Working Papers

Please find here my current working papers:

Credit ratings and quarterly investment spikes

(First draft May 16 2024, last update April 28 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.

More than a Letter: Evidence on the Determinants and Impact of Credit Rating Report Content

(co-authored with Darren J. Kisgen, updated September 26 2024)

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.

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