Research
PUBLICATIONS
(with Ederington L., Fernando, C., Linn, S., and T. Lee)
We study the dynamics of cash-and-carry arbitrage using the U.S. crude oil market. Sizable arbitrage-related inventory movements occur at the New York Mercantile Exchange (NYMEX) futures contract delivery point but not at other storage locations, where instead, operational factors explain most inventory changes. We add to the theory-of-storage literature by introducing two new features. First, due to arbitrageurs contracting ahead, inventories respond to not only contemporaneous but also lagged futures spreads. Second, storage capacity limits can impede cash-and-carry arbitrage, leading to the persistence of unexploited arbitrage opportunities. Our findings suggest that arbitrage-induced inventory movements are, on average, price stabilizing.
I examine shareholder wealth effects associated with different types of government investors in an international sample. I develop a taxonomy to identify government political, financial, and industrial arms. State investments, similar in dollar amount to state privatizations, have increased target shareholder wealth by over USD 50 billion. But market participants differentiate among government entities as target shareholders lose over USD 14 billion, when the investment is announced by the political arms of government rather than the industrial or the financial arms. The apparent intent of government agency is considered by private investors. Post-investment performance tests, institutional environment analysis, and access to credit tests corroborate this.
GOVERNMENT OWNERSHIP AND THE COST OF DEBT: EVIDENCE FROM GOVERNMENT INVESTMENTS IN PUBLICLY TRADED FIRMS, 2015, Journal of Financial Economics 118(1), 168-191
(with Borisova, G., Fotak V., and W. Megginson),
We investigate how government equity ownership in publicly traded firms affects the cost of corporate debt. Using a sample of bond credit spreads from 43 countries over 1991–2010, we find that government ownership is generally associated with a higher cost of debt, consistent with state-induced investment distortions, but is associated with a lower cost of debt during financial crises and for firms more likely to be distressed, when implicit government guarantees become the dominant effect. Our results are robust to controls for the endogeneity of government ownership, and we find these effects to be specific to domestic government ownership.
TARP PARTICIPATION AND EXIT FOR U.S. BANKS, 2010, Privatization Barometer
BANK NATIONALIZATIONS: A HISTORY OF THE CREDIT CRISIS OF 2007-09, 2010, Privatization Barometer
WORKING PAPERS
THE GRADUAL REVEAL: UNDERSTANDING SHAREHOLDER MEETINGS THROUGH OPTIONS, with Chan Lim and Irene Yi
We investigate the options market's reactions to proposals at shareholder meetings. We observe a consistent decrease in option implied volatility from the record to the meeting date, indicating reduced uncertainty about future stock prices. Meetings with close votes and shareholder proposals exhibit a distinct peak before the record date, followed by a more significant yet gradual decline. This decline is pronounced for meetings with high voting premiums and stakeholder disagreements. Our findings highlight proposals' substantial impact on firm value, with investors processing most proposal-related information before the meeting, expanding our understanding beyond the literature's conventional focus around key event dates.
CORPORTE CASH FLOW OUTCOMES ACROSS PRESIDENCIES: STILL A PRESIDENTIAL PUZZLE , with Esther Im
This paper offers new economic insights into the well-known “presidential puzzle,” where returns are lower during Republican presidencies. We examine the underlying mechanism and document lower corporate cash flow-related outcomes: sales growth, profitability, operating cashflows, and investment, alongside lower taxes, employment, and increased cash holdings during Republican presidencies. Zooming into the cross-section of firms, we examine explanations, including Congressional alignment, presidency years, exposure to government contracts, exports, and political polarization. Results vary across firms, with Democrat-leaning area firms experiencing lower profitability, sales, and investment during Republican presidencies. This paper documents additional real effects of the “presidential puzzle” in public firms. (previous title "Presidential Puzzle at the Firm Level.")
CORPORATE CULTURE IMAGE AND NATIONAL POLITICS, with Esther Im
This paper examines how firms adjust their corporate culture messaging in response to nationwide U.S. political shifts. We assess cultural values of innovation, integrity, quality, respect, and teamwork reflected in corporate earnings calls. Significant changes in corporate culture messaging dynamics occur after an increase in partisan polarization post-2010: there are fewer mentions of all cultural aspects across both likely-Republican and likely-Democrat firms, except sentiment, which becomes more positive. Additionally, firms align their cultural messaging after Trump's presidency, eliminating differences in likely-Democrat and likely-Republican firms' emphases. In the cross-section, likely-Republican firms emphasize quality and respect, while likely-Democrat firms emphasize innovation. We examine corporate outcomes related to corporate culture messaging. Our findings highlight the impact of political factors on shaping corporate culture messaging and its consequences.
THE COST OF MURDER: THE ROLE OF SOCIALLY RESPONSIBLE SHAREHOLDERS, with Veljko Fotak and Vishal Sharma
We employ the murder of Jamal Khashoggi, allegedly at the hands of agents of the Kingdom of Saudi Arabia (KSA), as a shock to the reputation of publicly traded firms, from over 57 countries, with connections to the KSA. We find significant stock price declines for foreign firms with KSA connections around the announcement of the murder. These firms lost approximately USD 986.5 mln of market capitalization. Shareholder decisions to divest stakes in these firms are influenced by institutional (civil law legal origin and freedom of the press) and cultural (femininity, restraint, uncertainty avoidance, and collectivism) factors. Our findings shed light on the complex interplay between geopolitical events, institutional and cultural factors, and shareholder behavior.
PRICE DISCOVERY PUZZLE: ELECTRONIC TRADING IN COMMODITY FUTURES, with Scott Linn, Chitru Fernando and Huiming Zhang
We study the impact on price discovery when commodity futures move to electronic trading, using data from the West Texas Intermediate (WTI) and Brent oil markets. Electronic trading resulted in explosive increases in trading in both futures markets. After the shift, WTI futures became significantly more important for (indeed, the sole contributor to) price discovery but Brent futures became significantly less important. We examine several explanations for this puzzle, including the differences in electronic trading implementation in WTI and Brent and the shift in the global importance of WTI, given fracking-related increases in U.S. production and regulation-cleared ability to export U.S. crude. Our findings show that liquidity increases are not necessarily accompanied by price discovery improvements and suggest that the benefits of electronic trading need to be assessed from the standpoint of liquidity improvements as well as price discovery changes.
WORK IN PROGRESS
"Labor Force Restructuring and M&A Gains," with Stefano Rossi
"Does Diversity Matter?" with Reza Houston and Kuntara Pukthuanthong
"Physical Limits to Arbitrage," with Chitru Fernando and Scott Linn
PERMANENT WORKING PAPERS
"University Innovation," with Ben McCartney
"Do Investors Gain Information from Firms' Derivatives Disclosures," with Jon Black and PJ Hoffman
"Value of Corporate Lobbying: Insights from Private Firms," with Yeejin Jang and Anya Mkrtchyan