Research

Published Articles:

Persistent Crises and Levered Asset Prices  (with Lars-Alexander Kuehn and David Schreindorfer)

The Review of Financial Studies (2023), Vol. 36(6), 2571-2616

This paper shows that standard disaster risk models are inconsistent with movements in stock market volatility and credit spreads during disasters. We resolve this shortcoming by incorporating persistent macroeconomic crises into a structural credit risk model. The model successfully captures the joint dynamics of aggregate consumption, financial leverage, and asset market risks, both unconditionally and during crises. Leverage strongly amplifies fundamental shocks by continuing to rise while crises endure. We structurally estimate the model and show that it replicates the firm-level implied volatility curve and its cross-sectional relation with observable proxies of default risk.

On the Timing and Pricing of Dividends: Comment  (Online Appendix, Data on Implied Tax Rates)

American Economic Review (2016), Vol. 106(10), 3185-3223

I present novel empirical evidence on the term structure of the equity risk premium.  In contrast to previous research that documented high discount rates for the short-term component of the market portfolio, I show evidence for an unconditionally flat term structure of equity risk premia.  The tension with previous literature arises largely as a result of differential treatments of heterogeneous investment taxes, manifested in micro evidence on abnormal equity returns on ex-dividend days, and liquidity.  The results not only help resolve an important recent “puzzle” but provide further important insights on the role of investment taxes in asset pricing.

[This article previously circulated under the title On the Timing and Pricing of Dividends: Revisiting the Term Structure of the Equity Risk Premium]

Summary Figure (click to enlarge)  (further shows that main conclusion does not "crucially depend" on estimated implied tax rates)

The Private Returns to Public Office (with Raymond Fisman and Vikrant Vig)

Journal of Political Economy (2014), Vol. 122(4), 806-862

We study the wealth accumulation of Indian state politicians using public disclosures required of all candidates. The annual asset growth of winners is 3-5 percent higher than runners-up, a difference that holds also in a set of close elections. The relative asset growth of winners is greater in more corrupt states and for those holding ministerial positions. These results are consistent with a rent-seeking explanation for the relatively high rate of growth in winners' assets.

Media coverage:   The Financial Express

Working Papers:

Financial disclosure and political selection: Evidence from India (with Raymond Fisman and Vikrant Vig)   

We study the effects of financial disclosure on political selection, exploiting staggered Indian state assembly elections to identify the effect of disclosure laws, combined with India's 2016 demonetization. We document a 50% increase in incumbent turnover (relative to a set of counterfactual runner-up candidates), suggesting that disclosure requirements had a large effect on politician self-selection. This increased turnover coincides with a higher win probability for remaining incumbents, suggesting that voters interpreted the selection as positive. In elections around demonetization, politician exit is highest for post-demonetization elections, indicating a complementary effect of disclosure requirements and policies that limit hidden wealth.

Media coverage:   The Economist

Disclosure in Democracy (with Matthew Denes and Madeline Scanlon)

Using hand-collected data on political contributions from undisclosed sources, we document novel stylized facts on “dark money” and its role in elections and politician quality.  Over the past decade, dark money has become a major source of campaign financing, substantially increasing from $23 million in 2008 to $329 million in 2018 in U.S. congressional elections, and currently comprising the largest source of capital from special interest groups.  Consistent with evading disclosure, dark money is spent just before an election and often tunneled through other special interest groups.  Firms in the S&P 500 frequently contribute to dark money groups.  We show that dark money is significantly more likely to flow to competitive races and dark money-backed candidates are more likely to win elections. While politicians supported by dark money organizations are more likely to engage in the political process by sponsoring legislation and voting on bills, they are also more likely to be subsequently voted out of office, suggesting that they may enact an agenda focused on their donors rather than their constituents. Taken together, our results provide the first systematic evidence on the rise and impact of dark money in U.S. congressional elections, contributing to the ongoing debate about disclosure requirements of political spending. 

Do Political Boundaries affect Firm Boundaries? (with Matthew Denes, Raymond Fisman, and Vikrant Vig)

We investigate the impact of changes in U.S. legislative boundaries on firms, to explore how political uncertainty and its resolution impact firm investment and expected profits.  We take advantage of decennial redistricting, in which congressional boundaries are redrawn to account for shifting within- and across-state changes in population.  We find that redistricting imposes significant costs on firms affected by boundary shifts.  Exploiting the differential timing of redistricting announcements across states, we show that firm-level uncertainty increases ahead of redistricting, as measured by higher options-implied volatility in redistricting states, an effect that is more pronounced for smaller, less diversified firms.  Companies that have their headquarters redistricted out of an incumbent's district (“redistricted” firms) experience negative abnormal returns relative to firms remaining in the incumbent district.  Investors' concerns are validated by future outcomes:  redistricted firms decrease capital expenditures and investment in R&D, and there is a higher likelihood of subsequently relocating.  These effects are also stronger for smaller and/or less-diversified firms.  We provide suggestive evidence that redistricting affects firms by disrupting connections among firms rather than connections between business and politicians -- the negative consequences of redistricting are concentrated among firms whose districts lose a larger fraction of firms in their industry, while there is no impact of seniority or influence of representatives on firms' outcomes.