For the academic year of 2017-2018 I am a Visiting Assistant Professor at the Department of Economics at the University of Illinois at Urbana-Champaign. My research agenda is on the fields of International and Corporate Finance. Specifically, I am interested in firms' and banks' reactions to international shocks. Below you can find detailed information about my papers. I am teaching International Economics and Finance in the Fall 2017 and Spring 2018 semesters.

Exporting Uncertainty: The Impact of Brexit on Corporate America

with M. Campello, G. Cortes, and G. Kankanhalli

Building on a real-options model of capital and labor responses to uncertainty, we show that the Brexit Referendum impacted American corporations, with measurable effects on decisions regarding investment, employment, R&D, and savings. The effects we identify are modulated by the degree of reversibility of production inputs like capital and labor. In particular, they are aggravated by the illiquidity of fixed assets and labor unionization rates. Among jobs lost in the US, most losses accrue to industries with less skilled workers. Our results describe how foreign-born uncertainty is transmitted across borders, shaping domestic capital formation and labor allocation. They warn against the consequences of rising uncertainty about the stability of political institutions in developed economies.

• Press coverage: Cambridge Judge Business School
• Presentations: Cambridge University (Judge)*, Warwick Business School*, Manchester Business School, Penn State (Smeal)*, University of Connecticut, University of Kentucky (Gatton)*, Syracuse University (Whitman)*, Drexel University (LeBow)*, Washington University St. Louis (Olin)*

*Presented by co-author

Currency Exposure and Corporate Liquidity Management

Exchange rate movements present many risks for globalized companies, such as unexpected liquidity shortfalls that reduce their ability to undertake profitable investments. How does currency risk affect the liquidity policy of highly globalized firms? In this paper, I present and test the hypothesis that globalized firms with high currency exposure hold more cash relative to credit lines as a precaution to these adversities. I show that high currency risk increases the cost of lines of credit for U.S. firms, and strengthens the use of cash as the main liquidity provider. This result is robust to several measurements of currency exposure. Moreover, in times of high volatility on currency markets, reliance on cash increases for highly-exposed firms, but not for less-exposed ones. These results link the literatures of liquidity management and corporate policy under currency risk.

The Employment Consequences of Relationship Banking Disruptions

with G. Cortes and B. van Doornik

Relationship banking has been shown to ameliorate frictions impeding the provision of corporate liquidity during recessions. It is nonetheless unclear whether relationship banking matters for the real economy by shaping firm investment or employment allocations. We provide evidence on how disruptions in relationship banking can affect real corporate outcomes. We use the Mergers & Acquisitions wave occurred in the Brazilian banking sector during the Global Financial Crisis and analyze how firms tied to acquired banks are affected by a relationship disruption. Using a proprietary bank–firm matched data set covering the universe of corporate loans and formal labor contracts in Brazil, we show that disruptions are associated with lower credit and more stringent contracting terms. Notably, firms facing an M&A-led relationship disruption cut employment and wage growth by significantly more than unaffected firms. Our tests suggest that relationship banking effectively avoids the real consequences of financial constraints.

Cash Retentions From Debt in Foreign Currency: A Hedging Instrument

Companies that issue debt in foreign currency (DFC) and convert the proceedings back to their original currency create a hedging instrument that offsets volatility on foreign income. I evaluate if American multinationals and exporters use this hedging mechanism by holding more cash from their DFC issuances as compared to their U.S. dollar-denominated debt issuances. I find evidence that multinationals and exporters indeed use this mechanism. I show that for every monetary unit raised in foreign currency debt, these companies retain 3.49x more cash than they do for regular U.S. dollar debt issuances. Exploiting firms’ heterogeneity to investigate potential characteristics that intensify this channel, I find that cash retention is more pronounced for companies that have no alternative hedging instruments (e.g. derivatives or lines of credit), and for debt issuances on floating currencies, as opposed to currencies from countries with managed exchange rate regimes.

References

Prof. Murillo Campello - campello@cornell.edu

Prof. George G. Pennacchi - gpennacc@illinois.edu

Prof. Heitor Almeida - halmeida@illinois.edu

Prof. Timothy C. Johnson - tcj@illinois.edu