Welcome! I am a Professor of Finance at the Carroll School of Management in Boston College. Before  joining BC, I served on the faculty of the University of Washington's Foster School of Business and the University of Michigan's Ross School of Business, which I joined after completing my doctorate at the University of Southern California. 

My primary research focus is on corporate finance, corporate governance, and political economy. My work studies a wide range of investment decisions, including internal capital allocation, acquisitions, and government bailouts. In my work, I investigate various mechanisms and frictions that shape investment policies (and, more broadly, corporate decision-making), ranging from political economy and financial regulation to agency conflicts and human behavior. 

My work has been published in the top finance journals, including the Journal of Finance, Journal of Financial Economics, and Review of Financial Studies.  Several of my papers received best paper awards from leading academic conferences and were selected by journal editors as lead articles. According to Google Scholar, my papers received more than 8,500 citations and were cited in top journals of other disciplines, including Accounting, Management, Strategy, and Business Law. My work has also attracted attention from many popular publications, including the Wall Street Journal, the New York Times, the Financial Times, and the Washington Post. I am also a Managing Editor at the Journal of Financial and Quantitative Analysis.

My teaching has been recognized by awards such as the Faculty PhD Mentor Award (2014, 2017), Dean’s Award for Excellence in Undergraduate Teaching (2018), Evening MBA Professor of the Year (2020),  Carroll School Teaching Stars (2021, 2022), and the Coughlin Distinguished Teaching Award (2023).

Curriculum Vitae 

Contact Information

E-mail: duchinr@bc.edu

Seidner Department of Finance

Carroll School of Management

Fulton Hall

Boston College

140 Commonwealth Avenue

Chestnut Hill, MA 02467-3809 

Main Publications and Forthcoming Articles

(Please Note: Links take you to the SSRN page for the paper)

Sustainability or Greenwashing: Evidence from the Asset Market for Industrial Pollution (with Janet Gao and Qiping Xu)

Journal of Finance, forthcoming

We study the asset market for pollutive plants. Firms divest pollutive plants in response to environmental pressures. The buyers are firms facing weaker environmental pressures, with supply chain relationships or joint ventures with the sellers. While pollution levels do not decline following divestitures, the sellers highlight their sustainable policies in subsequent conference calls, earn higher returns as they sell more pollutive plants, and benefit from higher ESG ratings and lower compliance costs. Overall, the asset market allows firms to redraw their boundaries in a manner perceived as environmentally friendly without real consequences for pollution and with substantial gains from trade. 

Dissecting Conglomerate Valuations  (with Oliver Boguth and Mikhail Simutin)

Journal of Finance, forthcoming

We develop a method to calculate valuation multiples of conglomerate divisions that does not rely on standalone firms. These valuations differ considerably from commonly used industry multiples, and range across industries from deep discounts to large premiums relative to standalone firms. Contrary to prior studies, conglomerate investment is highly sensitive to investment opportunities as measured by division multiples. Consistent with theory, non-core divisions and those in weak or capital-intensive industries have higher valuations, whereas divisions in innovative or competitive industries have lower valuations. Overall, we provide first estimates of intra-conglomerate multiples that shed new light on conglomerate investment and value. 

Do Nonfinancial Firms Use Financial Assets to Take Risk? (with Zhiyao Chen)

Review of Corporate Finance Studies, forthcoming 

Using hand-collected data on financial asset portfolios and exploiting the 2014 oil price crisis as an exogenous cash flow shock, we investigate financial risk-taking at distressed firms. We find that distressed firms, with high debt rollover risk proxied by short-term liabilities, substantially increase their investments in risky financial assets, including corporate debt, equity, and mortgage-backed securities. The effects are stronger for unhedged firms with low collateral assets. Overall, we provide new evidence that distressed firms take risk using financial assets camouflaged as cash reserves, which, compared to real assets, are less visible and carry lower transaction costs and accelerated payoffs.

Political Influence and the Renegotiation of Government Contracts (with Jonathan Brogaard and Matthew Denes)

Review of Financial Studies, forthcoming

This paper provides novel evidence that corporate political influence operates through renegotiations of existing government contracts. Using detailed data on contractual terms and renegotiations around sudden deaths and resignations of local politicians, the estimates show that politically connected firms initially bid low and successfully renegotiate contract amounts, deadlines, and incentives. The effects hold across different industries and contract types, enhance firm value, and persist around the exogenous increase in contract supply due to the American Recovery and Reinvestment Act of 2009. Overall, this paper puts forth an unexplored link between political influence, ex-post renegotiations and ex-ante bidding of government contracts. 

The Timing and Consequences of Seasoned Equity Offerings: A Regression Discontinuity Approach (with Amy Dittmar and Shuran Zhang)

Journal of Financial Economics, forthcoming

he likelihood of seasoned equity offerings (SEOs) jumps discontinuously when the stock price equals the most recent equity offer price. Anchoring on the last offer price holds after considering executive turnovers, stock splits, earnings management, or dividend adjustments. Using a fuzzy regression discontinuity design around this cutoff, which exploits local randomness in stock prices, we investigate the consequences of anchoring in SEOs. We find significant increases in cash holdings and acquisitions of lower quality, with no real effects on investment or employment. Overall, we provide some of the cleanest estimates, to date, of the timing and causal effects of SEOs. 

The Origins and Real Effects of the Gender Gap: Evidence from CEOs’ Formative Years (with Mikhail Simutin and Denis Sosyura)

Review of Financial Studies, forthcoming

Using individual census records, we provide novel evidence on CEOs’ socioeconomic backgrounds and study their role in investment decisions. Male CEOs allocate more investment capital to male than female division managers. This gender gap is driven by CEOs who grew up in male-dominated families where the father was the only income earner and had more education than the mother. The gender gap also increases for CEOs who attended all-male high schools and grew up in neighborhoods with greater gender inequality. The effect of gender on capital budgeting introduces frictions and erodes investment efficiency.  

The Role of Government in Firm Outcomes (with Zhenyu Gao and Haibing Shu)

Review of Financial Studies, forthcoming

Using a unique setting in China, where the geographic distance between Collective firms and local governments is highly persistent due to legal restrictions on land ownership and mobility, we investigate the role of government involvement in small firms. In the analysis of survey responses, we find that weaker government involvement, measured by greater distance from government, is associated with higher firm autonomy and reduced taxes, protectionism, and anti-competitive behavior. In the analysis of firm-level financial data, we find that distant firms have better operating performance and higher growth and entry rates. We find similar results around exogenous government office relocations.  

Spillovers inside Conglomerates: Incentives and Capital (with Amir Goldberg and Denis Sosyura)

Review of Financial Studies 30(5), 1696-1743 (2017)

Using hand-collected data on divisional managers at S&P 1500 firms, we study how changes in one divisional manager’s compensation affect the compensation of other divisional managers inside the same conglomerate.  An increase in a manager’s pay driven by an industry shock generates large positive intra-firm spillovers on the pay of other divisional managers. These spillovers operate only within firm boundaries and are non-existent for the same industry pairs in standalone firms. The intra-firm spillovers are stronger when managers share social networks, suggesting that informal interactions facilitate peer effects.  The intra-firm convergence in executive pay is associated with weaker governance and lower firm value. Overall, we provide evidence on corporate socialism in executive pay. 

Precautionary Savings with Risky Assets: When Cash Is Not Cash (with Thomas Gilbert, Jarrad Harford, and Chris Hrdlicka)

 Journal of Finance 72(2), 793-852 (2017)

We study the investment securities that make up corporate cash holdings. Exploiting the 2009 accounting standard SFAS No. 157, which requires firms to report the composition and fair value of their financial instruments, we hand-collect detailed data on firms’ investment securities and assess their risk. Our estimates show that, on average, the value of risky securities is 27% of that of corporate cash holdings and 6% of total book assets. Contrary to the precautionary savings motive, risky security investments are concentrated in firms traditionally thought to have a high demand for precautionary savings that operate in the Technology and Health industries and have volatile cash flow and high Tobin’s Q. Our evidence is consistent with a speculative motive for holding cash, which is particularly strong in firms with “excess” or “trapped” cash reserves that pay managers with stock options. We also find that risky security investments imply greater systematic risk (beta) but lower risk-adjusted performance. The lack of positive alphas provides no evidence of managers creating value by speculating. 

Clouded Judgment: The Role of Sentiment in Credit Origination (with Kristle Cortés and Denis Sosyura)

Journal of Financial Economics 121(2), 392-413 (2016)

Using daily fluctuations in local sunshine as an instrument for sentiment, we study its effect on day-to-day decisions of lower-level financial officers. Positive sentiment is associated with higher credit approvals, and negative sentiment has the opposite effect of a larger magnitude. These effects are stronger when financial decisions require more discretion, when reviews are less automated, and when capital constraints are less binding. The variation in approval rates affects ex-post financial performance and produces significant real effects. Our analysis of the economic channels suggests that sentiment influences managers' risk tolerance and subjective judgment.

Looking in the Rear View Window: The Effect of Managers’ Professional Experience on Corporate Financial Policy (with Amy Dittmar)

Review of Financial Studies 29(3), 565-602 (2016)

We track the employment history of over 9,000 managers to study the effects of professional experiences on corporate policies. Our identification strategy exploits exogenous CEO turnovers and employment in other firms. Firms run by CEOs who experienced distress have less debt, save more cash, and invest less than other firms, with stronger effects in poorly governed firms. Past experience has a stronger influence when it is more recent, occurs during salient periods of a managers’ career, or is associated with a negative rather than a positive outcome. We find similar effects on debt and cash, but not investment, for CFOs. The results suggest that policies vary with managers’ experiences and throughout their careers.

Peer Effects in Risk Aversion and Trust (with Kenneth Ahern and Tyler Shumway)

Review of Financial Studies 27(11), 3213-3240 (2014)

Existing evidence shows that risk aversion and trust are largely determined by environmental factors. We test whether one such factor is peer influence. Using random assignment of MBA students to peer groups and predetermined survey responses of economic attitudes, we find causal evidence of positive peer effects in risk aversion and no effects in trust. After the first year of the MBA program, the difference between an individual and her peers’ average risk aversion is only 41% as large as the difference was before starting the MBA. Finding no peer effects in trust is consistent with recent research showing that distinct cognitive processes govern risk aversion and trust.

Safer Ratios, Riskier Portfolios: Banks’ Response to Government Aid (with Denis Sosyura)

Journal of Financial Economics 113, 1-28 (2014)

We study the effect of government assistance on bank risk taking. Using hand-collected data on bank applications for government assistance under the Troubled Asset Relief Program (TARP), we investigate the effect of both application approvals and denials. To distinguish banks’ risk taking behavior from changes in economic conditions, we control for the volume and quality of credit demand based on micro-level data on home mortgages and corporate loans. Our difference-in-difference analysis indicates that banks make riskier loans and shift investment portfolios toward riskier securities after being approved for government assistance. However, this shift in risk occurs mostly within the same asset class and, therefore, remains undetected by the closely-monitored capitalization levels, which indicate an improved capital position at approved banks. Consequently, these banks appear safer according to regulatory ratios, but show a significant increase in volatility and default risk.

Cash Flow Hedging and Liquidity Choices (with David Disatnik and Breno Schmidt)

Review of Finance 18(2), 715-748(2014)

This paper studies the interaction between corporate hedging and liquidity policies. We present a theoretical model that shows how corporate hedging facilitates greater reliance on cost-effective, externally-provided liquidity in lieu of internal resources. We test the model's predictions by employing a new empirical approach that separates cash flow hedging from other hedging instruments. Using detailed, hand-collected data, we find that cash flow hedging reduces the firm’s precautionary demand for cash and allows it to rely more on bank lines of credit. Furthermore, we find a significant positive effect of cash flow hedging on firm value, where prior evidence is mixed.

Divisional Managers and Internal Capital Markets (with Denis Sosyura)

Journal of Finance 68, 387-429 (2013)

Using hand-collected data on divisional managers at the S&P 500 firms, we provide one of the first studies of their role in capital budgeting. Divisional managers with social connections to the CEO receive more capital. Connections to the CEO outweigh measures of managers’ formal influence, such as seniority and board membership, and affect both managerial appointments and capital allocations. The effect of connections on investment efficiency depends on the tradeoff between agency and information asymmetry. Under weak governance, connections reduce investment efficiency and firm value via favoritism. Under high information asymmetry, connections increase efficiency and value via information transfer.

Riding the Merger Wave: Uncertainty, Reduced Monitoring, and Bad Acquisitions (with Breno Schmidt)

Journal of Financial Economics 107, 69-88 (2013)

We show that acquisitions initiated during periods of high merger activity (‘‘merger waves’’) are accompanied by poorer quality of analysts’ forecasts, greater uncertainty, and weaker CEO turnover-performance sensitivity. These conditions imply reduced monitoring and lower penalties for initiating inefficient mergers. Therefore, merger waves may foster agency-driven behavior, which, along with managerial herding, could lead to worse mergers. Consistent with this hypothesis, we find that the average long-term performance of acquisitions initiated during merger waves is significantly worse. We also find that corporate governance of in-wave acquirers is weaker, suggesting that agency problems may be present in merger wave acquisitions. 

The Politics of Government Investment (with Denis Sosyura)

Journal of Financial Economics 106, 24-48 (2012)

This paper investigates the relation between corporate political connections and government investment. We study various forms of political influence, ranging from passive connections between firms and politicians, such as those based on politicians’ voting districts, to active forms, such as lobbying, campaign contributions, and employment of connected directors. Using hand-collected data on firm applications for TARP funds, we find that politically connected firms are more likely to be funded, controlling for other characteristics. Yet investments in politically connected firms underperform those in unconnected firms. Overall, we show that connections between firms and regulators are associated with distortions in investment efficiency.

Cash Holdings and Corporate Diversification

Journal of Finance 65, 955-992 (2010)

This paper studies the relation between corporate liquidity and diversification. A key finding is that multi-division firms hold significantly less cash than standalone firms because they are diversified in their investment opportunities. Lower cross-divisional correlations in investment opportunity and smaller gaps between investment opportunity and cash flow correspond to lower cash holdings, even after controlling for cash-flow volatility. The effects are strongest in financially constrained firms and in well-governed firms, and correspond to efficient fund transfers from low- to high-productivity divisions. Taken together, these results bring forth an efficient link between diversification in investment opportunity and corporate liquidity.

When Are Outside Directors Effective? (with John G. Matsusaka and Oguzhan Ozbas)

Journal of Financial Economics 96, 195-214 (2010)

This paper uses recent regulations that have required some companies to increase the number of outside directors on their boards to generate estimates of the effect of board independence on performance that are largely free from endogeneity problems. Our main finding is that the effectiveness of outside directors depends on the cost of acquiring information about the firm: when the cost of acquiring information is low, performance increases when outsiders are added to the board, and when the cost of information is high, performance worsens when outsiders are added to the board. The estimates provide some of the cleanest estimates to date that board independence matters, and the finding that board effectiveness depends on information cost supports a nascent theoretical literature emphasizing information asymmetry. We also find that firms compose their boards as if they understand that outsider effectiveness varies with information costs.

Costly External Finance, Corporate Investment, and the Subprime Mortgage Credit Crisis (with Oguzhan Ozbas and Berk Sensoy)

Journal of Financial Economics 97, 418-435 (2010)

We study the effect of the financial crisis that began in August 2007 on corporate investment. The crisis represents an unexplored negative shock to the supply of external finance for non-financial firms. We find that corporate investment declines significantly following the onset of the crisis, controlling for firm fixed effects and time-varying measures of investment opportunities. Consistent with a causal effect of a supply shock, the decline is greatest for firms that have low cash reserves or high net short-term debt, are financially constrained, or operate in industries dependent on external finance. To address concerns about the endogeneity of firms’ finances to changes in investment opportunities, we measure these financial positions as much as four years prior to the crisis and confirm that we do not find similar results following placebo crises in the summers of 2003-2006. We also do not find similar results following the negative demand shock caused by the events of September 11. These effects weaken considerably beginning in the third quarter of 2008, when the demand-side effects of the crisis became apparent, suggesting that supply constraints may no longer have been binding. Additional analysis suggests an important precautionary savings motive for seemingly excess cash that has not been emphasized in the literature.

Disagreement, Portfolio Optimization and Excess Volatility (with Moshe Levy)

Journal of Financial and Quantitative Analysis 45, 623-640 (2010)

A central task facing investors who believe in market efficiency is that of portfolio optimization. As it is far from obvious how to best estimate the ex-ante expected returns and covariances, it is quite plausible that investors would hold different beliefs regarding these parameters, and that the degree of disagreement about the parameters may change over time. Levy, Levy and Benita (2006) have shown that in the portfolio context disagreement regarding the expected returns does not affect asset prices. In this paper we study the pricing effects of disagreement regarding return variances. We show that disagreement about variances has systematic and significant pricing effects. Even if the average belief about the variance is constant, tiny fluctuations in the disagreement about the variance lead to substantial price fluctuations. This result may offer an explanation for the excess volatility puzzle: small changes in the degree of disagreement are very likely to occur, and they induce relatively large price changes. Yet, the changes in disagreement may be hard to directly detect empirically, leading to apparent “excess volatility”. 

Covid-19 Research

(Please Note: Links take you to the SSRN page for the paper)

Buying the Vote? The Economics of Electoral Politics and Small Business Loans (with John Hackney)

Journal of Financial and Quantitative Analysis 56, 2439-2473 (2021)

We study the role of electoral politics in government small business lending, employment, and business formation. We construct novel measures of electoral importance capturing swing and base voters using data from Facebook ad spending, independent political expenditures, the Cook Political Report, and campaign contributions. We find that businesses in electorally important states, districts, and sectors receive more loans following the onset of the Covid-19 crisis, controlling for funding demand and both health and economic conditions. Estimates from survey and observational data show that government funding weakens the adverse effects of the crisis on employment, small business activity, and business applications. 

The COVID-19 Crisis and the Allocation of Capital (with Jarrad Harford)

Journal of Financial and Quantitative Analysis 56, 2309-2319 (2021)

We summarize and synthesize the results of the articles in this symposium issue on research in financial economics related to the COVID-19 pandemic. We argue that the articles, taken together, present evidence that the pandemic resulted in a distributional shock to capital allocation. The underlying mechanisms include accelerating technological shifts, government stimulus programs, and heterogeneous responses of investors and firms. We augment these articles with evidence on the heterogeneous effects of the pandemic on profitability, payout, investment, employment, and productivity across sectors.

Concierge Treatment from Banks: Evidence from the Payment Protection Program (with Xiumin Martin, Roni Michaely, and Ivy Wang)

Journal of Corporate Finance, forthcoming

We use the Paycheck Protection Program (PPP) as a laboratory to separate between favoritism and informational advantages in lending relationships. The PPP mutes information frictions because loans are fully guaranteed by the government and banks need not screen borrowers. We find that firms with prior lending relationships or personal connections to bank executives are more likely to obtain PPP loans. These effects lead to allocative distortions that force connected firms to return their loans. We also find that the role of connections weakens when monitoring is tighter. Overall, we offer clean estimates of the important role of favoritism in bank lending with implications for government program design.  

Selected Working Papers

(Please Note: Links take you to the SSRN page for the paper)

Remotely Productive: The Efficacy of Remote Work for Executives (with Denis Sosyura)

We study the efficacy of remote working arrangements between CEOs and firms. Long-distance CEOs underperform according to operating performance, firm valuation, insider reviews, and announcement returns to CEO departures. These effects are stronger when the CEO lives further away and crosses multiple time zones. Using the private costs from uprooting the CEO’s spouse as an instrument for the CEO’s decision to work remotely, we verify the robustness of performance outcomes. The underperformance of long-distance CEOs is related to short-termism, loss of information, and consumption of leisure, such as recreational boats and beach homes.   

How Big is Small? The Economic Effects of Access to Small Business Subsidies (with J. David Brown, Matt Denes and John Hackney)

Industry size standards that determine eligibility for small business subsidies have vastly increased over the past decade. We exploit quasi-random variation in the implementation of size standard increases to study the effects on small firms, subsidy allocation, and industry outcomes using Census Bureau microdata. Following size standard increases, revenues decline for an industry’s smallest firms, and they are less likely to survive. We link these effects to a reallocation of government procurement contracts from smaller to larger firms. Consequently, industries become more concentrated and growth declines. These findings highlight the broad economic effects of changing eligibility for small business subsidies.

The Cryptocurrency Elephant in the Room (with David Solomon, Jun Tu, and Xi Wang)

We show that ongoing zero portfolio weights in cryptocurrency are surprisingly difficult to generate in a standard Bayesian portfolio theory framework. With ten years of prior data, equity market investors would need very pessimistic priors on mean returns to justify never having bought cryptocurrency: -10.6% per month for Bitcoin, and -19.6% per month for a diversified portfolio of cryptocurrencies. Moreover, most priors that involve never purchasing cryptocurrency imply that investors should short cryptocurrency. Optimal absolute weights are generally small but non-trivial (1-5%), frequently positive, and fairly smooth despite returns being volatile. Under a wide range of priors, the certainty equivalent gains from cryptocurrency are comparable to international diversification and exceed the size anomaly. Costs (ambiguity aversion, storage, fees) would need to be enormous to justify never trading, over 21% per year for Bitcoin and 39% for a diversified cryptocurrency portfolio. 

The Economic Effects of Political Polarization: Evidence from the Real Asset Market (with Abed El Karim Farroukh, Jarrad Harford, and Tarun Patel)

This paper provides novel evidence that similarity in employees’ political attitudes plays a role in mergers and acquisitions. Using detailed data on individual campaign contributions to Democrats and Republicans, our estimates show that firms are considerably more likely to announce a merger, complete a merger, and a have shorter time-to-completion when their political attitudes are closer. Furthermore, acquisition announcement returns and post-merger operating performance are significantly higher when the acquirer and the target have more similar political attitudes. The effects of political partisanship on mergers are stronger in more recent years, when the political polarization in the U.S. is greater. Overall, we provide estimates that political attitudes and polarization have real effects on the allocation of assets in the economy. 

Untying the Knot: Disentangling Cash Flow and Voting Rights for Better Price Informativeness (with Aaron Burt and Chris Hrdlicka)

We study the implications of equity’s combined cash flow and voting rights for price informativeness and corporate policies. Using hand-collected data on dual-class shares, we show that separating cash flow and voting rights improves the informativeness of share prices about future cash flows and mitigates arbitrage frictions. The effects are stronger for dual-class shares with no voting rights and when voting rights are more important, as measured by the occurrence of close votes. Consistent with the role of voting rights in short-selling constraints, dual-class shares respond less to negative earnings surprises, have larger average short positions, and do not exhibit a shorting premium anomaly. Overall, we put forth a new proposition, unexplored in the literature, that highlights price informativeness as a potential benefit of separating equity cash flow and voting rights.

 Interlocked Monitors: How Do Independent Directors Evaluate CEOs? (with Jason Chen and Eli Fich)

This paper studies the role of director-specific measures of firm performance in CEO turnovers. A firm’s weak performance-ranking relative to a director’s interlocked firms predicts greater attendance of board meetings and a higher likelihood of forced CEO turnovers. These findings hold in tests that control for standard firm performance measures, in tight specifications that include firm-by-CEO, firm-by-year, or director-by-year fixed effects, and in an instrumental-variable based framework that exploits common exposure to local economic shocks. We also provide consistent evidence from falsification tests that reshuffle interlocks. In the cross-section, the effects are stronger for more influential directors and in firms with higher performance uncertainty. Interlock-driven turnovers are followed by weaker performance and analyst downgrades – consistent with an availability bias. Overall, we provide some of the cleanest estimates, to date, that directors influence CEO turnovers by following individual performance heuristics, with consequences for the efficacy of CEO turnovers and firm performance. 

The Role of Sentiment in One-Click FinTech Borrowing (with Paul Freed and  John Hackney)

Fintech lending allows borrowers to apply for loans anytime and from anywhere, complete their applications within minutes, and obtain immediate credit decisions. As such, transient mood swings that would be mitigated in a traditional loan setting can play an important role in modern household credit demand. Using hourly fluctuations in local sunshine as an instrument for sentiment, we find that positive sentiment leads to higher loan demand both at the extensive margin (more loan applications) and the intensive margin (higher loan amounts and loan-to-income ratios). The effects lead to higher default rates, especially for lower-income and inexperienced borrowers. We also find evidence consistent with self-corrective actions where individuals later withdraw their applications, suggesting that “cooling-off” periods can be an effective consumer protection mechanism. Overall, we provide some of the cleanest estimates to date that sentiment affects the demand for consumer credit. 

Merger Waves and Innovation Cycles: Evidence from Patent Expirations (with Matt Denes and Jarrad Harford)

We investigate the link between innovation cycles and aggregate merger activity using data on patent expirations. To isolate the treatment effect of patent expirations, we focus on term expirations, which occur mandatorily at a pre-specified date. We find strong clustering in industry patent expirations (“patent expiration waves”). These patent waves trigger industry merger waves with lower announcement returns and worse long-term performance for acquirers, but higher announcement returns and larger premiums for targets. We also find that the acquirers in this type of merger waves experience declines in their profit margins, cash holdings and investment opportunities, while cutting costs and boosting investment cut costs in the year prior to a merger. Overall, we put forth a possible link, unexplored in the literature, between merger waves and patenting activity. 

The Politics of Corporate Investment: Evidence from Political Turnovers and IPO Proceeds (with Matt Denes, Hongbo Pan and Wei Shi)

Using project-level data on changes in firms’ investments of IPO proceeds around deaths, term limits, and mandatory retirements of local politicians, this paper studies corporate investment as a novel channel of political activity. Following exogenous turnovers of local Chinese politicians, firms initiate new projects and modify existing projects to cater to incoming politicians. Subsequently, they obtain better access to bank credit, higher government subsidies, lower effective tax rates, and better performance. Furthermore, their top managers are more likely to be elected to political office. These effects, however, are followed by increases in local fiscal deficits. 

Between Boardrooms and the Beltway: The Career Paths of Senior Regulators (with Yudong Wang)

We compile a comprehensive database of senior federal regulators and trace their full career paths since college graduation across the private and public sectors. We find that revolving-door moves across the private and public sectors are ubiquitous, persistent, correlated with economic and election cycles, and typically occur several times over the course of one’s career. Revolving-door regulators exhibit more regulatory (but not deregulatory) activity, stricter enforcement, and higher regulation complexity. Further, they work for stronger firms, come from relatively poorer backgrounds, and accumulate more wealth throughout their careers. Overall, we quantify regulators’ incentives to build financial, bureaucratic, and human capital.

The Dynamics of Cash (with Amy Dittmar)

Little is known about how firms manage cash policy over time. This paper fills this gap by examining if and how firms manage cash toward a target cash ratio. Estimating partial adjustment models of cash, we find that firms actively adjust their cash toward a target; however, the speed of adjustment is slow and there is large dispersion in the speed of adjustment across firms. We investigate the causes for this and find evidence consistent with the presence of adjustment costs. We also examine the implications of these results for previous interpretations of cross-sectional results. To do this, we simulate firms’ cash paths allowing for costly adjustment and find that the emerging patterns question the interpretation of some of the standard results in the empirical cash literature.

Portfolio Optimization and the Distribution of Firm Size (with Moshe Levy)

In the context of portfolio optimization, a firm’s market capitalization reflects the optimal portfolio weight of the firm, and is determined by the return parameters. The empirical distribution of firms’ market capitalizations is in excellent agreement with the lognormal distribution. This distribution is very skewed: the largest firms are about 1000 times larger than the median firm. The empirical distribution of average returns is not nearly as skewed: the maximal average return is only about 6 times larger than the median average return. Can the empirical firm size distribution be consistent with mean-variance portfolio optimization with realistic return parameters? We show that the expected returns implied by the empirical firm size distribution and portfolio optimization are actually in very good agreement with the empirical average returns. Moreover, the portfolio optimization framework can provide a constructive explanation for the exact lognormal functional form empirically observed. Thus, portfolio optimization is not only consistent with the empirical lognormal size distribution, it can actually explain it.