Working Papers:
Cannibalization, Competition, and New Product Introductions: Evidence from the Pharmaceutical Industry, with Yuanfang Chu and Sudipto Dasgupta [draft]
Abstract: We study how cannibalization concerns shape firms’ product launch decisions. In the pharmaceutical industry, the threat of generic competitor entering a branded product’s market reduces cannibalization concerns for pipeline launches, while having limited impact on the standalone value of pipeline product. We find that such competitive threats accelerate pipeline launches, which in turn decrease sales of the threatened product in a period before the competitor's actual market entry. Our findings underscore how competitive pressure accelerates the commercialization of new products by reducing cannibalization costs, fostering creative destruction and strengthening the link between innovation and growth.
Launching for the “Greater Good: Spillover Effect of ESG Funds, with Linlin Ma, Yuan Wang, and Bo Xu (R&R at JFQA) [draft]
Abstract: We examine the incentives motivating a mutual fund family to launch ESG funds, aiming to understand the supply-side factors in shaping the ESG investment landscape. We find that the introduction of a new ESG fund results in a significant increase in cash inflows to other member funds in the family. However, we observe no corresponding changes in the ESG profiles or abnormal returns of these funds. Further evidence suggests marketing benefits as the driving force behind this spillover effect. Estimations indicate that this spillover accounts for nearly half of the incentive for families to integrate ESG funds into their product offerings.
Strategic Communication in M&A Conference Calls: Topic Modelling Analysis of Transcripts, with Sudipto Dasgupta, Jarrad Harford, Daisy Wang, and Haojun Xie (R&R at JAR) [Draft]
Abstract: We study the role of conference calls in mergers and acquisitions (M&As) on perceived deal value and deal completion. We analyze how managers’ discretionary disclosure choices, particularly the precision of information shared, are associated with investor perceptions and deal outcomes in equilibrium. To measure disclosure precision, we adopt topic modelling to analyze call transcripts. We find that depending on the managerial objectives of disclosure in different types of deals, precise disclosures (“hard” information) are related to better market outcomes, while less precise disclosure (“soft” information) are linked to higher deal completion rates, despite potential negative reactions from acquirer shareholders. Our findings underscore the importance of strategic communication in M&A contexts.
Analysts' Feedback, Market Pressure, and New Product Introductions, with Yuanfang Chu and Sudipto Dasgupta [draft]
Abstract: We examine how security analysts influence competitive product market interactions among US public firms. Using product announcement data, we show that firms tend to launch new products in response to rivals’ product launches, especially when sharing analyst coverage. These results are not due to common economic shocks. Comparing recommendation revisions by analysts covering both rival and focal firms versus those covering only rivals, we find that only favorable revisions from common analysts following rivals’ product announcements are influential for new product announcements. We find evidence supporting both an information spillovers cannel and a peer pressure channel, in which common analysts play a role. Our findings reveal a key feedback channel from financial markets to firms’ strategic decision-making.
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:
EPS-Sensitivity and Mergers, with Sudipto Dasgupta and Jarrad Harford, Journal of Financial and Quantitative Analysis, 2024 [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.
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.