Research Papers


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

Working Papers:

9. Grit and Credit Risk: Evidence from Student Loans (with Jess Cornaggia and Kimberly Cornaggia)

Conferences: WFA 2019, NFA 2019, AFA 2021

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.
With a license to use individually identifiable information on student loan borrowers, we find that a majority of distressed student borrowers manage their debt sub-optimally and that suboptimal debt management is associated with higher loan delinquency. Cross-sectional analysis indicates that loan (mis)management varies significantly across student gender, ethnicity, and age. We test several potential selection-based explanations for such demographic variation in student loan management, including variation in students’ overconfidence, consumption preferences and discount rates, and aversion to administrative paperwork. Motivated by federal and state allegations against student loan servicers, we also test for the presence of treatment effects. Overall, the empirical evidence supports the conclusion that loan servicers’ differential treatment across borrowers play an important role in student loan outcomes.
Conferences: WFA 2019, CICF 2019, NFA 2019, FIRS 2020

It is increasingly common that institutional investors simultaneously hold the equity of both industrial firms and financial firms, creating a “bank-firm ownership linkage.” We find that borrowers linked to banks other than their existing lenders through such linkages enjoy significantly lower loan spreads. This finding is mostly driven by institutions transmitting information between portfolio firms and banks, which mitigates information frictions and thereby reduces firms’ borrowing costs. For identification, we adopt a difference-in-differences method based on the quasi-natural experiment of financial institution mergers. Our evidence highlights an underexplored effect of institutions’ cross-industry holdings on the corporate loan market. 
Conferences: SFS Cavalcade 2020, EFA 202, NFA 2020, Semi-finalist for Best Paper Award at FMA 2020

We show that during corporate litigation, blockholders of the defendant firms, which often face trading illiquidity when attempting to unwind large positions of the firms, maneuver media companies they simultaneously blockhold to release news coverage favoring the defendants. By doing so, the blockholders pump up investor sentiment, “delay” an otherwise continuing decline in the defendants’ stock prices, and allow themselves more time to exit before further price depreciation – a de facto “pump and dump” strategy. Our findings indicate that the cross-blockholding between media and industrial firms creates an opportunity for institutions to distort media information content and manipulate market sentiment.

12. Product Market Threats and Performance-Sensitive Debt (with Einar C. Kjenstad and Xunhua Su)

Conferences: WFA 2013, Summer Institute of Finance 2013, FMA 2013 

This paper examines how product market threats shape the use of performance pricing in loan contracts. Loan contracting faces a trade-off between financial markets and product markets: while using contractual terms that are linked to borrower performance -- such as performance pricing -- mitigates borrower-creditor frictions in financial markets, it makes a borrower vulnerable to product market pressures, which often decline borrower performance and make performance pricing more likely to become binding. Supporting this trade-off, we find that product market threats significantly moderate the use of performance pricing in loan contracts, particularly when the benefit of doing so outweighs its cost in exacerbating borrower-creditor frictions in financial markets.

13. Buying on Certification: Credit Ratings and Government Procurement (with Xuan Tian)

We examine how credit ratings affect the public and private sectors differently by evaluating customer procurement decisions. Public-sector customers respond strongly to supplier rating changes: they increase purchases from upgraded firms and reduce purchases from downgraded firms. This response, however, is not observed from the private sector customers. Public sector’s significant reaction is likely due to its desire to follow ratings, a well-defined certification, to signal its decisions are aligned with external assessments and to avoid reputational losses. We also find suggestive evidence that politicians use ratings as basis to award government contracts to firms in states they represent.

14. The Issuer-pays Rating Model and Rating Inflation: Evidence from Corporate Credit Ratings, (with    Gunter Strobl)

Conferences: FIRS 2012,  EFA 2011, WashU Corporate Finance Conference 2011

This paper provides evidence that the conflict of interest caused by the issuer-pays rating model leads to inflated corporate credit ratings. Comparing the ratings issued by Standard & Poor's Ratings Services (S&P) which follows this business model to those issued by the Egan-Jones Rating Company (EJR) which does not, we demonstrate that the difference between the two is more pronounced when S&P's conflict of interest is particularly severe: firms with more short-term debt, a newly appointed CEO or CFO, and a lower percentage of past bond issues rated by S&P are significantly more likely to receive a rating from S&P that exceeds their rating from EJR. However, we find no evidence that these variables are related to corporate bond yield spreads, which suggests that investors may be unaware of S&P's incentive to issue inflated credit ratings.