Publications
1. Loan Spreads and Credit Cycles: The Role of Lenders' Personal Economic Experiences (with Daniel Carvalho and Janet Gao)
Journal of Financial Economics, 148(2), 118-149, 2023
Presentations: AFA 2021, EFA 2020, MFA 2020, FIRS 2020 (Canceled), Eastern Finance Association 2020 (Canceled), Indiana University, Michigan State University, University of Rochester, City University of Hong Kong.
Abstract: We provide evidence that changes in lender optimism can lead to excessive fluctuations in credit spreads across the credit cycle. Using data on the real estate properties of loan officers originating large corporate loans, we find that credit spreads overreact to sophisticated lenders' recent local economic experiences, captured by local housing price growth. These effects are only present when borrowers own real estate assets and during times of greater uncertainty about real estate values, i.e., boom-and-bust cycles in housing prices. Our analysis suggests that recent personal experiences shape sophisticated lenders’ beliefs about real estate values, which affect their pricing decisions.
2. Partisanship in Loan Pricing (with Ramona Dagostino and Janet Gao)
Journal of Financial Economics, Forthcoming
Media coverage: The Economist, The FinReg Blog, National Affairs
Presentations: AFA 2022, EFA 2022, FIRS 2021, CICF 2021, FMA 2021, SFA 2021, Eastern Finance Association 2021
Abstract: We document a strong effect of lender partisanship on corporate loan pricing. Using novel data on the voter registration records of bankers in charge of originating large-scale corporate loans, we find that bankers who are registered with a different party from the one represented by the president of the United States ("misaligned bankers") charge 7% higher loan spreads compared to bankers affiliated with the same party as the president. This effect is not explained by bankers’ innate characteristics, borrower fundamentals, or bank-level policies, but is consistent with misaligned bankers having a more pessimistic economic outlook. Despite charging higher interest rates, misaligned bankers do not seem to generate higher revenue than aligned bankers.
3. Information Production by Institutions and Information Extraction by Underwriters in Hybrid IPO Auctions (with Thomas Chemmanur, Chaopeng Wu, and Qianqian Yu)
Review of Corporate Finance, Forthcoming
Presentations: BOCA 2021, WFA 2018, FMA 2018 (Top 10 Session)
Abstract: We analyze the informational properties of hybrid IPO auctions using a large and unique database of institutional bids from Chinese IPO auctions. We find strong evidence of information production by institutions about the intrinsic values of IPO firms and of underwriters extracting and using this information in IPO pricing. The IPO offer price is more sensitive to bids from institutions able to produce more precise information. Institutional bidding information also has predictive power for IPO initial returns and long-run post-IPO stock returns. Overall, “dirty” uniform price hybrid IPO auctions appear to be an effective alternative to the traditional book-building mechanism.
Working Papers
4. Labor Capacity Constraints in Mortgage Lending: Evidence from Loan Officers
Presentations: CICF 2023 (scheduled), FMA Doctoral Consortium 2022, FMA Special PhD Paper Presentations 2022, Social Sciences and Health Services Summer Research Kickoff Day 2022, Indiana University
Abstract: An important concern shared by academics, policymakers, and practitioners is that mortgage lenders face significant capacity constraints, which limit their ability to respond to mortgage demand shocks, especially during mortgage booms. This paper studies the role of labor capacity as a source of operating constraints for mortgage lenders and analyzes its effect on the availability and allocation of credit across different borrowers. Using a unique dataset with information on the identities of loan officers and the mortgages they originate, I develop a new empirical approach to isolate the importance of the capacity constraints faced by these officers. My approach analyzes the effects of idiosyncratic shocks to the demand faced by individual loan officers. I find that officers significantly reduce their lending in a given area when experiencing exogenous shocks to their capacity constraints. This effect is concentrated among homebuyers and riskier borrowers with economically significant magnitudes. These effects are not present for FinTech lenders. Importantly, I also provide evidence that labor capacity constraints negatively impact borrowers’ access to credit, especially for borrowers from low credit score markets, creating inequality in the credit market.