Research
PUBLICATIONS
Simultaneous Debt-Equity Holdings and The Resolution of Financial Distress
(w/ Yongqiang Chu, Jun Wang, Wei Wang and Wenyu Wang)
Review of Corporate Finance Studies, forthcoming
Abstract: We study the effect of financial institutions’ simultaneous holdings of debts and equity on the resolution of firms’ financial distress. Using a self-constructed comprehensive data set on out-of-court restructuring, we show that simultaneous holdings of debt and equity are associated with a significantly higher likelihood of out-of-court restructuring versus bankruptcy filing. Our identification relies on instrumental regressions and uses mergers of financial institutions as a source of exogenous shocks to the formation of simultaneous holdings. We also find that the effect of simultaneous holdings on out-of-court restructuring is stronger when the holders have larger equity stakes and when expected bankruptcy costs are higher. Taken together, this empirical evidence suggests that simultaneous holdings align the incentives of debt holders and equity holders to facilitate cost-effective workout.
Presentations: AFA (Atlanta 2019), SFS Cavalcade (Pittsburg 2019)*, MFA (Chicago 2019), FMA (New Orleans 2019), CICF (Hangzhou 2019)*, AFBC (Sydney 2018), Indiana University (2018)
WORKING PAPERS
Social Collateral
(w/ Huong Dang)
R&R at Journal of Finance
Abstract: This paper studies the role of social stigma in debt repayment decisions, using a randomized field experiment with the credit card borrowers of a retail bank. Key features of the experimental design involve random assignment of (1) delinquency observability, and (2) social contexts in which the observation of delinquency takes place. The design allows for not only an isolation of reputational effects from other confounding factors in social interactions but also an examination of the reasons why individuals respond to reputation incentives. We find receiving the social disclosure treatment reduces delinquency by 19% of the base rate. With results from our benchmarking treatments, we estimate borrower’s willingness-to-pay for an intact social image to be 10% of monthly income, compared to a willingness-to-pay for clean credit record at 11% of monthly income. Analysis of treatment effects within different randomly assigned social contexts reveals that borrower’s responses are driven by the instrumental role of reputation in social interactions such as in the labor market or the marriage market rather than hedonic motivations, à la Bénabou and Tirole (2006).
Presentations: FMA Diversity Emerging Scholar Initiative (2021), Wabash River Conference (2021), NBER SI Household Finance (2020), WFA (San Francisco, 2020), EFA (Helsinki, 2020), SFS Cavalcade (Chapel Hill, 2020), FIRS (Budapest, 2020), MFA (Chicago, 2020), 9th MoFiR Workshop on Banking (Lisbon, 2020), Colorado Finance Summit - Best PhD Paper Award (Vail, 2019)
Trust in Crowd-funding: Experimental Evidence from a Fundraising Campaign
w/ Jun Yang
Abstract: Despite the importance of trust in determining economic outcomes, little is known about what facilitates or hinders interpersonal trust. Using a randomized field experiment of a fundraising campaign, we examine the role of trust and the determinants of perceived trustworthiness in the context of crowdfunding. The key feature of the experiment involves randomized rotations of the campaign design, which differ in the profile photo, details of campaign description, and the update status. The perceived trustworthiness of these rotations is then independently judged by survey participants. We find that while posting updates significantly increases perceived trustworthiness of the campaign and the funds raised, having a more detailed description has little effect. Our follow-up survey reveals that the differential effects are mostly driven by information salience. Interestingly, displaying a white or male profile photo improves the trustworthiness score and generates a higher contribution level, which can be explained by white participants’ (and donors’) and male participants’ (and donors’) preferences. Finally, we find that effects of campaign updates and the profile photo disappear when donors are directly connected to the fundraising team, highlighting the authentication and trust-transmission role of social networks.
Presentations: Advances with Field Experiments (2022), SFA (2022), Pre WFA ECWFC (2023), MFA (2024), AFA (2025)
Ethnic Origin of the Gender Pay Gap
w/ Jan Bena, Quoc-Anh Do, Kieu-Trang Nguyen, and Iris Wang
[Draft coming soon]
Abstract: This paper studies the role of cultural norms, specifically those regarding gendered roles in employment, in explaining the gender gap in pay using a unique matched employer-employee dataset linked with immigration records in Canada. To separate the effects of culture from markets and institutions, we investigate how inherited gender norms among immigrants shape their labor market outcomes in the host country. We find that changes in gender norms across cohorts of immigrants from the same country of origin are strongly associated with the gender gap in pay and mobility. These associations persist even when accounting for a broad set of interacted fixed effects between firm and workers’ attributes (gender, birth cohort, and country of origin), and among those attributes, suggesting that the findings are unlikely due to discrimination by firms or sorting by workers. We also show that the effects of gender norms cannot by fully explained by occupational choices or the child penalty. Instead, we explore a new mechanism in which gender norms influence the gap in how women and men find job opportunities through their social networks, leading to disparities in both wages and mobility. Distinctive from prevailing discussions on the influence of gender norms, our results highlight that even if women do not internalize these norms, they can still face similarly disadvantaged outcomes
Presentations: Wabash River Finance Conference (2023), Pre WFA ECWFC (2024)
Index Investing and Corporate Investment-Price Sensitivity
(w/ Matt Billett and Jon Garfinkel )
Abstract: Firm investment-stock price sensitivity declines in S&P500 index membership, consistent with indexing undermining the “feedback” channel. To address endogeneity, we show that non-indexed focal firm investment is less sensitive to stock prices of peer firms in the index. Results are concentrated in later years when passive investing rose to prominence, and also when the (indexed) peer’s passive ownership is higher. The learning channel is supported by: stronger results when peer price informativeness is lower; by weaker results when the focal firm manager is relatively more informed; and by dynamic reallocation of focal firm investment sensitivity to indexed vs. non-indexed peers.
Presentations: NFA (2020), Dartmouth/Minnesota/Maryland Virtual Corporate Finance (2020)
WORK IN PROGRESS
Graying of the US Bankruptcy
w/ Ngoc Dao
Presentations: Wabash River Finance Conference (2024)
Transmission Bias: Experimental Evidence from Investment Decisions
w/ David Hirshleifer and Deniz Yavuz
Social Capital and Municipal Financing: Evidence from Municipal Bond Referendum
w/ Sergey Chernenko, Viet-Dzung Doan, Nathaniel Feige, and W Ben McCartney