Research Fields

Finance and Labor, Corporate Governance, Corporate Finance, Contract Theory, Financial Markets

Accepted and Published Papers

Firm Performance Pay as Insurance against Promotion Risk (Journal of Finance, 2024)

The prevalence of pay based on risky firm outcomes for non-executive workers presents a puzzling departure from conventional contract theory, which predicts insurance provision by the firm. When workers at the same firm compete against each other for promotions, the optimal contract features pay based on firm outcomes as insurance against promotion risk. The model’s predictions are consistent with many observed phenomena, such as performance-based vesting and overvaluation of equity pay by non-executive workers. It also generates novel predictions linking a firm's hierarchy to its workers' pay structure.

• Featured on the Harvard Law School Forum on Corporate Governance

Working Papers

Encouraging Employee Engagement: The Role of Equity Pay

This paper presents a principal-agent model of workplace engagement linking information and production. Engaged workers are more productive and better informed about the firm. Equity pay imposes income risk that correlates with firm performance. When workers value information that improves decision-making under uncertainty, they are motivated to exert productive effort that generates that information. This novel incentive mechanism suggests that—contrary to the conventional view—equity pay can motivate non-executive workers to exert productive effort, even in large firms with severe free-rider problems. The model also offers novel testable implications linking workers' financial planning to firm outcomes. 

Production and Externalities: How Corporate Governance Shapes Social Costs (with Michael D. Wittry)

We identify a core tension in corporate governance between mitigating managerial moral hazards and limiting social costs. We develop a parsimonious principal-agent model with production externalities, which predicts that when monitoring costs rise, firms substitute toward performance-based pay that prioritizes output, leading to production decisions that generate social costs. Using asset-level data from the U.S. coal industry, we find that ownership dispersion—the canonical proxy for rising monitoring costs—leads to an 11% increase in production and a 33% rise in safety violations. To establish causality, we exploit politically motivated coal divestment mandates that forced key monitoring institutions to exit, generating plausibly exogenous increases in monitoring costs. Consistent with our model, affected firms raised managerial bonus thresholds and experienced higher production and more safety violations. Our findings reveal how governance choices can inadvertently amplify social costs, with implications for sustainable investing and corporate governance design. 

• WRDS Best Paper Award at the Drexel Corporate Governance Conference (2024)

• Featured on Columbia Law School's CLS Blue Sky Blog

Sustainable Investing and Market Governance (with Deeksha Gupta and Jan Starmans)

This paper examines how sustainable investing affects the governance role of financial markets. We show that stronger concerns about social costs among informed investors can reduce price informativeness about managerial effort to improve financial performance, increasing the cost of incentive provision. Our mechanism induces an inherent link between firms' environmental and social (“ES” of ESG) and governance (“G” of ESG) outcomes. We show that the agency cost of sustainable investing can incentivize financially motivated shareholders to reduce externalities to enhance price informativeness for governance purposes. We establish further insights into how sustainable investing affects asset prices and managerial compensation contracts.

• Featured on the Oxford Business Law Blog

Stock Buybacks, Speculative Trading, and Shareholder Welfare (Revise & Resubmit, Journal of Financial and Quantitative Analysis)

This paper studies the nuanced effects of buybacks in markets with informed speculative trading. Buybacks compete against speculative trades, enhancing price discovery and reducing information asymmetry. However, buybacks also generate trading gains and losses that make the firm's per-share value more sensitive to its fundamentals, exacerbating adverse selection. Less informed buybacks weaken the first effect while strengthening the second. This analysis suggests that the recent shift toward more uninformed mechanical executions of buybacks may have unintended negative consequences for market quality and shareholder welfare. It also generates novel predictions linking managerial compensation, buybacks, and trading outcomes.

The Economics of Financial and Operational Hedging: Insights from U.S. Power Plants (with Grant Ran Guo, Haohang Wu, and Dong Yan)

We study how firms adapt hedging policies to manage increased weather-related risks due to climate change. We introduce a parsimonious model of financial and operational hedging, and financing frictions. Financial hedging reduces the firm's exposure to weather risk, lowering the firm's subsequent incentive to hedge operationally. However, financial hedging also makes the firm's debt safer and reduces borrowing costs, mitigating the conventional debt overhang problem that typically discourages operational hedging investments. The two types of hedging policies are strategic complements when financing frictions are sufficiently severe; otherwise, they are substitutes. We test the model's predictions using the U.S. electric power industry as an empirical setting. We document a financial hedging overhang: firms that hedge via financial contracts subsequently engage in less operational hedging, such as maintaining gas inventories.

Works in Progress

How Do Firms Execute Open Market Repurchases: Evidence from Taiwan (with San-Lin Chung, Wen-Rang Liu, and Olga Obizhaeva)

Innovation and Pivots (with Vincent Maurin)

Dynamic Firm Life Cycle and Payout Policy (with Tina Oreski and Cedric Wu)

Inactive Projects

Public and Private Weather Information in the Orange Juice Market (with Thomas Gilbert)

A Model of Cyber Insurance (with Ryan Skorupski)