Working Papers:
with Sudipta Basu, Justin Vitanza, and Wei Wang
Presentations:
2021 AAA Annual Meeting
2021 EFMA Annual Meeting
2020 ASSA/AEA/Society of Government Economists Annual Meeting
2020 Hawaii Accounting Research Conference
Abstract: We show that banks with high environmental, social, and governance (ESG) ratings issue fewer mortgages in poor neighborhoods—in quantity and dollar amount—than banks with low ESG ratings. This lending disparity is observed at both the county and census tract level and worsens in disaster areas of severe hurricane strikes. Additional tests indicate no difference in mortgage default rates between high- and low-ESG banks, rejecting an alternative explanation based on differential credit screening quality. The evidence supports a social wash effect: banks deploy prosocial rhetoric and symbolic actions while not lending much in disadvantaged communities, the social function they ought to perform. The Community Reinvestment Act (CRA) examinations partially undoes the social wash effect.
with Armen Hovakimian
Presentations:
2019 FMA Asia PhD Consortium
Baruch College Seminar
Abstract: For firms with long-term debt, deleveraging is costly due to value transfers from shareholders to creditors. Thus, the process of firms deleveraging toward their leverage target is hindered by possessing excess amount of long-term debt. This paper, first, provides empirical evidence consistent with this hypothesis. We next show that callable debt allows firms to deleverage faster because callability limits value transfers from shareholders to debtholders, hence, reducing the deleveraging costs. Consistent the hypothesis that longer-term debt increases deleveraging risk while callability mitigates that risk, firms with longer-term debt tend to exhibit higher stock returns, but less so when the higher fraction of such debt is callable.
with Armen Hovakimian
Presentations:
Baruch College Seminar
Abstract: Corporate cash holding has important implications of corporate financing decisions. In this paper, we study the effects of corporate bonds on corporate cash holdings and cash-cash flow sensitivities. We predict that, just like investments in low risk projects and reductions in debt, increases in cash holdings reduce the risk of outstanding corporate debt and result in wealth transfers from shareholders to creditors. Such transfers can be particularly high for firms with substantial long-term debt but would be limited for firms with callable bonds. The empirical findings confirm our predictions. Our empirical results also indicate that such effects are predominant in speculative firms. The change in corporate bond level affects cash holdings of a firm. Callable bonds, in a opposite direction, facilitates cash restoration of companies.
Analyst Coverage, Corporate Social Responsibility, and Firm Value: Evidence from China
with Wanfang Xiong, Hongbing Ouyang, and Hui Hu.
Under review at Emerging Markets Finance and Trade.
Presentations:
2019 Conference on Financial Technology and Finance Development in China, Central University of of Finance and Economics, Beijing, China (Scheduled)
Abstract: This paper examines the impact of analyst coverage on corporate social responsibility (CSR) engagement. Using data on the Chinese firm-year CSR score and its components over the period of 2010–2017, we find that analyst coverage significantly enhances CSR engagement and its major components for those listed companies. This positive relationship is more profound for state-owned enterprises when compared with private enterprises. In addition, we conclude that negative media reporting demonstrates the positive effect of analyst coverage on firms’ CSR scores. Furthermore, we implement an instrumental variables specification that provides causal estimates of the impact of analyst coverage on CSR engagement. We also provide evidence that a CSR analyst is value-enhancing. Overall, our results indicate that companies followed by financial analysts exhibit more CSR engagement, which is consistent with the notion that financial analysts can serve as an external monitoring role.
Loan Risk Grades and Loan Loss Provisions
with Wei Wang
Abstract: Loan loss provisions are the most significant accounting estimates in a bank’s financial statement. The existing literature generally uses standardized observable metrics such as changes in nonperforming loans and net charge-offs to predict loan loss provisions. A limitation of this approach is that those credit metrics are too coarse, often imprecise, and lag the actual changes in the credit quality of a bank’s loan portfolio. A critical factor often omitted in the literature is banks’ segmentation of loans into different risk grades, i.e., special mention, substandard, doubtful, and loss. Per regulatory guidance, shifts between risk grades serve as an important indicator of changes in credit quality and shape loan loss provision decisions. In this paper, we show that incorporating loan classifications into standard loan loss provisions models significantly improves model fit, alleviates model misspecifications, and enhances test power for detecting earnings management in setting where it exists. Our model also changes inferences in the prior literature regarding earnings management through loan loss provisions.