Research

My research examines incentive distortions in the financial markets, and their consequences for financial institutions, corporations, and households. See Summary of Studies at the end of this page for a summary of my current studies along this line. 

Publications:

1. The Economics of Solicited and Unsolicited Credit Ratings (with Paolo Fulghieri and Gunter Strobl), Review of Financial Studies, 2014 27 (2).

Best Paper Award in Corporate Finance, MFA Conference 2010

2. Can Investor-Paid Credit Rating Agencies Improve the Information Quality of Issuer-Paid Raters?  Journal of Financial Economics, 2014 111 (2).  [Internet Appendix]

3. Do Lenders Still Monitor When They Can Securitize Loans? (with Yihui Wang),  Review of Financial Studies, 2014 27 (8).  [Internet Appendix]

4. Locations, Proximity, and M&A Transactions (with Ye Cai and Xuan Tian), Journal of Economics and Management Strategy, 2016 25 (3).

5. Revolving Doors on Wall Street (with Jess Cornaggia and Kimberly Cornaggia), Journal of Financial Economics, 2016 120 (2). [Internet Appendix]

Featured in: Bloomberg news

6. Follow the Money: Investor Trading around Investor-Paid Credit Rating Changes (with Utpal Bhattacharya and Kelsey Wei), Journal of Corporate Finance, 2019 58.

7. Do Financial Regulations Shape the Functioning of Financial Institutions’ Risk Management in Asset-Backed Securities Investment?  (with Xuanjuan Jane Chen, Eric Higgins, and Hong Zou), Review of Financial Studies, 2020 33 (6).

8. Incremental versus Breakthrough Innovation: The Role of Technology Spillovers (with Seong K. Byun, and Jong-Min Oh), Management Science, 2021 67(3).

Best Paper Award, Entrepreneuiral Finance and Innovation Conference, 2015 

9. R&D tax credits, technology spillovers, and firms' product convergence (with Seong Byun, and Johng-Min Oh), Journal of Corporate Finance, 2023 80 (102407).

10. Who Mismanages Student Loans and Why? (with Kimberly Cornaggia), Review of Financial Studies, 2024 37(1).

11. Networking Behind the Scenes: Institutional Cross-industry Holdings and Information Frictions in Corporate Loans (with Jie He, Lantian Liang, and Hui Wang), Management Science, 2024 70(7).

12. Household Debt Overhang and Human Capital Investment (with Gustavo Manso, Alejandro Rivera and Hui Grace Wang), Journal of Financial Economics, 2025 172.

13. Natural Disasters, Financial Shocks, and Human Capital (with Jess Cornaggia and Kimberly Cornaggia), Management Science, Forthcoming

Featured in: NPR

Selected Working Papers:

14. The Power Behind the Pen: Institutional Investors' Influence on Media during Corporate Litigation (with Jie He, Yabo Zhao, and Luo Zuo), Minor Revision at Journal of Accounting Research

Conferences: AFA 2022, SFS Cavalcade 2020, EFA 2020, NFA 2020, Semi-finalist for Best Paper Award at FMA 2020

Institutional investors increasingly own equity blocks of both media companies and industrial firms. When industrial firms become defendants of corporate litigation, these institutions nudge media companies they simultaneously blockhold to provide more lenient coverage about the defendants. Doing so props up market sentiment and mitigates negative price impact – benefiting institutions’ portfolios. This strategy is more prominent when institutions are activists and pay closer attention to litigation events. Following the lenient coverage, institutions gradually exit positions in troubled defendant firms and begin to vote more favorably toward the media’s management. Overall, media outlets seem to slant their coverage of corporate litigation to cater to their large shareholders.

15. Student loans and labor supply incentives (with Gustavo Manso, Alejandro Rivera and Hui Grace Wang)

Conferences: WFA 2025, UNC-Duke finance conference 2025, Colorado Finance Summit 2024, MFA 2024

Featured in: LSE blog

We develop a dynamic model showing that student loans --  non-dischargeable in the U.S. bankruptcy -- can alleviate the well-documented debt overhang problem in household labor supply decisions. Non-dischargeability mutes the opportunities for households to strategically pull back from supplying labor at the expense of creditors, thus correcting such incentive distortions. This corrective effect of student loans, however, is partially undone by the option of Income Driven Repayment (IDR) plans, which sets student debt payment as a proportion of households' future income, regardless of borrowing amount and outstanding balance. IDR thus allows households to pseudo "discharge" student debt and re-introduces the debt overhang problem. We supplement our model with calibration and empirical analyses, and derive policy implications speaking to the recently proposed reforms in IDR plans and student debt forgiveness.

16. Bachelorette’s Degree: Financial Shocks and the Gender Performance Gap (with Jess Cornaggia and Kimberly Cornaggia)

Conferences: NBER Household Finance 2025, WFA 2025, MFA 2025, Colorado 2025

Recent research shows that labor disruptions cause female professionals to exhibit greater losses in productivity relative to their male peers. These studies attribute part of this gender-based difference to the demands of young children or other familial obligations on females. We document a reversal in this gender gap – where females on average outperform males in their resilience to financial shocks – in a setting with matched peers that is free from the confounding effects of marriage or children. Using college transcript data from the Department of Education and a triple-differences empirical design, we find that female students are less disrupted by financial shocks than male students in their human capital investment during college. 

17. (Don’t) Feed the Mouth that Bites: Trade Credit Strategies among Rival Customers Sharing Suppliers (with Kayla Freeman, Jie (Jack) He, and Liyan Yang) 

Conferences: MFA 2023, CICF 2023, EFA 2023, NFA 2023

Product market rivals often source upstream inputs from common suppliers. Because these inputs are typically sold on credit, sharing a supplier could create incentives for customers to strategically demand trade credit in order to prevent the supplier from providing liquidity to rivals-to avoid "feeding the mouth that bites." We develop a theoretical model to illustrate that when government policies strengthen certain customers' product market position, such strategic incentives become aggravated, leading to a spillover effect of these policies. We empirically test the model implications using manually collected pair-level trade credit data. Using the U.S. government's QuickPay reform as an identification strategy, we show that customers extract more trade credit from common suppliers in an effort to pull away these suppliers' liquidity from the rivals that already benefit from QuickPay.

18. College student behavior and student loan default (with Jess Cornaggia and Kimberly Cornaggia)

Conferences: AFA 2021, WFA 2019, NFA 2019

With a license to use individually identifiable information, including college transcripts, we find that students who quit college courses are 13% more likely to default on student loans than their perseverant peers, controlling for conventional risk factors. This effect is especially strong when students quit courses in their chosen major and courses at more selective institutions. Similarly, students who voluntarily repeat courses after performing poorly are 13% less likely to default than peers who give up. This effect is stronger when social / monetary costs of repeating courses are especially high. Students’ early-life behavior provides an observable credit risk indicator.

19. The Issuer-Pays Rating Model and Ratings Inflation: Evidence from Corporate Credit Ratings (with Gunter Strobl)

Summary of Studies:

My research examines incentive distortions in the financial markets, and their consequences for financial institutions, corporations, and households: 

• For credit rating agencies, I study their incentives to inflate credit ratings due to the “issue-pays” rating model, contrast these biased ratings to the ones under the “investor-pays” model, and derive implications of such rating-inflation incentives in rating analysts’ career path and investor returns. (Papers 1, 2, 5, 6 above)

• For banks, I study how their incentives to monitor borrowers – one of the most important roles played by financial intermediation – is compromised when they face opportunities to unload loans through securitization, such as CLOs and other ABS. (Paper 3)

• For other financial institutions (such as insurance companies), I provide evidence that managers’ incentive to identify risk may be weakened by high-yielding ABS – which often bear inflated credit ratings to conceal the fundamental risk. This weakened incentive hampers risk management’s efficacy in curbing risk taking. Remedial regulations, through the combination of capital regulation and reporting rules, may be necessary. (Paper 7)

• For institutional investors, I show that their ownership structure across industrial firms and information intermediaries (such as media companies) may distort the intermediaries’ incentives, resulting in slanted news and skewed information disclosure at the expense of less informed market participants. (Paper 14)

• For households, I study how conflicts of interest among one specific type of financial institution – the servicers of student loans (constituting a large part of U.S household debt) – can lead to borrowers’ mismanagement of these loans, resulting in excess debt burden.  (Paper 10)

The incentive distortions do not always arise deliberately due to institutions' internal policies; they can arise unintendedly from external public policies: 

• For example, for households with student loans, the government’s (Biden administration) recent efforts in promoting income-driven student loan repayment (IDR) plans – which ties loan payment to borrower income and aims to lower debt burden in bad states – may have an unindented effect to discourage households' labor supply ex ante, due to a household debt overhang problem (Papers 12, 15)

• Likewise, government procedures in determining eligibility of student loan borrowing may foster students’ to divert from studying challenging yet essential courses (such as STEM) amid financial shocks, causing distortion in their human capital decisions. (Paper 13) Interestingly, the adverse impact of such financial shocks is more prominent among male students than femal students. (Paper 16)

• For corporations, government subsidies – such as R&D tax credits – create technology spillovers, allowing firms to better absorb peers’ technological advancement. Such spillovers, however, may dampen firms' incentives in creating innovation that breaks the ground and instead, sidetrack them to follow peers’ suit and focus on incremental innovation. Firms facing technology spillovers attain fewer superstar inventors among their human capital – the important drivers of breakthrough technology advancement.   (Papers 8, 9)

• Along the supplier chain, government subsidies benefiting small businesses may spill over to these businesses’ rivals through the presence of common suppliers, unintendedly eliciting the rivals’ tactic response in order to “avoid feeding the mouth that bites.” (Paper 17)

Incentive distortions also exhibit nuances. The sources giving rise to incentive distortions may also bring up the "bright spots":

• For example, even though institutional investors’ common ownership structure may bias information providers'  incentive (Paper 14) , such ownership can meanwhile facilitate information pass-through in corporate loan markets, alleviating the hold-up problem and lowering borrowers’ loan interest rates. (Paper 11)