Stefan Lewellen

  Contact Information:
Stefan Lewellen
The Pennsylvania State University
360 Business Building
State College, PA 16802
Telephone: +1 (814) 441-7151 
Email: lewellen [AT]

Curriculum Vitae


The Safe-Asset Share (with Gary Gorton and Andrew Metrick),
                  American Economic Review: Papers and Proceedings 102(3): 101-106. 

Coming Soon

How Valuable are Shadow Mortgages?  A Consumer Surplus Approach, with Mark Egan (HBS) and Adi Sunderam (HBS and NBER)

Managing Market Power, with Emilio Bisetti (HKUST) and Stephen A. Karolyi (Carnegie Mellon)

Working Papers

"The Blessing and Curse of Deregulation", with Emilio Bisetti (HKUST) and Stephen A. Karolyi (Carnegie Mellon)


We construct novel network-based measures of U.S. state-level bank deregulation intensity that allow us to separately identify the effects of deregulation on competition and investment opportunities for the first time in the literature. In contrast to existing studies, we find that increased competition leads to higher deposit funding costs and a reduction in banks' net interest margins and profitability. In response, banks increase their risk-taking, shift their business models, and become more likely to be acquired by other banks.  Our findings help to resolve conflicting evidence in the general deregulation literature and support bank deregulation theories in which reductions in bank charter values lead to increased bank risk-taking. 

"The Bank Entry Channel of Monetary Policy Transmission", with Emilio Bisetti (HKUST) and Stephen A. Karolyi (Carnegie Mellon)

We argue theoretically and show empirically that monetary policy can shape the structure of local deposit markets by affecting banks' entry decisions. Using network-based shocks to bank entry barriers, we find that entry becomes more responsive to monetary policy when entry barriers are lower. In turn, entry affects credit provision and monetary policy pass-through: local establishments and employment grow more in response to expansionary monetary policy when bank entry barriers are lower, and these real effects are stronger for small and medium-sized establishments. Our results suggest that expansionary monetary policy might be less effective when bank entry costs are high.

"The Credit Channel of Fiscal Policy Transmission", with Andrew Bird (Carnegie Mellon), Stephen A. Karolyi (Carnegie Mellon), and Thomas Ruchti (Carnegie Mellon)

We propose and test a new channel through which fiscal policy changes can affect the supply of intermediated credit and the real economy.  Banks that have greater exposure to firms expected to repatriate a significant amount of foreign income as a result of a 2004-2005 U.S. tax holiday subsequently increase lending to other, purely domestic firms during the period of the tax holiday, leading to higher investment at these firms.  Our results complement the existing literature on the credit channel of monetary policy transmission and highlight an important indirect spillover effect of fiscal policy changes on credit-constrained firms.

Did Technology Contribute to the Housing Boom? Evidence from MERS, with Emily Williams (HBS)

Conditionally accepted, Journal of Financial Economics

We examine the effects of the Mortgage Electronic Registration System, or MERS, on mortgage origination volumes and foreclosure rates prior to the Great Recession.  MERS was introduced in the late 1990s and significantly reduced the cost and time associated with secondary loan sales.  Using novel data from the Massachusetts Registry of Deeds, we show that the introduction of MERS led to an expansion in credit supply that was primarily fueled by non-bank lenders originating loans to low-income borrowers.  We also find that foreclosure rates were higher on these loans.  Our paper provides a new explanation for why credit supply increased prior to the 2008 financial crisis and why supply increases were larger in low-income areas.

Politicizing Consumer Credit, with Pat Akey (Toronto) and Rawley Heimer (Boston College)

Forthcoming, Journal of Financial Economics

Powerful politicians can provide firms with protection against existing regulations. We document this effect by showing that politically-connected lenders reduce consumers’ access to credit by 4.5% - 8% in areas subject to fair-lending regulations such as the Community Reinvestment Act when their political connections become more powerful. Regulatory exam scores also decline, suggesting that politically protected lenders view fair-lending regulations as becoming less binding. Finally, lender profitability increases after credit is reallocated away from low-income borrowers and racial minorities. These results highlight an unexplored dimension of political power and contrast with recent findings that governments expand credit access to consumers.

The Cross Section of Bank Value, with Mark Egan (HBS) and Adi Sunderam (HBS and NBER)

Revise and resubmit, Review of Financial Studies

We study the determinants of value creation within U.S. commercial banks. We focus on three theoretically-motivated drivers of bank value: screening and monitoring, “safe” deposit production, and synergies between deposit-taking and lending. To assess the relative contributions of each, we develop novel measures of banks’ deposit productivity and asset productivity and use these measures to evaluate the cross-section of bank value. We find that variation in deposit productivity explains the majority of variation in bank value, consistent with theories emphasizing safe-asset production. We also find evidence of value creation from synergies between deposit-taking and lending. Overall, our findings suggest that there is significant heterogeneity in banks’ abilities to capture value by manufacturing safe assets.

Hacking Corporate Reputations, with Pat Akey (Toronto), Inessa Liskovich (UT Austin/AirBnB), and Christoph Schiller (Arizona State)

We exploit unexpected corporate data breaches to study how firms respond to negative reputation events.  Data breaches negatively affect firm value by 10-20% following the event, and this effect lasts for years.  However, consistent with a decline in corporate reputation reducing the value of a firm's pre-existing corporate social responsibility (CSR) investments, we find that firms significantly increase their investment in CSR by an average of 0.4-0.5 standard deviations in the years following an unexpected breach.  Our paper represents the first empirical study to directly link CSR to corporate reputations and presents the first evidence in the literature that firms actively invest in CSR as the result of a negative reputation shock.

Pushing Boundaries: Political Redistricting and Consumer Credit, with Pat Akey (Toronto), Christine Dobridge (Fed Board of Governors), and Rawley Heimer (Boston College)              

Consumers lose access to credit when their congressional district boundaries are irregularly redrawn to benefit a political party (i.e., are gerrymandered). We identify this effect by matching a longitudinal panel of consumer credit data with changes in congressional district boundaries following decennial censuses. Reductions in credit access are concentrated in states that allow elected politicians to draw political boundaries and in districts where subsequent congressional elections are less competitive. We find similar reductions in credit access when state senate district boundaries are irregularly redrawn and when states make it more difficult for constituents to vote. Overall, our findings are consistent with theories suggesting that less-competitive political races reduce politicians’ incentives to cater to their constituents’ preferences.

Policy Uncertainty, Political Capital, and Firm Risk-Taking, with Pat Akey (Toronto)

Revise and resubmit, Review of Financial Studies

We propose and test a new channel of corporate political involvement. In our channel, firms vary in the extent to which they face uncertainty about future government policies. Firms that are "policy-sensitive" have a stronger incentive to increase their political connectedness, and their risk-taking and performance should respond more strongly to the gain or loss of a political connection. We verify these patterns in the data using a sample of corporate donations to candidates in close U.S. congressional elections. We also find that many existing results in the political connections literature appear to be driven by policy-sensitive firms.

Executive Compensation and Industry Peer Groups

I develop a novel set of firm-specific industries (FSIs) based on firms' disclosures of their primary product market competitors in their 10-K filings. When peer groups are defined using FSIs, I find strong evidence of relative performance evaluation in CEO compensation and retention decisions. For example, when I decompose firm performance into \luck" and \skill" components, I find that CEOs are only compensated based on skill. I also link the literature on relative performance evaluation to the literature on peer group compensation benchmarking and find little evidence that compensation benchmarking inflates pay for the average CEO. My results are consistent with simple contracting models of CEO pay and contrast sharply with a long literature that has found little evidence of relative performance evaluation, strong evidence of \pay for luck," and strong evidence of a benchmarking-induced \ratchet effect" in CEO pay.

Old Working Papers

Corporate Governance and Equity Prices: Do Industry Adjustments Explain Results?
(Internet Appendix)

Recent evidence suggests that Gompers, Ishii and Metrick (2003)’s stock return results are not robust to industry adjustments. Specifically, other authors find that industry-adjusted returns on GIM’s governance portfolio are statistically zero during the 1990s. However, these authors only use three-digit SIC codes to construct their industry adjustments. Using a much wider range of common industry classification standards, I find little evidence that unexpected industry performance explains the return on governance-sorted portfolios during the 1990s. In particular, I find that the majority of tests with the strongest size and power properties in my sample yield positive industry-adjusted abnormal returns on GIM’s governance portfolio during the 1990s. My results have implications for future governance research and highlight the inherent tradeoff between industry coarseness and statistical power in calendar-time tests.

Firm-Specific Industries

Standard industry classifications are fixed, in the sense that industry definitions are required to be transitive and disjoint. This paper introduces firm-specific industries (FSIs) that relax the transitivity constraints inherent in traditional classifications. Using hand-collected data from firms’ public SEC filings, I show that FSIs provide a material improvement over standard industry classifications at explaining the variation in corporate capital structure and stock returns. I argue that FSIs can potentially be used as a building block towards addressing numerous open questions within finance, industrial organization, marketing, and other fields.

SPACs as an Asset Class

Special Purpose Acquisition Companies, or SPACs, grew into one of the largest segments of the U.S. IPO market prior to the financial crisis, raising more than $20 billion in gross proceeds from 2003 to 2008. SPACs bear a strong resemblance to private equity funds, yet are largely free of the selection and survivorship biases that are often present in private equity datasets. I find that a portfolio of SPACs resembling public LBOs has a market beta near unity despite an average leverage multiple of nearly two, yielding new evidence regarding the systematic risk of leveraged buyouts. I also find that SPACs’ highly predictable lifecycle yields highly predictable returns, with a monthly four-factor portfolio alpha of approximately 2% following the announcement of an acquisition and -2% after an acquisition has been completed. Finally, I provide evidence of a persistent discount in SPAC prices prior to the completion of an acquisition, which I attribute to fragmentation within SPACs’ unique shareholder base

Last updated:  August 2020

© 2020 Stefan M. Lewellen. All rights reserved.