Welcome to my research website. I am an assistant professor of finance at Pennsylvania State University. Below you will find brief descriptions of my published work, and current working papers. See my CV for more details.
Abstract: Homes exposed to sea level rise (SLR) sell for approximately 7% less than observably equivalent unexposed properties equidistant from the beach. This discount has grown over time and is driven by sophisticated buyers and communities worried about global warming. Consistent with causal identification of long horizon SLR costs, we find no relation between SLR exposure and rental rates and a 4% discount among properties not projected to be flooded for almost a century. Our findings contribute to the literature on the pricing of long-run risky cash flows and provide insights for optimal climate change policy.
Abstract: This paper investigates the extent to which index membership affects small firm financing. Using a regression discontinuity specification around the lower cutoff of the Russell 2000 small-cap index, we find that index membership causes small firms to transition away from bank financing in favor of seasoned equity offerings. These effects are concentrated in the year following Russell 2000 additions and do not reverse immediately upon deletions. Liquidity, the elasticity of demand for equity, and analyst coverage also significantly increase following Russell 2000 additions, but do not significantly decrease following deletions. Finally, firms added to the Russell 2000 obtain lower spreads and have fewer covenants on the bank loans that they do initiate. Our findings are consistent with index membership mitigating the financing frictions of small firms by improving their information environment through increased investor awareness.
Abstract: I provide evidence of a new mechanism by which access to public securities mitigates the bank hold-up problem and reduces loan spreads – it increases a borrower’s bargaining power vis-à-vis a lender by offering a bank loan substitute. Difference-in-differences results indicate that loan spreads are sensitive to legislation that makes public securities more attractive. Importantly, the effect is concentrated in credit-rated borrowers taking out term loans. Thus, the availability of public securities reduces loan spreads for established borrowers only when it offers a financing substitute and the hold-up problem is severe.
Conference Presentations: 2012 Financial Management Association, 2011 Australasian Finance and Banking Conference and PhD Forum.
The Consequences to Analyst Involvement in the IPO Process: Evidence Surrounding the JOBS Act, 2018 (with Michael Dambra, Laura Field, and Kevin Pisciotta). Journal of Accounting and Economics 65, p. 302-330.
Abstract: The JOBS Act allows certain analysts to be more involved in the IPO process, but does not relax restrictions on analyst compensation structure. We find that these analysts initiate coverage that is more optimistically biased, less accurate, and generates smaller stock market reactions. Investors purchasing shares following these initiations lose over 3% of their investment by the firm’s subsequent earnings release. By contrast, issuers, analysts, and investment banks appear to benefit from this increased bias, as optimism is more positively associated with proxies for firm visibility and investment banking revenues when analysts are involved in the IPO process.
Price Pressure and Overnight Seasoned Equity Offerings, 2018. Journal of Financial and Quantitative Analysis 53, p. 837-856.
Abstract: Between 2009 and 2014, 75% of seasoned equity offerings (SEOs) were announced and issued overnight, compared to 27% between 2000 and 2008. Overnight issuers obtain a higher SEO offer price because they experience more favorable pre-offer returns. Consistent with these favorable returns being due to the avoidance of pre-issue selling pressure, non-overnight issuers experience a 2.5% pre-issue stock price decline that reverses within seven days. This post-issue reversal is increasing in SEO offer size and bigger following large pre-issue price declines. In contrast, the returns following overnight offerings are less positive and unrelated to SEO offer size or pre-issue returns.
Abstract: We study the consequences of a U.S. deregulation allowing small firms to accelerate their public equity issuance. Post-deregulation, affected firms double their reliance on public equity and transition away from private investments in public equity compared to similar untreated firms. The net effect is a 5.7 percentage point or 49% increase in the annual probability of raising equity. This is accompanied by a reduction in equity issuance costs, an increase in investment, and a decrease in leverage. Our findings provide evidence that reducing equity issuance barriers benefits issuers even in highly developed markets.
Abstract: I provide evidence that defined contribution (DC) pensions make retirement more positively correlated with stock market returns as compared to defined benefits (DB) pensions. To identify the effect, I exploit the U.S. federal government’s switch in 1984 from a DB pension system (CSRS) to a hybrid-DC pension system (FERS). I estimate that FERS exposes approximately 24% more pension wealth to the financial markets. Compared to untreated employees, employees treated with the hybrid-DC pension respond to a one standard deviation shock to quarterly market returns by adjusting their retirement date by approximately one month, approximately offsetting changes in DC pension wealth with labor income.
Abstract: In April 2012, the JOBS Act was passed to help revitalize the IPO market, especially for small firms. During the year ending March 2014, IPO volume and proportion of small firm issuers was the largest since 2000. Controlling for market conditions, we estimate that the JOBS Act has led to 21 additional IPOs annually, a 25% increase over pre-JOBS levels. Firms with high proprietary disclosure costs, such as biotechnology and pharmaceutical firms, increase IPO activity most. These firms are also more likely to take advantage of the Act’s de-risking provisions, allowing firms to file the IPO confidentially while testing-the-waters.
Abstract: We provide evidence that existing studies relating financial condition to product market cooperation produce mixed results because of unique features of the industries examined. In particular, all evidence suggesting that poor financial condition decreases cooperation comes from the airline industry during periods of high idle capacity. Using a unique data set of aggregate airfare hikes and a more recent low-idle-capacity period, we find that poor financial condition is positively associated with product market cooperation. Although financially weak airlines appear to value the immediate cash flows of increased cooperation, only liquidity-constrained firms seem willing to incur the cost of cooperative attempts.
Weathering Cash Flow Shocks, 2017 (with Ivan Ivanov and James Brown). R&R at Journal of Finance.
Abstract: We show that unexpectedly severe winter weather, which is arguably exogenous to firm and bank fundamentals, represents a significant cash flow shock for the average bank-borrowing firm. Firms respond to such shocks by increasing credit line use, but do not significantly adjust cash reserves, non-cash working capital, or real activities. The increased credit line use occurs within one calendar quarter of the cash flow shock and is accompanied by an increase in credit line size, for all but the most distressed borrowers. These results highlight the role of banks in mitigating transitory cash flow shocks to firms.
Conference Presentations: 2016 Washington University Corporate Finance Conference, the 2017 SFS Cavalcade, the 2017 Northern Finance Association, and the 2018 American Finance Association meetings.
Bank Monitoring: Evidence from Syndicated Loans, 2018 (with Ivan Ivanov and Ralf Meisenzahl). R&R at The Journal of Financial Economics.
Abstract: Using two new measures of bank monitoring, we examine the determinants of syndicated loan monitoring. Lenders conduct active monitoring, such as borrower meetings or site visits, on 20% of loans and demand information at least on a monthly basis for 50% of loans. Both monitoring measures are positively related to the lead arranger's loan share and negatively related to loan maturity, borrower public status, and covenant use. Consistent with monitoring generating actionable information, active monitoring is positively related to future covenant violations and changes in loan characteristics, while lenders demand borrower information more frequently as borrower financial health deteriorates.
Conference Presentations: 2017 American Finance Association, 2017 Conference on Banks, Systemic Risk, Measurement and Mitigation, 2016 LBS EuroFIT Conference.
Do the Burdens to being Public Affect the the Investment and Innovation of Newly Public Firms, 2018 (with Michael Dambra). R&R at Management Science
Abstract: We examine how the regulatory burdens to being public affect the investment and innovation of newly public firms. To do so, we exploit the Jumpstart our Business Start-up (JOBS) Act, which eliminates certain disclosure, auditing, and governance requirements for a subset of newly public firms. Firms treated with these reduced burdens invest more and more efficiently after going public relative to untreated firms. These findings are concentrated in innovative investments, are accompanied by treated firms being less prone to cater to short-term earnings benchmarks, and are non-existent in dual class firms. We conclude that one reason the burdens to being public affect investment and innovation is because they divert resources away from long-run value increasing investments.
Executive's Tax-advantaged Trust Use and IPO Outcomes, 2018 (with Michael Dambra and Phillip Quinn). R&R at The Accounting Review.
Abstract: We examine CEOs’ use of tax-advantaged trusts prior to their firm’s IPO and its relation with IPO pricing and post-IPO returns. Twenty-three percent of CEOs use tax-advantaged pre-IPO trusts. Under reasonable assumptions, we estimate that pre-IPO trust use increases CEOs’ dynastic wealth by approximately $830,000 on average. However, these savings critically depend on the appreciation of trust assets, as we estimate that almost half of CEOs would be better off if they had not used a pre-IPO trust. Trust use positively predicts one-year post-IPO abnormal returns, but is not significantly related to post-IPO risk or the IPO’s valuation, filing price revision, or underpricing. This evidence is consistent with CEOs’ personal finance decisions prior to the IPO containing value relevant information that is not immediately incorporated into market prices.
Conference Presentations: 2017 UNC Tax Symposium, 2017 Conference on the Convergence of Financial and Managerial Accounting, 2017 European Finance Association Meetings, 2017 American Accounting Association Meetings, and the 2017 Annual Conference on Financial Economics and Accounting.
Minimum Wage and Corporate Policy, 2018 (with Jason Kotter).
Abstract: Using cross-state and intertemporal variation in whether a state’s minimum wage is bound by the federal minimum wage, we provide evidence that minimum wage increases lead firms in minimum wage sensitive industries (i.e., retail, restaurant, and entertainment) to scale down relative to a control group of non-labor-intensive firms. This scaling down effect manifests via less total investment, less capital and mergers and acquisitions expenditures, and more negative total asset and establishment growth. We find no evidence that minimum wage changes affect research and development and little evidence of any significant effects outside of the most minimum wage sensitive industries.
Conference Presentations: 2019 American Finance Association, 2017 London Business School Summer Symposium, and 2017 Financial Management Association.
Public Ownership and the Local Economy, 2019 (with Jess Cornaggia, Jason Kotter, and Kevin Pisciotta).
Abstract: We provide evidence that a firm’s transition from private to public ownership stunts local economic growth, especially in less populated and poorer areas. After accounting for endogeneity in the ownership decision, areas hosting companies that go public experience muted growth in employment, establishments, population, and wages, relative to areas where firms remain private. Establishment-level analyses and tests of IPO filer acquisition activity reveal that transitioning to public ownership causes firms to geographically diversify their establishments and employee base. These findings are consistent with public ownership reducing a firm’s reliance on local agglomeration economies, to the detriment of the local community.
Conference Presentations: 2018 Financial Research Association Meetings, 2019 Financial Intermediation Research Society (scheduled)
When Bankers go to Hail, 2018 (with Dan Bradley, and Jared Williams).
Abstract: We introduce taxi cab ridership between the New York Fed and the systemic institutions it supervises as a novel proxy for Fed activity. Fed-bank ridership is elevated on trading days, around FOMC meetings, and disclosed enforcement actions. High Fed-bank ridership is negatively related to cross-sectional stock returns over the following two weeks, especially during the 2009 crisis period, and aggregate Fed-bank ridership predicts lower two-week aggregate returns. We find no similar effects in samples of less-supervised primary dealers. Overall, our findings are most consistent with the Fed increasing activity when it possesses negative information about future bank or market performance.
Conference Presentations: 2018 Northern Finance Association Meetings
Buying Analyst and Investor Attention with IPO Proceeds, 2018 (with Michael Dambra and Kevin Pisciotta).
Abstract: We examine the extent to which enhanced analyst and investor attention are countervailing marginal benefits to raising IPO capital capable of offsetting the large marginal costs documented in existing literature. After using variation in IPO proceeds unrelated to firm size and beyond the control of managers and underwriters to address endogeneity issues, we find that marginal increases in IPO proceeds lead to more analyst coverage, institutional shareholders, and stock liquidity throughout the first two years a firm is public. A marginal increase in IPO proceeds also leads to more frequent follow-on equity offerings and longer survival as a public firm. Overall, our findings highlight post-IPO visibility as an important benefit to raising additional IPO capital.
Conference Presentations: 2018 American Accounting Associations Meetings
Firing Frictions and the U.S. Mergers and Acquisitions Market, 2018 (with Robert Chatt and Adam Welker).
Abstract: Following the adoption of state laws that increase firing costs, there is an immediate and persistent 30% reduction in both total mergers and acquisitions (M&A) dollar volume and average M&A size as well as an immediate increase in withdrawn deals. Firing costs do not affect M&A announcement returns, but there are negative returns surrounding the announcement of state laws that increase firing frictions, especially for future M&A targets. These findings suggest that post-merger employee turnover is a first-order source of value for large U.S. mergers and low firing costs are one reason the U.S. houses the world’s most active M&A market.
Conference Presentations: 2016 Financial Management Association, 2016 World Finance Conference