[NEW] Segmented Going-Public Markets (with Jessica Bai and Miles Zheng)
Press: Private Equity Findings | Cited in SEC’s 2022 Proposed Rule on SPACs
We develop a framework of going-public markets with adverse selection in which regulatory liability risk leads traditional bank underwriters to certify safer, larger firms, while bypassing riskier, smaller but potentially value-creating firms. Non-bank intermediaries fill this gap by exploiting lower liability exposure and equity-based incentives. We document systematic segmentation in U.S. public listings: firms going public through Special Purpose Acquisition Companies (SPACs) are smaller, younger, less profitable, and more volatile than traditional IPO firms. Underscoring this risk, SPAC target firms are more likely to go bankrupt, but conditional on survival, grow revenues faster post-listing. Consistent with gap-filling, SPAC deals increased disproportionately in high- relative to low-litigation industries after a Supreme Court ruling that increased IPO litigation costs. However, the incentives that facilitate gap-filling also generate agency conflicts between sponsors and shareholders. We show that agency conflicts intensify during stock market booms but are mitigated by sponsors with more reputational capital at risk. The results highlight how regulatory frictions and intermediary incentives jointly shape the evolution of going-public markets.
Commercial Eviction Moratoria, Liquidity Relief, and Business Closure (sole-authored)
In this paper, I estimate the effects of the commercial eviction moratorium (CEM) policy on business closure and employment during the Covid-19 pandemic. CEM temporarily prohibits commercial evictions and gives business tenants more time to pay rent, thereby providing liquidity relief. I construct an instrument for CEM using pre-pandemic partisanship and controlling for alternative channels through which partisanship may affect businesses. I find that CEM significantly reduces business closure in the short run in both retail and food services but has long-run effects only in food services. Consistent with the mechanism that CEM provides liquidity relief, CEM is more effective in reducing long-run closure for businesses that are more solvent coming into the pandemic, and CEM reduces business take-up of costly loans but does not affect take-up of grants. Turning to employment, the impact of CEM operates along an extensive margin through a reduction in business closure, rather than along an intensive margin through a change in employment while a business is in operation. The total impact of CEM on employment is a preservation of 0.98 percentage points of pre-pandemic employment, which equals 39% of the estimated effects of the Paycheck Protection Program.
Contagious Anomalies (with Miles Zheng)
This paper shows that anomaly strategy contagion contributes a key component of risks induced by arbitrageur trading. We present three main findings: (1) Contagion deteriorates the market liquidity of the contaminated strategy. (2) Increased contagion risk predicts higher strategy covariance with the leverage factor. (3) Due to the 2009 momentum crash, strategies that are ex-ante more connected to momentum experience greater declines in performance. Our results suggest that while diversification generates private risk reduction benefits for arbitrageurs, it also leads to increased contagion risks borne by other market participants.
