Fake Products, Real Effects: Evidence from Special 301 Actions, 2021, Journal of Financial and Quantitative Analysis, Forthcoming, with Umit Gurun.
Using a novel dataset, we show media sentiment on growth, inflation, unemployment, and sociopolitical conditions predict hedge fund returns. We blend these into a macro sentiment index (MSI) and show that funds betting against sentiment generate higher risk-adjusted returns. This result is robust to orthogonalizing MSI against popular sentiment indices. We demonstrate MSI as a state variable in Intertemporal Capital Asset Pricing Model (ICAPM). Our sentiment ICAPM produces 22% fewer significant alphas relative to the standard nine-factor model. Overall, our results highlight differences between media-based and popular outcome-based sentiment measures and suggest a role for sentiment in asset pricing models.
Using staggered changes in ideology of U.S. circuit courts, we examine the effect of judicial ideology on business decisions. We find evidence that shifts towards more liberal courts, which are commonly viewed as less pro-business, lead to business turnover. Turnover begins with increased establishment entry and job creation in the first five years, with establishment exits and job destruction peaking five to ten years afterwards. Additional tests suggest that this turnover results in an economy with fewer firms in judicially-sensitive industries, measured as industries exposed to litigation, intellectual property, and labor risks. Overall, our evidence suggests that conservative courts, act as a barrier to entry for new businesses, but also benefit firms in judicially sensitive industries.
Presentations: Iowa State University*, Third Annual Conference on Law and Macroeconomics, University of Miami*, MFA 2021 Annual Meeting, University of Bath*, Vrije Universiteit Amsterdam, 2021 American Law and Economics Association (ALEA) Annual Meeting in Chicago.
* denotes presentation by co-author
We analyze how the adoption of the California Consumer Protection Act (CCPA), which limits buying or selling consumer data, heterogeneously affects firms with and without previously gathered data on consumers. Exploiting a novel and hand-collected data set of 11,436 conversational-AI firms with rich personal data on identifiable U.S. consumers, we find that the CCPA gives a strong protection and advantage to firms with in-house data on consumers. First, products of these firms experience significant appreciations in customer ratings and are able to collect more customer data relative to their competitors after the adoption of the CCPA. Second, publicly traded firms with in-house data exhibit higher valuations, profitability, asset utilization, and they invest more after the adoption of the CCPA. Third, earnings of such firms can be more accurately predicted by analysts. To rationalize these empirical findings, we build a general equilibrium model where firms produce final goods using labor and data in the form of intangible capital, which can be traded with other firms subject to an iceberg transportation cost. When the introduction of the CCPA increases the transportation cost, firms without in-house data suffer the most because they cannot adequately substitute the previously externally purchased data, while firms with in-house data expand their market share.
I study the effects of congressional seniority ranks on corporate outcomes in the U.S. I show that firms located in districts of lower-ranked legislators exhibit weaker sales to government, corporate downsizing, and lower valuations. These firms are also more exposed to civil disorder, including attacks that specifically target government offices, infrastructure, and employees. Seniority lotteries in House committees suggest that the links between congressional seniority ranks and corporate outcomes are causal.
Presentations: University of Amsterdam, Analysis Group, Cornerstone Research, Einaudi Institute, George Washington University, Said Business School at University of Oxford, Smeal College of Business at Pennsylvania State University, Simon Business School at University of Rochester, Sabanci University, Stanford University GSB.
This paper provides the first exploration of how illicit sellers operate on e-commerce platforms and how they respond to enforcements. I use a novel data set of 71 million illicit — i.e., fraudulent, counterfeit, or replica — items that were removed from online marketplaces. By using natural language processing and computer vision techniques on these products and by tracking business activities of the illicit sellers, I identify a large number of similar but previously unnoticed illicit products (UIPs) that are currently sold online. For each illicit product that was previously removed, I detect 16.91 UIPs. Of these, 84% remained on the market during the one-year period after the removal of the initial illicit product. Nonetheless, the total market value of these products decreased by up to 80% after enforcements. My findings suggest that enforcements against illicit products on e-commerce platforms encourage separating equilibria, in which illicit sellers have weaker incentives to pool with authentic producers than to be revealed as low-quality producers.
Papers at the R&R Stage:
We examine the relation between a firm’s successful protest of a government agency’s conduct or terms of a procurement contract and the amount of business the firm conducts with the government going forward. We find firms receive fewer and less valuable government contracts, face more contract cancellations, and experience significant reductions in sales growth and employee growth. Despite widespread belief, successful bid protesters do not delay government procurement due to lengthy dispute resolutions. Overall, we provide the first analysis of corporate interactions with the United States government bid-protest system.
Presentations: 2020 American Finance Association Meetings (San Diego), MFA 2020 Annual Meeting in Chicago, 2020 American Law and Economics Association (ALEA) Annual Meeting in Chicago, Clemson University*, Emory University*, Pennsylvania State University (Smeal College of Business and Harrisburg), Emory University*, and Temple University (Fox School of Business)*.
* denotes presentation by co-author
Work in Progress:
Permanent Working Paper:
The movement of individuals between government positions and private sector employment influences federal government contracting decisions and stock market returns. Firms that will soon hire government officials receive valuable government contracts, beat consensus earnings forecasts, and outperform in the stock market. Managers of these firms can successfully forecast future firm earnings that come as a surprise to equity analysts. These findings support a quid pro quo hypothesis, in that firms hire government officials in exchange for valuable government contracts. We run a battery of robustness checks to mitigate endogeneity concerns and address other possible explanations.
Awards: 2014 SBS Doctoral Conference (1st Place), 2015 Hakan Orbay Research Award (2nd Place)
Presentations: 2016 American Finance Association Meetings (San Francisco), Said Business School at University of Oxford, Hanken School of Economics (HCCG), Koc University*, Aix-Marseille School of Economics*.
* denotes presentation by co-author
Media mention: Invited summary article at Columbia Law School's Blue Sky Blog.