Research

This paper discusses tradeoffs of various empirical methods used in recent papers that rely on Russell 1000/2000 index assignments for identification. The paper also addresses why different approaches to this identification appear to reach different conclusions about the effect of index assignment on firm’s ownership structure and corporate policies

Working Papers

1. Environmental Externalities of Activism (with Pat Akey)

We study the effect of hedge fund activism on corporate environmental behaviors. Using plant-chemical level data from the EPA, we find that activism campaigns are associated with a 17 percent drop in emissions for chemicals at plants of targeted firms. Campaigns are associated with changes across a wide range of chemicals, including those emitted into the air, water, and ground and those that are harmful to humans. Evidence suggests this change in environmental behavior stems from a drop in production rather than an increase in abatement activities. The net effect on environmental efficiency is positive, with emissions falling by 8 percent per unit of output. Overall, our findings highlight the idea that the benefits of activism are not necessarily confined to shareholders, but may also extend to other stakeholders (e.g., the local community) affected by firms' emissions.

2. Active Short Selling By Hedge Funds (with Slava Fos) -- R&R Review of Financial Studies

We examine the role of strategic communication in public short selling campaigns by hedge funds. Such campaigns are associated with abnormal returns for targets of approximately -7% as well as changes in the behavior of stakeholders (e.g., other short sellers). The effects are driven by campaigns that feature specific allegations rather than general claims of overvaluation. Campaigns are primarily undertaken by activist hedge funds, particularly those that have more experience or employ hostile tactics. Overall, our findings are consistent with models of strategic communication in which investor reputation and the credibility of allegations facilitates the flow of negative information into prices.

3. Pockets of Poverty: The Long-Term Effects of Redlining (with Jordan Nickerson)

This paper studies the long-term effects of redlining policies that restricted access to credit in urban communities. For empirical identification, we use a regression discontinuity design that exploits boundaries from maps created by the Home Owners Loan Corporation (HOLC) in 1940. We find that "redlined" neighborhoods have 4.8% lower home prices in 1990 relative to adjacent areas. This finding is robust to the exclusion of boundaries that coincide with the physical features of cities (e.g., rivers, landmarks). Moreover, we show that housing characteristics varied smoothly at the boundaries when the maps were created. Evidence suggests lower property values may be driven by negative externalities associated with fewer owner-occupied homes and more vacant structures. Overall, our results indicate the effects of discriminatory credit rationing can persist decades after such practices are formally discontinued.

4. Governance By Litigation -- R&R Review of Financial Studies

Michael J. Barclay Young Scholar Award (FRA Annual Meeting)

Stuart I. Greenbaum Outstanding Dissertation Award (Olin WFA-CRA Conference)

Best Paper Award (CAF 2015 Summer Conference)

I examine the effect of shareholder litigation rights on the governance of firms. My empirical strategy exploits the staggered adoption of universal demand (UD) laws, which restrict lawsuits alleging a breach of fiduciary duty by directors or officers. UD is associated with an increase in the use of governance provisions (e.g., classified boards) commonly opposed by shareholders. Evidence suggests that shareholders partially offset this effect via non-binding proposals. However, UD is associated with weaker operating performance, particularly for firms without an existing blockholder. Overall, my findings highlight a complementary relationship between shareholder litigation and alternative governance mechanisms.