Working papers
With Kelly Posenau and Tianshu Lyu
Conditionally accepted, Journal of Financial Economics
We provide the first analysis of the risk exposure and consequent risk-adjusted performance of impact investing funds, private market funds with dual financial and social goals. We introduce a new dataset of impact fund cash flows constructed from financial statements. When accounting for market risk exposure, impact funds underperform the market, though not more so that comparable private market strategies. We exploit known distortions in measures of VC performance to characterize the risk profile of impact funds. Impact funds have substantially lower market beta than VC funds, contradicting the idea of sustainability as a "luxury good." We find that impact fund cash flows do not exhibit positive correlation with a public market sustainability factor, consistent with the idea that private and public market sustainability strategies capture distinct exposures.
Labor Market Collusion through Common Leadership
With Alejandro Herrera Caicedo and Elena Prager
We study an alleged scheme involving tech companies' “no-poach” agreements, illegal agreements to suppress labor market competition by ceasing to recruit one another's workers. Using data on the networks of firm executives and board members, we first show that pairs of firms disproportionately enter no-poach agreements after they begin to share common high-level leaders. This is consistent with the illegal nature of the agreements, which makes the agreements unenforceable in court and therefore requires other mechanisms of enforcement. We then use microdata on workers’ employment profiles to show suggestive evidence that the agreements depressed labor flows across colluding firms, and slowed firm-level aggregated hiring and internal promotion rates.
With Tania Babina, Simcha Barkai, Ezra Karger, and Ekaterina Volkova
We hand-collect and standardize information describing all 3,055 antitrust lawsuits brought by the Department of Justice (DOJ) between 1971 and 2018. Using restricted establishment-level microdata from the U.S. Census, we compare the economic outcomes of a non-tradable industry in states targeted by DOJ antitrust lawsuits to outcomes of the same industry in other states that were not targeted. We document that DOJ antitrust enforcement actions permanently increase employment by 5.4% and business formation by 4.1%. Using an event-study design, we find (1) a sharp increase in payroll that exceeds the increase in employment, meaning that DOJ antitrust enforcement increases average wages, (2) an economically smaller increase in sales that is statistically insignificant, and (3) a precise increase in the labor share. While we cannot separately measure the quantity and price of output, the increase in production inputs (employment), together with a proportionally smaller increase in sales, strongly suggests that these DOJ antitrust enforcement actions increase the quantity of output and simultaneously decrease the price of output. Our results show that government antitrust enforcement leads to persistently higher levels of economic activity in targeted industries.
With Jeff Gortmaker and Michael Lee
We analyze worker reactions to firms' credit deterioration. Using weekly networking activity on LinkedIn, we show workers initiate more connections immediately following a negative credit event, even at firms far from bankruptcy. Our results suggest that workers are driven by concerns about both unemployment and future prospects at their firm. Heightened networking activity is associated with contemporaneous and future departures, especially at highly-rated firms. Other negative events like missed earnings and equity sell recommendations do not trigger similar reactions. Overall, our results indicate that the latent build-up of connections triggered by credit deterioration represents a source of fragility for firms.
With Michael Lee
This paper empirically studies the role of culture as an implicit contract, using connections among coworkers as a measure of employee culture. We develop three simple measures of firm connectivity based on LinkedIn's network data, and show these measures are strongly correlated with external ratings of employee relations. We then show that firms with greater connectivity are less sensitive to changes in explicit labor contracts. Specifically, we show that changes in the enforceability of non-compete agreements have a significant impact on firms with weak connectivity, but this effect dissipates almost entirely for firms with strong connectivity. Our results are consistent with the theory of culture as an implicit contract.
Mapping the Network of Contract Terms
With Anne Tucker
Empirical research of contracts requires a granular review of contract terms, parsing potentially hundreds of individual terms. Often, these are analyzed independently, or at best in pairwise relationships. This paper proposes a practical approach to addressing contracts as a network of terms, where rights and responsibilities depend on the sum total of terms negotiated together at the time of contract formation. We develop scores for discrete contract dimensions in the context of private market fund contracts, and show these help us characterize a whole that is different than the sum of the parts.
Economics & finance publications
2017 AQR Top Finance Graduate Award and Kauffman Dissertation Fellowship
Review of Financial Studies, Volume 37, Issue 1, January 2024, Pages 1–44 (Lead article)
Data set of NC changes Internet Appendix
This paper examines how labor mobility restrictions like non-compete agreements affect firms’ investment decisions. Using matched employee-employer data from LinkedIn, I show that increases in the enforceability of non-compete agreements lead to widespread declines in employee departures, specifically in knowledge-intensive occupations. Established firms that rely more on these knowledge-intensive occupations increase their investment rate in physical capital. However, new firm entry in corresponding sectors declines. I provide evidence for different mechanisms to explain these patterns. Together, the findings show that labor frictions play an important role in investment decisions.
With Christopher Geczy, David Musto and Anne Tucker
Journal of Financial Economics, Volume 142, Issue 2, November 2021
2018 Berkeley Research for Impact Prize
We draw on new data and theory to examine how private market contracts adapt to serve multiple goals, particularly the social-benefit goals that impact funds add to their financial goals. Counter to the intuition from multitasking models (Holmstrom and Milgrom, 1991), few impact funds tie compensation directly to impact, and most retain traditional financial incentives. However, funds contract directly on impact in other ways and adjust aspects of the contracts like governance. In the cross-section of impact funds, those with higher profit goals contract more tightly around both goals. We propose an explanatory framework in which this feature results from hidden differences between agents’ preferences over impact.
Law review articles & industry reports
With Anne Tucker
University of Chicago Business Law Review, Vol. 1, No. 1, 2022
This project explores side letters in private market deals. Side letters, separate agreements between a fund and an investor, often act as an invisible amendment to the main contract. This article introduces a new use case for side letters: impact investments, where funds target social as well as financial returns. Using a hand-collected data set, we examine the scope and role of side letters in this growing space. Side letters as "shadow contracts" demonstrate the Easterbrook/Fischel theories in action, namely that parties “write their own tickets,” tailoring agreement terms to their specific needs within the framework of corporate governance rules. Expressing preferences and constricting manager power through contract is even more important when managers serve dual goals. However, bespoke contracts come with some costs, including additional complexity, slower adoption of best practices, and hidden hierarchies that may advantage some parties to the detriment of others.
With Christopher Geczy, David Musto and Anne Tucker
Seattle University Law Review, Vol. 40, No. 2, 2017
In this Article, we explore contracting terms specific to impact investing funds and their portfolio companies. We observe one possible private ordering mechanism to balance and align interests to serve both goals: employee ownership. We examine how the introduction of new motivations and interests shapes contracting outcomes by analyzing the role of employee stock ownership in impact investment fund contracts when investing in targeted portfolio companies.
With Christopher Geczy, David Musto and Anne Tucker
Harvard Business Law Review, Vol. 5, 2015
Institutional investors hold increasingly important stakes in public companies and fund individual retirement for many Americans, making institutional investors' behaviors and preferences paramount determinants of capital allocations and the economy. In this paper, we examine high fiduciary duty institutions' (HFDIs') response to decreased profit maximization pressure as measured by the effect of constituency statutes on HFDI investment.
Before testing changes in HFDI investment, we review 30 years of court decisions to verify that constituency statutes, once enacted, were enforced by courts and therefore changed directors' duties in practice. Constituency statutes expand directors' ability to consider non-profit maximizing goals similar to, although smaller than, the expansion of director prerogatives under alternative purpose firm legislation. Our findings answer questions raised in early constituency statute scholarship regarding the scope and impact of constituency statutes. Our findings also connect constituency statutes to the current academic debate on alternative purpose firms by identifying potential litigants and theories of recovery under the new statutes. Finally, we observe that HDFIs did not meaningfully change investment behavior in response to constituency statutes' expansion of director duties. Extrapolating our empirical observation to the current question of alternative purpose firms, we do not foresee expanded director duties under these new hybrid entities to, by itself, be a barrier to HFDI investment.
With Jacob Gray, Nick Ashburn, Harry Douglas, David Musto and Christopher Geczy
Wharton Social Impact Initiative Report, 2015
Over the past decade, limited partners have increased capital allocations to socially driven private equity funds with the goal to generate long-term impact alongside financial returns. To understand funds' abilities to meet these goals, we gather detailed mission and financial data from 53 impact investing private equity funds, representing 557 individual investments. In our sample we find that while fund managers are overwhelmingly optimistic about mission preservation, few exits have any contractual statements about preserving mission. Regarding financial performance, our set of market-rate-seeking funds achieved gross results comparable to non-impact investment options along a broad range of measures, suggesting it is possible to generate market returns as an impact fund.