Stock-based pay, liquidity, and the role of market making, with Riccardo Calcagno, Journal of Economic Theory, 197, 105332 (2021).
A liquid market induces more trading on private information but also makes it more difficult to detect managerial shirking. We identify novel "skin-in-the-game" and "information aggregation" terms in the optimal incentive contract.
Banks and negative interest rates, with Farzad Saidi and Glenn Schepens, Annual Review of Financial Economics, 13, 201-218 (2021).
Surveys the transmission of negative monetary-policy rates to bank credit supply. The zero lower bound on retail deposit rates is key.
Variation margins, fire sales, and information-constrained optimality, with Bruno Biais and Marie Hoerova, Review of Economic Studies, 88, 2654-2686 (2021).
[Published version] [Slides] [Twitter]
Margin calls generate a fire-sale externality but the market equilibrium is constrained-efficient even though markets are endogenously incomplete.
Life below zero: Bank lending under negative policy rates, with Farzad Saidi and Glenn Schepens, Review of Financial Studies, 32, 3728-3761 (2019).
[Published version] [Vox EU Blog]
Zero lower bound on retail deposit rates induces risk-taking and less lending by banks with greater reliance on deposit funding. [RFS Editor's Choice, Featured in New York Times, 11 Sept. 2019]
Lending-of-last-resort is as lending-of-last-resort-does: Central bank liquidity provision and interbank market functioning in the euro area, with Carlos Garcia-de-Andoain, Marie Hoerova and Simone Manganelli, Journal of Financial Intermediation, 28, 32-47 (2016).
More central bank liquidity increases the private supply of liquidity to stressed countries during the European sovereign debt crisis. [JFI Best Paper Award]
Risk-sharing or risk-taking? Counterparty risk, incentives and margins, with Bruno Biais and Marie Hoerova, Journal of Finance, 71, 1669-1698 (2016).
[Published version] [FT Alphaville]
Variation margins address endogenous counterparty risk in derivatives contracts. (Best Paper Award by Europlace Institute of Finance)
As certain as debt and taxes: Estimating the tax sensitivity of leverage from state tax changes, with Alexander Ljungqvist, Journal of Financial Economics, 118, 684-712 (2015).
Staggered corporate income tax rates across U.S. states show that tax considerations are a first-order (asymmetric) determinant of firms’ capital structure choices.
Liquidity hoarding and interbank market spreads: the role of counterparty risk, with Marie Hoerova and Cornelia Holthausen, Journal of Financial Economics, 118, 336-354 (2015).
Asymmetric information about banks' illiquid assets leads to a malfunctioning of unsecured interbank markets as in the 2007-2009 financial crisis. [Bocconi University conference on "Business Models in Banking" Best Paper Award, Marjolin prize of SUERF]
Loan prospecting, with Roman Inderst, Review of Financial Studies, 25, 2381-2415 (2012).
Loan officers need to prospect for loans and transmit the soft information they obtain in the process. Competition worsens the bank's internal agency problem, reduces loan officers to salespeople with steep, volume-based incentives and lowers lending standards.
Clearing, counterparty risk and aggregate risk, with Bruno Biais and Marie Hoerova, IMF Economic Review, 60, 193-222 (2012).
Central clearing platforms offer mutualization of counterparty risk. But this insurance undermines institutions' incentives to search for robust counterparties, which is necessary to insure against aggregate risk.
Capital structure, risk and asymmetric information, with Nikolay Halov, Quarterly Journal of Finance, 1, 767-809 (2011).
Firms with uncertainty about the risk of their operations issue equity to close their financing deficit. The evidence points to an adverse selection cost of debt. [CICF Xia Yihong Best Paper Prize]
The determinants of bank capital structure, with Reint Gropp, Review of Finance, 14, 587-622, (2010).
Banks' capital structure is driven by similar factors as firms' capital structures. The findings are inconsistent with a first-order effect of capital regulation for most banks.
The benefit and cost of winner-picking: redistribution vs. incentives, with Axel Gautier, Journal of Institutional and Theoretical Economics, 165, 622-649, (2009).
Ex post efficient reallocation of resources via internal capital markets (winner-picking) makes it more difficult to incentivize managers.
Interbank Lending, Credit Risk Premia and Collateral, with Marie Hoerova, International Journal of Central Banking, 5, 1-39, (2009).
Explains the decoupling of secured and unsecured rates in the interbank market during the 2007-09 financial crisis and emphasizes the importance of the availability of collateral.