Research

• Payment Processing Costs and Retail Prices: Evidence from Credit Card Surcharges 🔗

I study how legalizing credit card surcharges affects retail prices. Surcharges allow merchants to price discriminate against credit card users, whose transactions generate high payment processing costs. I exploit staggered variation in merchants' ability to impose surcharges across U.S. states. The focus is on the retail gasoline market, where products are highly standardized and comparable across locations. I find that, after the legalization of surcharges, cash prices fall by approximately 2 percent (6 cents per gallon). Wholesale prices do not respond. Hand-collected data from Google Street View show that uniform prices lie between cash and credit card prices, consistent with merchants using surcharges to shift payment processing costs from cash payers to credit card users. Legalizing surcharges also reduces credit card use. My findings suggest that surcharges can mitigate the implicit subsidy from cash payers to credit card users embedded in the payment system. More broadly, the results provide causal evidence on the pass-through of platform intermediation costs into retail prices, a central mechanism in models of two-sided markets.

DGF Doctoral Workshop Best Paper Award

• CBDCs, Payment Firms, and Geopolitics 🔗
  with Tobias Berg, Jan Keil, Manju Puri

We analyze the effect of a major central bank digital currency (CBDC) – the digital euro – on the payment industry. Stock prices of U.S. payment firms decrease, while stock prices of European payment firms increase in response to positive announcements on the digital euro. Bank stocks do not react. We estimate a loss in market capitalization of USD 127 billion for U.S. payment firms, compared to a gain of USD 23 billion for European payment firms. Our results emphasize the medium-of-exchange function of CBDCs and point to a novel geopolitical dimension of CBDCs: enhanced autonomy in payments.

Revise & Resubmit (2nd Round) – Journal of Finance

• Climate Transition Risks of Banks: Evidence from Syndicated Loan Books 🔗
  with Zacharias Sautner, Sascha Steffen, Carola Theunisz

We examine how U.S. banks adjust lending in response to changes in climate transition risk. We quantify each bank's exposure to the risk based on its borrowers' carbon footprints. The exposure measure correlates with banks’ return sensitivities to stranded asset values and with total financed emissions. Banks' exposures have declined over time, driven by a shift of credit toward low emitters, not by stopping lending to high emitters. Banks with growing exposures lobby to forestall stricter climate regulation. Our results suggest that banks have become sensitive to climate transition risk, though their overall contribution to the economy's decarbonization remains limited.

Reject & Resubmit – Journal of Financial and Quantitative Analysis

• Corporate Sustainability-Linked Bonds

I study corporate sustainability-linked bonds (SLBs), an innovative but controversial financial instrument that links economic outcomes to borrowers’ future ESG performance. Despite the rapid growth of the SLB market over the past years, I find no evidence that issuing SLBs instead of conventional bonds has tangible financial benefits. I show that there is no significant stock market reaction to announcements of SLB transactions, casting doubt on the value of SLBs as signaling devices. I also analyze the new issue pricing of SLBs but find no significant pricing difference relative to conventional bonds. Overall, my analyses raise questions regarding the rationale for corporates to raise financing in the form of SLBs.

Best Second-Year PhD Paper Award

• Corporate Hybrid Bonds

The market for corporate hybrid bonds has grown rapidly, raising questions about why firms choose these securities over more conventional instruments. Hybrid bonds blur the line between debt and equity. They are long-dated, subordinated, and allow issuers to defer coupon payments, while receiving partial equity credit from rating agencies. I exploit changes in the rating agency and tax treatment of hybrid bonds to study firms' issuance decisions and identify the causal effects of hybrid financing on firm outcomes.