Jacelly Cespedes

Assistant Professor of Finance

University of Minnesota

Carlson School of Management

                  Curriculum Vitae

                 Contact Information

                 321 19th Avenue South, 3-135

                 Minneapolis, MN 55455

                 cespe013@umn.edu       

                  Research Interests

                 Household Finance, Financial Intermediation, FinTech

Published and Accepted Papers

The Effect of Principal Reduction on Household Distress: Evidence from Mortgage Cramdown (with Carlos Parra and Clemens Sialm) (Conditionally accepted at the RFS)

Featured in​ Columbia Law School’s Blue Sky Blog, Forbes

Funded by NBER-HF Small Grants Program

Mortgage cramdown enabled bankruptcy judges to discharge the underwater portion of a mortgage in a Chapter 13 bankruptcy until the Supreme Court disallowed this practice in 1993. We investigate the impact of mortgage cramdown on household distress exploiting the random assignment of cases to judges. We find that cramdown reduced the three-year foreclosure rate by between 15 and 20 percentage points. Our results suggest that large principal reductions considerably reduce homeowners’ distress through a reduction of debt overhang.

The Effects of House Prices and Home Equity Extraction on Career Outcomes (with Zack Liu and Carlos Parra) (Accepted at the RCFS)

This paper investigates the effects of housing wealth shocks on workers' career decisions and long-term career outcomes. Using a novel data set of career histories in the film industry, we find that homeowners facing greater house price declines reduce participation in high-quality projects but increase involvement in low-quality films. Conversely, renters are not affected by these shocks. Consistent with individuals using home equity during job searches, these shocks have a greater impact on homeowners with lower equity and those that extracted home equity during the housing boom. Moreover, house price declines from the housing crisis affect long-term career paths.


Working Papers

More Money, More Options? The Effect of Cash Windfalls on Entrepreneurial Activities in Small Businesses (with Xing Huang and Carlos Parra) (Revise & Resubmit RFS)

Using a novel setting in which retailers receive bonuses when selling jackpot winning lottery tickets, we show that large windfalls lead to both existing business expansion and new business creation. New ventures are larger and have high survival rates; they tend to emerge in nonretail industries, substituting for existing business expansion. We also show that high-quality owners who are financially constrained respond the most to cash windfalls. Our findings contrast with the prevailing view that small businesses lack the desire to grow and highlight that financial frictions not only impede growth but also limit industry choices for constrained entrepreneurs.

Strategically Staying Small: Regulatory Avoidance and the CRA (with Jordan Nickerson and Carlos Parra)

Featured in​ Columbia Law School’s Blue Sky Blog

Using the introduction of an asset-based two-tiered evaluation scheme in the 1995 CRA reform, we examine the consequences of regulatory avoidance. Banks respond by strategically bunching below the $250M threshold. In a difference-in-differences design, we show that banks near the threshold prior to the reform reduce asset/loan growth, and increase loan rejection rates in low-to-moderate-income areas, a void unfilled by other banks. Regulatory avoidance produces real effects: areas with greater exposure to these banks experience a decline in small establishment shares and independent innovation. Our results highlight banks' willingness to incur costs to avoid regulations, negatively impacting CRA's beneficiaries.

Heterogeneous Sensitivities to Interest Rate Changes: Evidence from FinTech Loans

WFA-CFAR Award in Honor of Professor Stuart I. Greenbaum

I analyze borrowers' credit contract decisions to investigate whether these choices can be used for screening purposes. In the setting, the interest rate jumps at specific loan amount thresholds, which create incentives for bunching below the cutoffs. I find substantial heterogeneity in sensitivities to interest rate jumps. Evidence supports borrower sophistication as the main explanation for this heterogeneity. Furthermore, borrowers who fail to bunch below the thresholds are 18% more likely to default and 24% less likely to receive funding from institutional lenders. Findings suggest that borrowers' suboptimal credit decisions can be used to reduce information asymmetries in credit markets.

Branching Out Inequality: The Impact of Credit Equality Policies (with Erica Jiang, Carlos Parra, and Jinyuan Zhang) 

We uncover that the Community Reinvestment Act (CRA), a major policy aimed to reduce geographic inequality in credit access, can widen disparities across regions, despite enhancing credit equality within certain regions. This adverse effect arises because banks withdraw branches from economically disadvantaged areas to sidestep the rules. As financial activities shift towards shadow banks, the adverse impact of the CRA regulation is amplified, expanding the set of disadvantaged areas that suffer from branch withdrawals. Using a regression discontinuity design centered on a CRA eligibility threshold, we estimate banks' shadow costs of violating the CRA. We then show that banks with higher costs of CRA violation retract their branches from disadvantaged areas following the expansion of shadow banks. This retraction results in declines in small business lending, financial inclusion, and real economic activity, predominantly in low-income areas with more minority populations. Such dynamics presumably contributed to the worsening cross-region disparities in credit access observed over the recent decade.

The ex-ante effects of bankruptcy provisions on small firms (with  Richard T. Thakor and Keer Yang)

This paper examines the effect of legal bankruptcy protection on small businesses. Using granular agricultural microdata, we use a regression discontinuity design to exploit farm eligibility for a unique bankruptcy code for farms known as Chapter 12. We find that farmers that qualify for this protection take on additional debt, but do not face a higher cost of debt, consistent with Chapter 12 eligibility increasing the demand for debt. Exploring a variety of outcomes, we find that farms with enhanced bankruptcy protection make relatively more investments, and are more productive across various measures. This translates to greater farm production, sales, and profitability. Overall, our results suggest that the enhanced bankruptcy protection improves ex ante outcomes and is efficiency-enhancing. We also show that the bankruptcy protection has a positive spillover on farmer household consumption.

Peer Effects Across Firms: Evidence from Security Analysts  (with Carlos Parra) 

We assess the magnitude and mechanisms of workers’ productivity spillovers by estimating the peer effects among those working in the same occupation across firms using the setting of security analysts. The empirical design exploits one feature of social networks: the existence of partially overlapping peer groups. This refers to analysts who cover similar industries, but not exactly the same group of industries, which generates peers of peers (excluded peers). This allows the identification of both the peers' characteristics and the peers' outcome effects. In addition, to deal with common group shocks, the exogenous characteristics of excluded peers are used as instruments. We find strong evidence of spillovers in terms of peer outcomes and characteristics. In particular, peer accuracy is positively related to analysts’ accuracy, while the number of industries followed by analysts' peers negatively impacts accuracy. In terms of the potential mechanisms that account for the spillover effects, we find that the effects are stronger when analysts see their peers performing well, and that besides imitation knowledge spillovers also help explain the results.


Working in Progress

Small Business Boundaries