28 Jul 2025: "Information sharing with blockchain" is accepted for publication in Research Policy.
Co-Authored with Christian Hilpert, Jan Pape, and Alexander Szimayer
April 9, 2025 - Available at SSRN
Abstract:
We analyze how a credit rating agency determines a corporate rating when its analysts hold heterogeneous beliefs. In a dynamic game with feedback effects, a firm with rating-dependent cost of capital signals its quality by surviving phases of apparent distress. The credit analysts adjust their beliefs in response to firm survival. Contrasting classical min-max results under ambiguity, we show that the rating agency should select a dynamically adjusted weighted average of multiple beliefs, giving higher weights to beliefs with higher variance. The ambiguity impact on ratings hinges on whether the analysts’ beliefs have a common direction: If so, the aggregate rating overweighs the least extreme belief, and jointly pessimistic (optimistic) analysts make the firm delay (accelerate) default. We predict that under high ambiguity, the rating agency dampens analyst teams with pronounced opinions more than under low ambiguity. This behavior impacts credit ratings and subsequently credit spreads of rated firms.
Co-Authored with Negar Ghanbari and Anil Kumar
March 7, 2025 - Available at SSRN
Abstract:
We examine how exogenous shocks to firms' financial flexibility impact corporate debt maturity structure. We utilize changes in collateral value in the form of real estate price fluctuations as exogenous shocks to firms' debt capacity and, thus, to their financial flexibility. Our theoretical model predicts that higher collateral value leads to greater maturity concentration. This prediction finds robust support in the data, for different measures of real estate value and maturity concentration. The effect is strongest for corporate bonds over bank loans, unsecured over secured debt, and financially constrained firms across several measures. We also explore the effect for newly issued debt.
Co-Authored with Sai Palepu
January 15, 2025 - Available at SSRN
Abstract:
We study the role of Environmental, Social, and Governance (ESG) alignment in shaping customer-supplier relationships within U.S. supply chains. Using data from the FactSet Revere supply chain database and Refinitiv ESG scores (2003–2019), we find that major customers significantly influence supplier ESG performance, with a 6.9% increase linked to one unit increase in the major customer ESG scores. Positive ESG divergence, where a supplier outperforms its major customer, increases the likelihood of relationship termination by 18.1%, underscoring the importance of ESG alignment. Replacement suppliers generally exhibit higher ESG ratings than their predecessors, suggesting a preference for sustainability when reconfiguring supply chains.
Co-Authored with Narmin Nahidi and Arman Eshraghi
January 6, 2025 - Available at SSRN
Abstract:
This study explores the role of Digital Rights Management (DRM) systems in mergers and acquisitions (M&A), focusing on their impact during due diligence. While DRM is widely recognized for intellectual property protection, its influence on governance and information asymmetry in M&A transactions has been underexplored. Using agency theory, we examine DRM’s role in reducing risks of information leakage and enhancing decision-making. Our findings show that DRM positively influences financial and legal due diligence, enhancing performance indicators such as return on assets and the thoroughness of legal assessments. However, DRM also negatively impacts business and high-tech performance, especially in patent M&A, by limiting technological flexibility and innovation. This suggests that while DRM strengthens data security, it may hinder the use of patented technologies, particularly in patent-related M&A transactions. These insights underscore DRM’s dual role in enhancing security and governance while posing challenges for technological flexibility, with important implications for M&A practitioners and policymakers.
Co-Authored with Itay Goldstein and Matthias Lassak
August 27, 2024 - Available at SSRN
Abstract:
We provide an equilibrium analysis investigating efficiency differences between private and public firms’ information generation strategies, emphasizing public firms’ unique ability to learn additional information from financial markets through the feedback effect. The public firm features two mutually reinforcing sources of inefficiency. First, the public firm relies too much on market prices, as it does not incorporate information acquisition costs borne by market participants. Second, investors’ incentives to acquire information are too strong, as they maximize private trading profits as opposed to real efficiency. As the private firm does not face these distorted information acquisition incentives in our model, it is associated with higher real efficiency.
Co-Authored with Christian Hilpert and Alexander Szimayer
November 22, 2022 - Available at SSRN
Abstract:
How does a creditor’s learning from a firm’s strategic actions affect bankruptcy prediction, debt values, and optimal capital structure? We investigate a Leland (1994) setting augmented by asymmetric information on the firm’s asset value. Observing the firm’s survival of apparently distressed periods, the creditor excludes asset value estimates that are too low to be consistent with the observed survival. We show that the expected bankruptcy threshold decreases as result of the learning. While expected asset and debt values decrease upon reaching new all-time-low asset values, they are persistently higher once the observed asset value recovers to a given level, but the creditor remembers the all-time low. In terms of selecting the capital structure, high quality firms can separate and signal their quality by over-leveraging if the information asymmetry is high enough. Moderate information asymmetry implies a pooling equilibrium.
Co-Authored with Narmin Nahidi
August 24, 2022 - Available at SSRN
Abstract:
The purpose of this study is to empirically examine the relation between a target firm’s media coverage (measured by degree of media coverage, positive and negative media coverage) and various takeover characteristics. We find that media coverage is negatively associated with the takeover premium. This holds for both positive and negative media coverage. Thus, no news is good news in terms of achieving a higher takeover premium. The method of payment shows an ambiguous relation with media coverage. All three measures of media coverage have a positive effect on the time of completion.
Co-Authored with Anil Kumar
Co-Authored with Rikke Sejer Nielsen and Fynn Sowinski