Research

Publications:

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

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).

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

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

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

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

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

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

Working Papers:

9. Who Mismanages Student Loans and Why? (with Kimberly Cornaggia) Revise and Resubmit at Review of Financial Studies

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. Loan mismanagement varies across student gender and ethnicity: it is more prominent among male and non-white students. Such demographic variation can be largely explained by “in-group” altruism on the part of female and white loan servicer representatives, who provide exceptional assistance to borrowers from their own gender and ethnicity group. We test several alternative explanations, based on students’ financial education, overconfidence, consumption preferences, and aversion to administrative paperwork. These factors have some explanatory power but cannot fully explain the demographic variation in student loan management. Overall, we conclude that loan servicer treatment affects student loan outcomes.

10. Networking Behind the Scenes: Institutional Cross-industry Holdings and Information Frictions in Corporate Loans, (with Jie He, Lantian Liang, and Hui Wang) Revise and Resubmit at Management Science

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.

11. Debt and Transcripts: The Effects of Household Financial Shocks (with Jess Cornaggia and Kimberly Cornaggia)

To test the effect of family financial disruption on student productivity, employment, and debt outcomes, we compare treated (control) college students enrolled in the same course contemporaneously at the same university, whose families reside in areas that experience (do not experience) climate events. After the disruption, 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 6% more likely to default on student loans.

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

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.

13. 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.

14.“Pump and Dump” through Media Tone: The Role of Cross-Blockholders in Corporate Litigation, (with Jie He, Yabo Zhao, and Luo Zuo)

Conferences: AFA 2022, SFS Cavalcade 2020, EFA 2020, 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.