Research
Publications:
1. The Economics of Solicited and Unsolicited Credit Ratings (with Paolo Fulghieri and Gunter Strobl), Review of Financial Studies, 2014 27 (2).
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]
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 ABS 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).
9. Who Mismanages Student Loans and Why? (with Kimberly Cornaggia), Review of Financial Studies, 2023, Forthcoming.
10. Networking Behind the Scenes: Institutional Cross-industry Holdings and Information Frictions in Corporate Loans (with Jie He, Lantian Liang, and Hui Wang), Management Science, 2023, Forthcoming.
11. R&D tax credits, technology spillovers, and firms' product convergence (with Seong Byun, and Johng-Min Oh), Journal of Corporate Finance, 2023, Forthcoming.
Selected Working Papers:
12. The Power Behind the Pen: Institutional Investors' Influence on Media during Corporate Litigation (with Jie He, Yabo Zhao, and Luo Zuo), Revise and Resubmit 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.
13. Debt and Transcripts: Financial Effects of Natural Disasters (with Jess Cornaggia and Kimberly Cornaggia), Revise and Resubmit at Management Science
We examine effects on productivity, employment, and debt outcomes among college students whose parents reside in areas that experience disastrous climate events. After disruptions, treated students exhibit poorer academic performance, withdraw from more courses and enroll in fewer STEM courses. Effects of disruption are stronger for middle class students relying on family income to pay for college. Students mostly mitigate financial disruption with additional part-time employment. Ultimately, disrupted students are 7% more likely to default on student loans. We find stronger adverse effects among male and non-white students. Overall, these results shed light on the intra-family consequences of financial stress.
14. Household Debt Overhang and Human Capital Investment (with Gustavo Manso, Alejandro Rivera and Hui Grace Wang)
Conferences: AFA2024, AEA 2023, MFA 2023, ASU Winter 2023, Edinburgh Corporafe Finance 2023, CICF 2023, EFA 2023
Unlike labor income, human capital is inseparable from individuals and does not accrue to creditors at default. As a consequence, human capital investment should be more resilient to “debt overhang” than labor supply. We develop a dynamic model displaying this important difference. We find that while both labor supply and human capital investment are hump-shaped in leverage, human capital investment tails off less aggressively as leverage builds up. This is especially the case when human capital depreciation rates are lower. Importantly, because skills acquisition is only valuable when households expects to supply labor in the future, the anticipated greater reduction in labor supply due to debt overhang back-propagates into a reduction in skills acquisition. Using individually identifiable data, we provide empirical support for the model.
15. Student loans and labor supply incentives (with Gustavo Manso, Alejandro Rivera and Hui Grace Wang), Invited for dual submission at the Journal of Financial Economics
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. (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 the same set of suppliers. Because these inputs are typically sold on credit, sharing a supplier could create incentives for customers to strategically demand trade credit terms in order to prevent the supplier from providing liquidity to rivals. In this paper, we empirically document this strategy and show that customers prolong payable days with suppliers that also sell to their rivals. For identification, we exploit the U.S. government’s QuickPay reform, which permanently shortened the government’s payable days to small business contractors, creating an exogenous liquidity influx. We find that after QuickPay, affected contractors extend more trade credit to their corporate customers. In response, rivals of these corporate customers begin to extract more trade credit from the shared suppliers, indicating their efforts to pull away these suppliers’ liquidity from the competitors already benefiting from QuickPay. Our paper reveals an underexplored incentive in supply-chain relationships, namely, the incentive to avoid “feeding the mouth that bites,” and how it shapes the allocation of trade credit.
17. The road to redemption: Financial analysts' response to ESG-related misconduct of their brokerage houses (with Hui Grace Wang, Yaxin Wen, and Luo Zuo)
We study how sell-side analysts attempt to recover the reputational capital after their brokerage' controversial ESG practices are publicly revealed. We find that following such controversies, analysts provide more accurate earnings forecasts and reliable stock recommendations in order to rebuild their brokers' reputation and recapture the lost trading commissions from investors. This improvement of research quality is mostly driven by analysts dialing down their previous overly optimistic assessments, and is absent when prior assessments are relatively pessimistic. In addition, the improvement is observed only among analysts staying with the troubled brokerage, as opposed to the ones leaving their brokerage shortly after the event. Motivated by existing theories, we find that in the cross-section, analysts improve their forecast accuracy mostly for stocks that are expected to preform well (which are more lucrative for winning back lost trading commissions), and when their brokerage has a mid-range ESG reputation to begin with (when market has the most to learn about the brokerage).
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. Information asymmetry and labor mobility (with Jesse Davis and Yabo Zhao) Draft coming soon!