geissdoerfer, Lukas Müller, Dirk Schiereck, first version July 14 2025, Revise & Resubmit Journal of Empirical Finance)

We investigate whether corporate bond liquidity is negatively impacted by issuers' carbon intensity, particularly given a rising share of sustainably investing bond funds. Using several established illiquidity measures, we analyze the long-term impact of carbon performance on bond illiquidity. We do not find conclusive evidence that carbon intensity leads to bond illiquidity; however, we find evidence that bonds from high-carbon issuers exhibited heightened illiquidity around the Paris Agreement. A higher share of funds holding low-carbon portfolios does not seem to be associated with improved liquidity in low-carbon bonds. Despite the growing market share of sustainability-oriented funds, continued investment in brown bonds suggests that carbon-intense sectors remain economically attractive to investors.

Carbon Intensity Disclosure and Corporate Credit Spreads

(co-authored with Alexander Schoeffel, Lukas Mueller, Christoph Trautmann, Dirk Schiereck, Revise & Resubmit Journal of Industrial Ecology)

We examine the link between carbon intensity and US corporate bond spreads in a sample of disclosing companies before and after 2020. We find a consistent discount among high-intensity companies of approximately 11 bps prior to 2020 compared to companies with median carbon intensity. From 2020 to 2022, the discount increases to 16 basis points for A-rated bonds, while it turns insignificant for BBB-rated bonds. For A-rated bonds, we find an increasing term structure in the carbon discount. Our results imply a discrepancy between the carbon risk perception of bond market investors and credit rating agencies and a potential underpricing of climate risk. Our study contributes to the understanding of transition risks in industrial decarbonization by examining whether carbon intensity is priced in corporate bond markets, a key channel for financing industrial activities.

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