Research
Working Papers
"Financial Synergies in Mergers and Acquisitions: Empirical Evidence and Aggregate Implications" (Job Market Paper)
Abstract: This paper investigates the evidence and implications of financial synergies in mergers and acquisitions (M&A). Financial synergies arise when one firm's superior financial condition benefits another firm that is financially constrained but expects a higher return on investment. Using micro data, I find that the target's average revenue product of capital (ARPK) exceeds that of the acquirer, implying that the target's capital investment return is higher than the acquirer's. This finding is inconsistent with the conventional wisdom from average Q in M&A, which posits that M&A is a process of physical capital reallocation from targets to acquirers. To resolve this discrepancy and evaluate its aggregate implications, I develop a dynamic general equilibrium M&A search model with financial frictions. The calibrated model reconciles the two statistics and demonstrates that the investment implication by average q can be misleading. I find M&A results in an 8% increase in output and a 5% improvement in TFP. Moreover, M&A mitigates 46% of the TFP loss from misallocation, accounting for 20% of the TFP gains generated by M&A. However, M&A also leads to a decrease in the number of firms and entrants, and exacerbates the financial polarization among firms.
"Implications of Low Interest Rates on Long-Run Wealth Inequality in a Schumpeterian Model"
Abstract: Since the 1980s, wealth inequality has steadily risen while real interest rates have declined. To assess the implications of low interest rates on wealth distribution and economic growth, I develop an analytically tractable endogenous growth model with creative destruction, which features heterogeneous returns for households. The model highlights that low interest rates increase both the growth rate and top wealth inequality in the balanced growth path. This is because low interest rates amplify asset prices, enhancing returns from establishing new firms through creative destruction. This environment especially benefits those who invest in entrepreneurial activities and constitute a significant fraction of the top wealth holders.
Abstract: We consider a model of joint venture where agents are organized on a hierarchical network and each agent produces her revenue through collaborating with her superiors. The problem is to allocate the total revenue among agents, when a hierarchy is represented by a directed tree. We investigate superiors-reallocation-proof allocation rules that are robust to reallocation of revenues within any coalition that includes all the superiors of its members. We obtain characterizations of superiors-reallocation-proof allocation rules imposing standard axioms in the literature of fair allocation theory.
Work in Progress
"Acquiring for Market Power: Evidence from Firm-Level Markup in Compustat"
Abstract: How do mergers and acquisitions affect market power? To answer this question, I estimate the dynamic treatment effects of M&A on firm-level markup using the Compustat sample. My initial empirical results indicate that M&As boost the markup by 0.04 log-points in the first year. However, this effect gradually diminishes, disappearing by the sixth year post-M&A.
