Research
Working papers:
Social Connections and Bank Deposit Funding. With Jing Wang.
We show that social connections transmit shocks that influence banks' deposit funding. We find that counties experience an increase in bank deposits when they are more socially connected to counties affected by natural disasters, consistent with heightened precautionary saving incentives. This effect is not driven by physical distance, large disasters that attract significant media coverage, or other cross-county channels, including credit reallocation by multimarket banks, population migration among counties, and depositors who live close to disaster-affected counties. Banks that collect deposits in highly socially-connected counties experience high deposit volatility, but geographic diversification reduces the volatility associated with depositor social connectedness.
Credit Rating Inflation and Corporate Innovation. With Bharad Kannan.
Does credit rating quality affect corporate innovation? Using exogenous variation in rating quality that arises from competition among rating agencies, we show that firms with inflated ratings issue more patents, but their patent quality, as measured by scientific and economic value, declines. We provide evidence that suggests that managers engage in value-reducing patenting activity to exploit a compensation structure that rewards them for the number, but not the quality, of new patents. Our results are stronger in non-technology industries, which suggests that managers strategically exploit innovation when firms do not rely on patenting for value creation.
Risk, Reward, and Ratings: How Firms Use Tax Avoidance to Sustain Inflated Credit Ratings. With Todd Kravet, Trent Krupa, and Sam Piotrowski.
Inflated credit ratings temporarily reduce the cost of debt and mitigate the impact of the tax avoidance risk premium. Consistent with this, we show that rating inflation is positively related to future tax avoidance, particularly for firms with less intense debtholder monitoring. The relation is stronger when managers have greater career concerns, which suggests firms respond differently when the cost of debt is lower due to upwardly-biased ratings compared to when the cost of debt is lower due to high but accurate ratings. Our results indicate that rating inflation temporarily fools some investors and allows firms to engage in short-term risk-shifting through tax avoidance.
Determinants and Consequences of Return to Office Policies. With Andra Ghent and Vasudha Nair.
We study the return to office (RTO) policies of publicly-traded firms by hand-collecting a dataset of policy announcements for the Russell 1000 firms. The amount of in-person work firms require varies significantly across industries and cities, and most firms allow some remote work. We then examine RTO policy choice in a model where firms trade off in-person productivity benefits with an in-person wage premium. Consistent with the model's predictions, we find that the feasibility of remote work and office rents determine RTO policy. We find no significant stock market reaction to announcements, which may indicate a lack of consensus on optimal RTO policies.
Works in progress:
Financial constraints and latent financial distress. With Harry Turtle.
We examine the ability of the Federal Reserve's Senior Loan Officer Opinion Survey (SLOOS) to capture financial constraints in comparison with existing measures of financial constraints. This measure predicts future aggregate defaults and charge-offs for commercial and industrial loans. Next, we confirm that this measure effectively predicts aggregate defaults and financial distress in our Compustat sample with large predictive lead times. In a panel design, we compare our approach with the Whited and Wu (WW, 2006) firm-level financial constraints measure, and find the aggregate SLOOS measure provides comparable adjusted R-squareds. Together, the WW and SLOOS measures provide independent and interaction impacts that effectively predict constraints and distress. As expected, capital expenditures are inversely related to SLOOS, but are unexpectedly positively related to WW's measure.
Green Listings and House Prices. With Waldo Ojeda.
Liquidity and the Default Option: Evidence from Commercial Real Estate. With Crocker Liu and Alexei Tchistyi.
Social Connections and Firm Location Choice. With Alina Arefeva, Morris Davis, and Andra Ghent.
Publications:
The Imitation Game: How Encouraging Renegotiation Makes Good Borrowers Bad. With Andra Ghent and Alexei Tchistyi. Forthcoming, Review of Financial Studies.
Semifinalist for Best Paper in Financial Institutions Award at 2022 FMA Conference.
Does Main Street Benefit from What Happens on Wall Street? With Andra Ghent. Journal of Financial and Quantitative Analysis, 2024, 59, 1300 -1336
The Impact of Credit Rating Information on Disclosure Quality. With Yung-Ling Chi. Financial Management, 2022, 51, 73-115.
Informational Efficiency in Securitization After Dodd-Frank. With Andra Ghent and Alexei Tchistyi. Review of Financial Studies, 2020, 33, 5131–5172.
Competition and Credit Ratings After the Fall. With Andra C Ghent. Management Science, 2018, 64, 1672-1692.
Media coverage: Wall Street Journal