Research

Publications

• The Leading Premium (with M. Max Croce and Christian Schlag) [ssrn] 

  • The Review of Financial Studies, Volume 36, Issue 8, August 2023, Pages 2997-3033

In this paper, we consider conditional measures of lead-lag relationships between aggregate growth and industry-level cash-flow growth in the US. Our results show that firms in leading industries pay an average annualized return 3.6% higher than that of firms in lagging industries. Using both time series and cross-sectional tests, we estimate an annual pure timing premium ranging from 1.2% to 1.7%. This finding can be rationalized in a model in which (a) agents price growth news shocks, and (b) leading industries provide valuable resolution of uncertainty about the growth prospects of lagging industries. 

• Market Discipline in the Direct Lending Space (with Tetiana Davydiuk and Samuel Rosen) [ssrn]

  • The Review of Financial Studies, Volume 37, Issue 4, April 2024, Pages 1190--1264

Using the exclusion of business development companies (BDCs) from stock indexes, this paper studies the effectiveness of market discipline in the direct lending space.  Amid share sell-offs by institutional investors, a drop in BDCs' valuations limits their ability to raise new equity capital.  Following this funding shock,  BDCs do not adjust their capital structure while reducing the risk exposure of their portfolios.  We document a greater reduction in risk for BDCs subject to stronger market discipline from their debtholders. BDCs pass through the capital shock to their portfolio firms by reducing their investment intensity. 

• Direct Lenders in the U.S. Middle Market (with Tetiana Davydiuk and Samuel Rosen) [ssrn]

  • Journal of Financial Economics Volume 162, December 2024, 103964

The reduction in credit supply from traditional lenders following the 2007-2008 Financial Crisis contributed to a surge in direct lending and, in particular,  investments by business development companies (BDCs).  Using a novel hand-collected dataset, we provide the first systematic analysis of the BDC sector.  We exploit three exogenous shocks to credit supply, including new banking regulations and a major finance company collapse, to establish that BDC capital acts as a substitute for traditional financing.  Relying on the synthetic control method,  we further document that firms' access to BDC funding has stimulated economic growth and innovation. 

Working papers

• Common Investors Across the Capital Structure: Private Debt Funds as Dual Holders [ssrn]

This paper examines the dual role of Business Development Companies (BDCs) as creditors and shareholders in the private direct lending market. Utilizing a comprehensive deal-level database, our analysis shows that dualholder BDCs are more effective monitors than sole lenders, benefiting from enhanced tools for information access and governance. This effectiveness allows them to charge higher loan spreads, while simultaneously reducing credit risk and lowering the borrowing cost of portfolio firms from other lenders. We rule out alternative explanations attributing higher loan spreads to mere compensation for capital injection or to hold-up by a dominant financier. Our findings highlight a critical mechanism through which BDCs serve a market segment — mid-sized firms with low (or even negative) cash flows and a lack of collateral but high growth potentials — that is typically undesired by traditional bank lenders.

• Corporate Bond Issuance by Financial Institutions [ssrn]

Public debt of the financial sector comprises about a quarter of the aggregate market, and more than a third in the investment-grade space. Corporate bond net issuances by financial institutions occur at the inflection points in business, financial, and monetary policy cycles unlike other capital flow measures. High bond net issuances follow periods of high economic growth and market returns, low uncertainty and credit spreads, monetary policy tightening, and predict a subsequent reversal of the cycles. The effects are mostly driven by large, sophisticated, and heavily regulated financial intermediaries. These institutions actively time their bond net issuances to benefit from accommodating interest rate environments, and to build-up capital in anticipation of future economic slowdowns and tighter regulatory constraints.

• The Financial Intermediation Premium [ssrn]

Using syndicated loan data, I document a premium for the exposure of nonfinancial firms to risks of financial intermediation. Firms that borrow from high-leverage financial intermediaries have on average 4% higher returns than firms with low-leverage lenders. This premium cannot be attributed to differences in firm characteristics. Instead, it stems from the underdiversified lender syndicate structure and elevated firm's refinancing intensity, materializing through inability to favorably renegotiate lending terms and obtain additional financing. Exploiting the dispersion in leverage of financial intermediaries extending credit, I propose a macroeconomic indicator that captures changes in lending standards and forecasts industrial production and unemployment.