Working Papers

(with Robert Connolly, Fotis Grigoris, and Crocker Liu)

Presentations: University of Missouri (2020); 15th Annual Conference on Asia-Pacific Financial Markets (CAFM, 2020); 33rd Australasian Finance and Banking Conference (AFBC, 2020)

Abstract: In contrast to other types of debt, the value of operating leases on the firm’s balance sheet is set by the firm. Using new information on operating leases from ASC 842, we examine firm behavior in valuing these leases, specifically, discount rate choices. Based on benchmarks we develop, we find that 20% of firms choose higher discount rates than expected. We consider potential motives for these choices. We find that financially fragile firms systematically choose higher discount rates, apparently to appear healthier. These firms also tend to be more informationally opaque and are less-heavily monitored by outsiders.

(with Gregory W. Brown, Robert S. Harris, and Christian T. Lundblad)

Presentations: WFA (2019); AEA (2019, poster); 9th Professional Asset Management Conference (2018); University of Virginia (2018); St. John's University (2018); UNC (2017); UNC Alternative Investment Conference (2017). Media Mentions: Business Officer, Institutional Investor, AEA

2019 WFA Two Sigma Award for Best Paper on Investment Management

Abstract: We examine the link between endowment investment performance and the expertise of university board members. Harnessing detailed information on 11,019 members for 579 universities, we find that expertise in alternatives and larger professional networks are associated with higher allocations to alternatives and better investment results. Expertise and networks appear particularly important in private equity and venture capital, which are difficult to analyze and manage. The improved investment performance arises because endowments capture higher returns that can accompany alternative assets, select or have access to high performing managers, and minimize fees by using direct funds rather than funds of funds.

(with Robert S. Harris)

Presentations: 33rd Australasian Finance and Banking Conference (AFBC, 2020) ; FMA (2020); SFA (2020);

Media Mentions: Financial Times - FundFire, Institutional Investor

Abstract: This paper provides the first study of compensation and pay-for-performance for top executives at non-profit endowments. Using a detailed breakdown of compensation from IRS filings over the 2009-2017 period, we find that pay packages of Chief Investment Officers (CIOs) depend more heavily on bonuses than do those for other non-profit executives. As in the for-profit sector, compensation is highly correlated with the size of an organization. Even controlling for size, CIO compensation is significantly positively related to endowment performance. Both compensation levels and the sensitivity of pay to performance vary with a foundation's financial model, its location and governance policies.

Presentations: EFA (2020, cancelled); SWFA (2020, cancelled); NFA (2019)

Abstract: Operational risk poses unique challenges to corporations around the world. However, little is known about the consequences of risk management vulnerabilities on financing costs and firm outcomes. In this paper, I document substantial and persistent effects on financing costs and debt contracting caused by operational risk management vulnerabilities following data breaches of public firms. Exploiting data breach events between 2005 and 2015, I find that lenders charge breached firms 15 to 20 percent larger spreads, and tighten covenant intensity, consistent with a shift in control rights over cash flows. The effect is larger for breaches of financial information or malicious cyber-attacks, and for firms with lower attention to risk management. Moreover, financial and operating leverage increases, profitability drops, and firms face a higher probability of default. Lastly, ex-ante mispricing by banks does not explain these findings.

Work in Progress

  • Did PE Kill HML?

(with Gregory W. Brown and Christopher Polk)