Research
Working Papers
"Government Arrears and Corporate Decisions: Lessons from a Natural Experiment" with Jose María Abad, Vicente Cuñat and Rafael Zambrana.
Submitted.
We study how firms respond to the repayment of accumulated arrears. We exploit as a natural experiment a large-scale financing plan of the Spanish central government in 2012 that repaid the accumulated arrears of local governments to their suppliers (about 3\% of Spain's GDP). The key feature of our identification strategy lies in the fact that some firms were accidentally left out of the first phase of the program and were repaid a year later. The repayment significantly increased the corporate investment and liquidity of firms paid in the first phase. The effect on investment is stronger for firms linked to banks with poor financial health. On the contrary, less financially constrained firms employed the liquidity injection to repay debt and accumulate cash. Our results highlight the negative effects of procurement arrears and their interaction with financing frictions. We also provide evidence on the effectiveness of an unconventional fiscal policy that had large real effects without creating additional public liabilities.
"Blaming Your Predecessor: Government Turnover and External Financial Assistance" with Jose María Abad, Felipe Carozzi and Andrés Gago.
Submitted.
We study the political incentives shaping governments' decisions to seek assistance from a lender of last resort. We propose that re-elected incumbents are more reluctant than newly elected governments to request assistance, as this action reveals negative information about their past performance. First, we provide cross-country descriptive evidence that a change in office is associated with a larger probability of receiving financial assistance from the IMF. Next, we analyze the decisions made by 3,000 Spanish municipalities following a credit shock during the Great Recession. Regression-discontinuity estimates show that newly elected executives are significantly more likely than re-elected incumbents to publicly agree on a financing program with the national government. Analyses of press coverage, news content using ChatGPT and politicians' survey responses indicate that re-elected incumbents avoid requesting a public bailout to protect their image, despite it being financially suboptimal. This shows how electoral incentives can prevent optimal policy adoption.
"What drives corporate ESG? Disentangling the importance of investors, managers, and firms" with Mohammed Zakriya and Antonino Emanuele Rizzo.
Submitted.
We study the relative importance of investor, manager, and firm heterogeneities on firms' Environmental, Social, and Governance (ESG) policies. We find that investor fixed effects explain most of the variation in ESG policies. The improvement in the model fit from adding investor effects is particularly strong for the environmental dimension. Additional analyses show stronger empirical support for an underlying channel based on investor influence over ESG policies rather than investor selection of high ESG firms. We document significant associations between investor effects and both subsequent voting decisions on ESG proposals and the likelihood that firms are involved in ESG misconducts.
Journal Publications
"How do Cash Windfalls Affect Entrepreneurship? Evidence from the Spanish Christmas Lottery" with Miguel Ferreira, Daniel Wolfenzon and Rafael Zambrana.
Forthcoming in Journal of Financial and Quantitative Analysis.
We show cash windfalls affect the real economy by spurring entrepreneurship. We identify these effects using the Spanish Christmas Lottery, which provides a unique setting as prizes are geographically concentrated and distributed among thousands of households. We find higher start-up entry, job creation, and self-employment in winning provinces. Consistent with a financial constraints channel, results are strongest in sectors relying on external finance and provinces with limited credit access. Newly created firms are larger, more profitable, and survive longer. For incumbent firms, however, growth and profitability do not respond to lottery awards, but wages increase due to tighter labor markets.
"The systemic governance influence of expectation documents: evidence from a universal owner" with Ruth Aguilera, Javier Capape and Vicente Cuñat.
Forthcoming in The Review of Corporate Finance Studies.
We examine expectation documents’ effectiveness as an activism tool. We use the unforeseen release by the Norwegian sovereign wealth fund of a corporate governance expectation document as a natural experiment. We introduce a novel, three-way analytical decomposition of the firms, the fund, and their joint response to this document. Firms’ governance practices adapt to the fund’s new portfolio-wide governance preferences, with heterogeneous responses across ownership and firm characteristics. The fund’s investment policies also change, even at the expense of financial returns. Overall, our research demonstrates the potential effectiveness of expectation documents as an emerging low-cost activism tool for universal investors.
"Do foreign stocks substitute for international diversification?" with Jose Manuel Campa, Rodolfo G. Campos and Mohammed Zakriya.
European Financial Management Journal, 1191-1223, November 2020.
Using a novel broad sample of foreign securities available for trade in 42 countries, we characterize the rise in importance of foreign stocks and its implications for return diversification across industries and countries over three decades (1980-2009). We document a substantial increase in the number and the market value of stocks that are available for trade in markets outside of their home country (foreign stocks). The rise of foreign stocks in many markets has allowed investors to increase their international diversification from home by investing in these stocks. We find that the increased number of foreign securities has led to the increase in the importance of industry effects relative to country effects. Thus, we conclude that investment in a portfolio that includes foreign securities is an effective way to substitute for international diversification strategies.