Working Papers

Capital Requirements and Banks' Behavior: Evidence from Bank Stress Tests (Under Review)

This paper examines the impact of higher capital requirements on banks behavior and lending actions using new bank examinations, known as stress tests. I employ an exogenous source of variation in bank capital requirements based on the U.S. Federal Reserve's selection rule. Stress-tested banks increase capital ratios and lending more than the non-tested group while reducing credit supply to small and riskier borrowers. Firms dependent on borrowing from stress-tested banks sharply reduce assets and investments in response to the credit loss. The Dodd-Frank Act (2014) has a similar impact on medium-sized banks in terms of capital adjustments and lending behavior.

The Unintended Consequences of Bank Stress Tests

Stress tests are assessments conducted by regulators to determine whether banks have sufficient capital buffers to withstand severe recessions. Unlike ordinary bank examinations, stress tests involve forward-looking scenarios and their results are publicly disclosed. This paper is the first study to show the consequences of bank stress tests. My estimates indicate that there is a negative causal impact of capital adequacy requirements on managerial decisions in the U.S. banking system. Managers make real decisions regarding restructuring problematic loans or removing them completely from their books. Stress-tested banks reduce net loan charge-offs and keep problematic loans on their books to a greater extent than banks in a non-tested group to meet the capital ratio requirements. Managers increase the level of non-performing loans in the aftermath of stress tests announcement. Stress-tested banks with greater exposure to the housing market change the classification of loan losses to a greater extent than other banks. The study's results remain robust using mid-sized banks that have been subject to the latest rounds of stress tests.

Graduate Student Award in Midwest Finance Association (MFA) 2016, Best Paper Award in Financial Markets and Institutions, Semi-Finalist, Financial Management Association (FMA) 2015, Mid-Atlantic Research Conference in Finance (MARC) 2015, Financial Safety Net Conference (FSNC) 2015, International Society for New Institutional Economics (ISNIE), Harvard Law School, 2015, European Financial Management (EFM), Merton H. Miller Doctoral Seminar, 2015.

The Lift of the Trade Embargo and Corporate Policies: Evidence from the Immigrants' Network (Under Review)

Using lift of the trade embargo against Vietnam as an exogenous shock to product market competition, I establish a causal impact of foreign competition on corporate investment, cash holdings, financing and leverage decisions. I exploit the random allocation of Vietnamese refugees across the U.S. to establish channels through which competition affects corporate policies. U.S. corporations under-invest and decrease leverage as a response to an increase in product market competition while increase research and development expenditures and cash holdings. Corporations incorporated in states with higher shares of Vietnamese immigrants cut their capital expenditures more than the corporations located in the states with a lower share of Vietnamese immigrants. The immigrants' network formed by Vietnamese refugees play a major role in transmitting foreign competition shock to the U.S. corporations.

Financial Management Association (FMA) 2014, European Financial Management Association (EFMA) 2015, HAND Economics Forum, 2015.

The Role of Ownership in Privately Held Firms: Evidence from the Financial Crisis

I focus on the ownership structure of private firms in the U.S. using a new unexplored database named Privco. Using hand-collected data, I investigate whether firms owned by families are different from the firms owned by private equity or venture capital. I show family-owned firms outperformed non-family-owned firms in the aftermath of the recent financial crisis while family firms have lower revenue in the normal periods. The negative impact of the financial crisis is larger on the non-family firms since they are more dependent on the source of private financing from private equities and venture capitals while family-owned firms are more likely to use their personal wealth to relax financial constraints at the time of the crisis. The intrinsic characteristics of family-owned firms enable them to conquer liquidity shortage during the crisis. This behavior can be explained by the nature of family firms regarding having long-term investment horizon and their concerns over reputation and transfer of their business to next generation.

The Effect of Asymmetric Information on the Pricing and Timing of Equity Issuance

I examine the adverse selection in the market for equity issuance. The asymmetric information can explain price reduction at the date of equity issuance. Corporations prefer to issue equity when the market is most informed about the quality of their company. This implies that equity issues tend to follow credible information releases. I exploit brokerage mergers as a natural experiment that affects information asymmetry through their effect on the extent of research coverage by sell-side equity analysts. The broker mergers cause brokers operation to be terminated, and the level of analyst coverage decreases for the firms previously covered by these analysts. I show when asymmetry in information increases, price drop at the date of equity issuance is larger more than the time of lower information asymmetry in the market. The price drop at the announcement of equity issuance is increasing in the degree of information asymmetry.

Work In Progress

Credit Access and Mortgage Lending (with Yanan Zhang, Senior Financial Economist, U.S. Department of the Treasury)

Banks Liquidity and Debt Market (with Yanan Zhang, Senior Financial Economist, U.S. Department of the Treasury)

Slipping Through the Regulatory Cracks (with William Gerken, Associate Professor of Finance, University of Kentucky)

Monitoring Intangibles Assets (with William Mann, Assistant Professor of Finance, Emory University)

Entrepreneurial Finance: Evidence from the Bank Lending Channel

The Economic Impacts of the COVID-19 Pandemic

The Real Effects of Financial Constraints in the Healthcare