WORKING PAPERS 

• Risk-Sharing in a Political Union (with Anya Nakhmurina) [NEW DRAFT! Comments welcome]

Abstract: This paper investigates the effect of partisan alignment on risk-sharing across state and local governments. Using a hand collected dataset covering the political affiliation of mayors across U.S. states, we show that aligned cities whose mayors share the same political affiliation as the state governor face 9 bps lower borrowing costs than misaligned cities. We further show that partisan alignment generates moral hazard implications. Using granular data on flood risk exposure and hand collected data on municipalities’ investment in flood risk adaptation, we show that local officials reduce their investment in costly resiliency projects when a same-party governor is elected. These effects cannot be explained by city fundamentals, and are stronger for Republican-led states and states with high governor powers.

•  Partisanship in Loan Pricing (with Janet Gao and Pengfei Ma) [HERE ]  

Accepted, Journal of Financial Economics

Media coverage: The Economist, The FinReg Blog, National Affairs

Abstract: We show that lenders' partisan bias influences their pricing of corporate loans. Using novel data on the voter registration records of bankers in charge of originating large-scale corporate loans, we find that bankers who are registered with a different party from the one represented by the President of the United States ("misaligned bankers'') charge 7% higher loan spreads compared to bankers affiliated with the same party as the President. This effect is stronger during periods of intense partisan conflicts, and when left- and right-wing media strongly disagree over the state of the economy. It is also stronger for borrowers with limited outside credit options and for bankers living in areas with homogeneous political beliefs. The effect is not explained by bankers' innate characteristics, borrower fundamentals, or bank-level policies. Overall, our evidence is consistent with misaligned bankers having a more pessimistic economic outlook. We also show that bankers who share the same partisan beliefs are more likely to form lending syndicates together, and such homogeneous teams exhibit stronger partisan biases on loan spreads. Despite charging higher interest rates, misaligned bankers do not seem to generate higher revenue than aligned bankers. 

•  The Impact of Bank Financing on Municipalities’ Bond Issuance and the Real Economy  [HERE ] 

Revise & Resubmit, Journal of Financial Economics

Abstract: I show that relaxing municipalities' constraints in getting access to bank financing has positive implications for the real economy. I exploit the exogenous variation coming from a unique institutional feature of the municipal bond market - the bank qualification. I show that this provision generates ownership segmentation, which in turn distorts municipalities' financing decision. Expanding local governments' access to bank financing increases local debt issuance and fosters employment growth, implying a cost per job of $40,000. While banks increase their municipal holdings, they do not appear to curtail private lending as a result.

• Banks' Reaching for Yield and the Safe Asset Class [HERE]

(Part of this paper merged with "The Impact of Bank Financing")

Abstract: In this paper I investigate whether banks reach for yield in the municipal bond market. I first show that regulation creates yield-seeking incentives for banks in this asset class. Using the story bond segment, I am able to identify banks' holdings of municipal bonds at the granular level. Contrary to popular wisdom, I find that banks' increased demand does not appear consistent with a within class reaching-for-yield hypothesis. Relative to other market participants, banks invest predominantly in lower-yield municipal bonds, even conditional on their risk weighting. Using a shock to the supply of municipal bonds, I then show that banks' behavior is consistent with reaching for yield across asset classes, as banks substitute away from treasuries into municipal bonds, thereby increasing their exposure to liquidity risk rather than credit risk. 

WORK IN PROGRESS

Municipalities' Financial Constraints and the Redistribution of Pollution