RESEARCH
Revise & Resubmit, Journal of Accounting Research
Abstract: Using unique hand-collected data covering the political affiliation of 1,045 cities over the last two decades, this paper studies the implications of city-state partisan conflicts on the financing and provision of public goods. Cities with the same political affiliation as the state governor face 8 basis points lower borrowing costs, as compared to misaligned cities. These effects are stronger in states where governors are granted more powers, where cities are more fiscally dependent on the state, and for bonds issued by riskier borrowers. Consistent with state investments substituting for city-specific initiatives, we show that aligned cities reduce their investment in costly hazard preparedness projects when a same-party governor is elected.
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.
Journal of Financial Economics
WFA Best Paper Award, USC Marshall School of Business Trefftzs 2018Cubist Systematic Strategies Ph.D. Candidate Award for Outstanding Research 2018AQR Asset Management Institute Fellowship Award 2017Abstract: Do federal tax incentives for banks investing in municipal bonds support local governments during recessions? This paper exploits a change in tax benefits for banks purchasing municipal bonds and finds that expanding access to bank financing during recessions increases local governments' debt issuance and employment growth. The estimated job multiplier is 22 jobs per million dollars of spending. There is moderate evidence of mortgage loans being crowded out by banks' increased holdings of municipal bonds.
• Banks' Reaching for Yield and the Safe Asset Class
(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.
