Working Papers:
Cannibalization, Competition, and New Product Introductions: Evidence from the Pharmaceutical Industry, with Yuanfang Chu and Sudipto Dasgupta (R&R at Management Science) [draft]
Abstract: We examine whether and how external entry threats affect incumbents’ timing of pipeline product launches. Using Paragraph IV filings as generic-entry threats in the pharmaceutical industry, we find that challenged firms increase launches in the same therapeutic category, particularly novel drugs, shortly after a challenge. We strengthen the causal interpretation of these findings by exploiting an FDA regulation governing the earliest date when a Paragraph IV filing may occur. Entry threats reduce the expected value of existing products, alleviating internal cannibalization concerns and accelerating the commercialization of previously approved pipeline products. Consistent with this mechanism, these launches erode challenged-product sales before generic entry occurs.
Do Shared Analysts Shape Competitive Behavior? Evidence from Product Announcements, with Yuanfang Chu and Sudipto Dasgupta [draft]
Abstract: We examine how security analysts influence competitive product‑market interactions. Using product‑announcement data, we show that firms are more likely to respond to rivals’ announcements by releasing their own when those rival announcements trigger upward revisions by common analysts. Leveraging an AI‑enabled analysis of earnings‑call transcripts, we find that this effect is partially driven by common analysts exerting pressure through product‑focused questioning. Additional tests indicate that these results cannot be fully explained by analyst coverage simply identifying close competitors or by analyst recommendations reflecting product strength. Overall, our findings highlight a key role for security analysts in shaping firms’ product‑market behavior.
Strategic Communication in M&A Conference Calls: Topic Modelling Analysis of Transcripts, with Sudipto Dasgupta, Jarrad Harford, Daisy Wang, and Haojun Xie [Draft]
Abstract: We examine the implications of strategic communication through conference calls on the outcomes of mergers and acquisitions (M&As). We argue that managers are likely to provide more precise information when they are privately informed of a deal’s high value creation, leading to positive associations between disclosure precision and deal outcomes. Our measure of disclosure precision incorporates both managers’ discretionary decision to host calls and whether these calls emphasize “hard” or “soft” information. We find that more precise disclosure is associated with a higher likelihood of deal completion, less completion delay, and more favorable stock market reactions. Furthermore, our analysis shows that although “soft” information is less precise than “hard” information, it offers a distinct benefit—it helps demonstrate the deal’s rationale to shareholders without escalating tensions between target and acquirer over potential over‑ or under‑payment. Finally, we observe that managers are more likely to adopt precise disclosures when the marginal cost of attracting regulatory scrutiny is relatively low, underscoring the strategic balancing of the benefits and costs of disclosure. These findings highlight the nuanced and strategic nature of disclosure policies in the M&A context.
Subjective CEO Pay and Long-term Incentives [Draft]
Abstract: I find that corporate boards frequently link CEO compensation to subjective performance measures that are neither accounting ratios, nor based on stock price. Subjective compensation incorporates soft information privately observed by the board about the CEO’s contribution to long-term firm value. I show that the relative importance of subjective compensation is greater when the shareholder investment horizon is longer, consistent with optimal contracting. Moreover, boards increase the weight on subjective compensation when short-term incentives become more important, such as during periods when there is large vesting of equity awards. This attenuates the adverse impact of large vesting on long-term investment.
Published Papers:
Launching for the “Greater Good: Spillover Effect of ESG Funds, with Linlin Ma, Yuan Wang, and Bo Xu, Journal of Financial and Quantitative Analysis, forthcoming [draft]
Abstract: We examine the incentives for mutual fund families to launch ESG funds. Our analyses reveal that introducing a new ESG fund is associated with a significant increase in capital inflows to sibling non-ESG funds in the family. This flow spillover accounts for a significant portion of the monetary gains for families to offer ESG funds. We also find that spillover is stronger among retail funds and cannot be attributed to changes in the ESG profiles or abnormal returns of the sibling funds. Our analyses underscore the marketing benefit of introducing ESG funds for fund families.
Motivating Collusion, with Sangeun Ha and Alminas Zaldokas, Journal of Financial Economics, 2024 [link]
Abstract: We examine how executive compensation can be designed to motivate product market collusion. We look at the 2013 decision to close several regional offices of the Department of Justice, which lowered antitrust enforcement for firms located near these closed offices. We argue that this made collusion more appealing to the shareholders, and find that these firms increased the sensitivity of executive pay to local rivals' performance, consistent with rewarding the managers for colluding with them. The affected CEOs were also granted more equity compensation, which provides long-term incentives that could foster collusive arrangements.
Presentation: Finance in the Cloud, ACFOW
EPS-Sensitivity and Mergers, with Sudipto Dasgupta and Jarrad Harford, Journal of Financial and Quantitative Analysis, 2023 [link]
Abstract: Announcements of mergers very often discuss the immediate impact of the deal on the acquirer’s earnings per share (EPS). We argue that the focus on EPS reflects the difficulty of evaluating and communicating deal synergy in M&A practice, and provide supporting evidence. We show that the acquirer’s EPS focus affects how deals are structured, the premium that is paid, and the types of deals that are done. EPS-driven M&A decisions are also associated with costly distortions in the acquirer’s financial and investment policies.