Research

Selected Working Research papers

Discount Window Borrowing 2003-2019, with Jeffrey Gerlach (new version coming soon)

Monetary Policy and Corporate Investment: The Equity Financing Channel, with Murray Frank, Ping McLemore, and Ali Sanati

on the program of CEPR/Study Center Gerzensee European Summer Symposium in Financial Markets (ESSFM) (July 2024)

• We study the effects of monetary policy shocks on corporate investment and financing. Using the Federal Reserve FR Y-14Q data, we find a stark difference between the responses of public and private firms to these shocks. Following an unexpected rise in the policy interest rate, private firms decrease their debt, equity, and real assets. Public firms decrease their debt, but raise equity to offset the impact, resulting in no change in their real assets. Thus, the difference in the use of equity leads to diverging real responses to monetary policy shocks. We develop a structural model to explain the differences in the policy impacts. The model suggests that the combination of higher equity issuance costs at private firms and greater investment adjustment costs at public firms drives the differences in monetary policy responses.

Are Banks Really Informed? Evidence from Their Private Credit Assessments, with Cooper Howes and Gregory Weitzner

on the program of European Financial Association (August 2024)

• In classic theories of financial intermediation, banks mitigate information frictions by monitoring and producing information about borrowers. However, it is difficult to test these theories without being able to observe banks' private information. In this paper, we use supervisory data containing banks' private assessments of their loans' expected losses. We show that changes in expected losses predict firms' future stock returns, bond returns and earnings surprises. The predictability is concentrated among small firms and growth firms, and only occurs when banks become more pessimistic. Using within-firm variation in borrowing across banks, we identify sources of private information for banks and show that this information affects banks' credit allocation decisions. Our findings show that banks' information production and monitoring create an information advantage over financial markets, even among publicly traded firms.

Adverse Selection in Corporate Loan Markets, with Cesare Fracassi and Gregory Weitzner

Revise and Resubmit, Journal of Finance

• When reviewing bank mergers for antitrust, regulators typically argue that higher market concentration leads to higher prices. However, in loan markets, adverse selection can create a negative relationship between market concentration and prices. Using supervisory data, we show that interest rates and banks’ private risk assessments are higher in markets with more banks. We also create a measure of markup that is orthogonal to borrower risk and show that markups are higher in markets with more banks and after repeated borrowing relationships. We provide causal support for the adverse selection channel by using a shock to large banks’ lending capacities.

Selected Published Articles

1. "Pre-grant Patent Disclosure and Analyst Forecast Accuracy," Management Science 5 (2023): 3140:3155, with Pooyan Khashabi and Ali Mohammadi. (SSRN link)

2. "Third-Party Credit Guarantees and the Cost of Debt: Evidence from Corporate Loans," Review of Finance 26 (2022): 287–317, (sole authored). (SSRN link)

3. "International Lending: The Role of Lender's Home Country," Journal of Money, Credit, and Banking 53 (2021): 1373–1416, with Rui Dai, Anthony Saunders and John K. Wald. (SSRN link)

4.  "Components of Credit Rationing," Journal of Financial Stability 50 (2020): 100762, with Fathali Firoozi, Abol Jalilvand, and Laleh Samarbakhsh. (SSRN link)

5. "Institutional Investors and Loan Dynamics. Evidence from Loan Renegotiations," Journal of Corporate Finance 56 (2019): 482–505, with Ca Nguyen and John K. Wald. (SSRN link)

6. "Do Tighter Loan Covenants Signal Improved Future Corporate Results? The Case of Performance Pricing Covenants," Financial Management 46 (2017): 593–625, with Kamphol Panyagometh, Gordon S. Roberts and Aron A. Gottesman. (SSRN link)

7. "Why and How Do Banks Lay off Credit Risk? The Choice between Retention, Loan Sales and Credit Default Swaps,"  Journal of Corporate Finance 42 (2017): 335–355, with Nadia Massoud and Anthony Saunders. (SSRN link)

8. "Effects of Customer Financial Distress on Supplier Capital Structure," Journal of Corporate Finance 42 (2017): 131–149, with Palani-Rajan Kadapakkam and Mauro Oliveira.

9. "The Cross-Section of Expected Returns in the Secondary Corporate Loan Market," The Review of Asset Pricing Studies 7 (2016): 243–277, with Sina Ehsani. (SSRN link)

        -> Internet Appendix

        -> A short guide on how to calculate returns in the secondary loan market available here.

10. "Funding Advantage and Market Discipline in the Canadian Banking Sector," Journal of Banking & Finance 48 (2014): 396–410, with Chris D’Souza and Gordon S. Roberts. (SSRN link)

11. "Modern Portfolio Theory and Risk Management: Assumptions and Unintended Consequences (a survey of the literature)," Journal of Sustainable Finance & Investment 3 (2013), 17–37, with James P. Hawley. (SSRN link)