AQR Top Finance Graduate Award 2022
The difference between corporate bond yields at issuance and in secondary markets, the ``issuance premium'', spikes in bad times, raising firms’ capital costs. Using new bond-level data and high-frequency variation in bond supply and demand, I estimate a model of primary markets with imperfectly elastic investors, endogenous bond supply, and underwriter frictions that quantifies the drivers of issuance premiums. I find underwriters’ favoritism towards investors increases issuance premiums’ levels and cyclical variation. On the other hand, relatively elastic investors allow primary markets to absorb large bond issuances. My findings inform policies targeted at bond issuance markets.
with Olivier Darmouni and Kairong Xiao.
We develop a two-layer asset demand framework to analyze fragility in the corporate bond market. Households allocate wealth to institutions, which allocate funds to specific assets. The framework generates tractable joint dynamics of flows and asset values, featuring amplification and contagion, by combining a flow-performance relationship for fund flows with a logit model of institutional asset demand. The framework can be estimated using micro-data on bond prices, investor holdings, and fund flows, allowing for rich parameter heterogeneity across assets and institutions. We match the model to the March 2020 turmoil and quantify the equilibrium effects of unconventional monetary and liquidity policies on asset prices and institutions.
with Olivier Darmouni.
Appears in COVID Economics. Press coverage: WSJ, VoxEU.
How do asset purchases by central banks transmit to the real economy? Using micro-data on corporate balance sheets, we study firm behavior after the unprecedented policy support to corporate bond markets in 2020. As bond yields fell, firms issued bonds to accumulate large and persistent amounts of liquid assets. The effect on real investment was generally weak: many issuers already had access to bank liquidity and maintained equity payouts, while others used bond funds to pay back bank debt. This evidence sheds light on how corporate liquidity and financial heterogeneity matter for the macro-economy and the transmission of unconventional monetary policy.
with Jinyuan Zhang. Posted September 2025
How does monetary policy affect state-level fiscal policy? Using newly assembled data on proposed and enacted state budgets, we show that a 10 basis point contractionary monetary shock reduces state expenditure growth by approximately 3 percentage points. These effects are driven primarily by downward revisions in initial budget proposals, which, due to institutional constraints, determine 72% of the variation in actual expenditures within state. Consequently, actual spending responds most strongly to monetary shocks from up to 18-24 months earlier, generating a form of "long and variable lags" in fiscal adjustment. We find evidence of two mechanisms behind these cuts: downward revisions in revenue expectations and precautionary cutbacks due to tighter credit conditions and rising debt-service costs. These results underscore how institutional and financing constraints amplify and delay the transmission of monetary policy to state fiscal spending.
with Julia Selgrad. Updated September 2025.
How does monetary policy interact with corporate investment decisions? We hand-collect a firm-level panel of U.S. investment plans and link it to managers’ cash-flow expectations to uncover new facts about investment decisions. Firms' investment decisions are sticky: plans are highly persistent, and the initial plan explains most of the variation in realized investment. However, we observe firms updating their investment plans within one quarter of a contractionary monetary policy shock, with a stronger effect on long-horizon plans, reflecting a term structure of investment responsiveness. New and expansionary investment plans respond more than existing plans to monetary policy. These results provide novel evidence of rigidity in certain aspects of corporate decision-making beyond slow information acquisition and processing that help explain the ``long and variable'' lags in monetary policy transmission. This underscores the central role of corporate decision-making in policy pass-through to the real economy. Regarding transmission mechanisms, we document a financing-cost channel, where policy-driven increases in borrowing costs reduce planned investment, and a cash-flow-expectations channel, concentrated among smaller firms.
with Lira Mota. Updated July 2025.
Best Paper in Corporate Finance Award, SFS Cavalcade North America 2025
Using a newly comprehensive merge between firm-level data and corporate bond issuance and holdings, we demonstrate that firms face a trade-off between minimizing capital costs and diversifying their investor base when selecting bonds to issue. Investor specialization in certain bond types allows firms to effectively shape their bondholder composition through their issuance decisions. Firms with greater diversification in their bondholder composition exhibit increased resilience to credit market shocks. Our analysis reveals that firms time the market when issuing bonds. Market timing serves not only to minimize capital costs but also as a strategy for credit supply diversification. These findings highlight the crucial role of financially sophisticated firms in strategically supplying assets to a market increasingly dependent on non-bank intermediaries.
Data: Map bond issuers to Compustat parent company.
"Corporate Bond Issuance and Bank Lending in the United States" (with Olivier Darmouni), European Economy: Banks, Regulation, and the Real Sector - Banking and Covid, 2021. April 2021. Link.
"Reclassification at Facebook (2016-2017)." (with Wei Jiang), Columbia CaseWorks, Case ID: 180310, Spring 2018. Link.
"Fraunhofer: Innovation in Germany." (with Diego Comin and Gunnar Trumbull), Harvard Business School Case 711-022, March 2011. (Revised March 2012.)
"Fraunhofer: Five Significant Innovations." (with Diego Comin and Gunnar Trumbull), Harvard Business School Supplement 711-058, March 2011.