Research

Publications

"The strategic use of corporate philanthropy: Evidence from bank donations" (with Raphael Jonghyeon Park and Simon Xu), 2023, Review of Finance

"Bank partnership and liquidity crisis" (with Yong Kyu Gam, Junho Park, and Hojong Shin), 2020, Journal of Banking & Finance

"R&D investment decisions in business groups: Evidence from a natural experiment" (with Daewoung Choi, Yong Kyu Gam, and Hojong Shin), 2022, Corporate Governance: An International Review

Working Papers

"Every emission you create–every dollar you’ll donate: The effect of regulation-induced pollution on corporate philanthropy" (with Raphael Jonghyeon Park and Simon Xu)

We investigate the insurance-motives of polluting firms' charitable giving by analyzing donations from philanthropic foundations to local nonprofits. Employing the National Ambient Air Quality Standards as localized exogenous shocks to pollution in a regression discontinuity framework, we document that firms with greater local pollution donate more to local nonprofits. This effect is amplified for firms that derive more insurance value from donations. Our results are not driven by a substitution between pollution abatement and charitable activities. Overall, the evidence suggests that firms leverage their reputation in local communities through corporate philanthropy as a form of insurance.

"Environmental regulatory risks, firm pollution, and mutual funds' portfolio choices" (with Raphael Jonghyeon Park and Simon Xu)

This paper examines how mutual funds' portfolio holdings respond to environmental regulations. Using county-level ozone nonattainment designations induced by discrete policy changes in the National Ambient Air Quality Standards as a source of exogenous variation in local regulatory stringency, we find that funds underweight (overweight) those polluting stocks whose cash flows covary negatively (positively) with the regulatory shock. Our results are consistent with active portfolio rebalancing in response to expected changes in firm fundamentals due to negative cash flow shocks stemming from the costs of nonattainment regulation. Further analyses in the post-nonattainment period show that stocks with high exposure to nonattainment designations exhibit worse operating performance and increased regulatory compliance costs. The most underweighted of such firms also exhibit worse abnormal stock return performance. Funds that reduce their portfolio exposure to nonattainment designations see an improvement in their investment performance. 

"Environmental regulation, pollution, and shareholder wealth" (with Ross Levine, Raphael Jonghyeon Park and Simon Xu)

This paper investigates the stock market's reaction to changes in the interaction between local environmental regulations and a firm's polluting behavior. Our identification strategy uses county-level noncompliance designations induced by discrete policy changes in the National Ambient Air Quality Standards as a source of exogenous variation in local regulatory stringency. On average, the market responds positively to firms exposed to  noncompliance designations compared to non-exposed firms. In the cross-section, firms' value initially increases with noncompliance exposure but declines at higher levels. Examining the mechanisms reveals that this nonlinear variation arises from the offsetting effects of noncompliance exposure on incumbent firms, encompassing a tradeoff between the benefits of competitive advantages and the costs of regulatory compliance. Furthermore, short-term market reactions to noncompliance designations are consistent with their long-term effects on firms' accounting performance. Overall, the evidence suggests that the stock market internalizes the perceived benefits and costs of local environmental regulation.

"CEO compensation and adverse shocks: Evidence from changes in environmental regulations" (with Ross Levine, Raphael Jonghyeon Park, and Simon Xu) [NBER Working Paper No. w32663] 

This paper investigates how shocks to expected cash flows influence CEO incentive compensation. Exploiting changes in compliance with environmental regulations as shocks to expected future cash flows, we find that adverse shocks typically prompt corporate boards to recalibrate CEO compensation to reduce risk-taking incentives. However, this pattern is not uniform. Financially distressed firms exhibit milder reductions in compensation convexity, with some even increasing it, suggesting a "gambling for resurrection" strategy. Moreover, the strength of corporate governance influences shareholders' capacity to align executive incentives with shareholder risk preferences following unanticipated changes in the stringency of environmental regulations.

"Making news salient"

CEOs have incentives to communicate with their investors after news releases if the market misinterprets the news. I examine how CEOs communicate with the market through their trading pattern. I find that CEOs are more likely to purchase shares after positive and negative news release, suggesting that they want to confirm their positive news if the market underreacts to the positive news and want to mitigate the market overreaction to their negative news by purchasing shares. These patterns vary conditional on information environment and news categories. My results suggest that CEOs can enhance communication with their investors through their trading pattern.

"Does bank competition increase bank liquidity creation? A state-level perspective"

One purpose of regulations regarding bank competition is to encourage depressed local credit market. Does enhanced competition through bank deregulation revive local economy? Exploiting staggered bank deregulation events in the United States, I document that state-level bank deregulation does not, on average, significantly affect state-level bank liquidity creation, while bank-level analysis finds that enhanced bank competition decreases bank liquidity creation. In addition, I find that states and banks respond to the state-level deregulation events differently. My results suggest that the policy, that is applied to all heterogeneous banks and states in the same way, does not fit all.