Recent Publications:

1. Present-biased Government and Sovereign Debt Dynamics, with Yuan Li and Jinqiang Yang, 2021, Journal of Mathematical Economics.

Governmental present bias arises due to election, such preference impairs the sovereign's commitment to future debt policy.  If the country is moderately indebted, the desire for instantaneous gratification drives the government to issue debt. However, with excessive indebtedness, the top concern is to procrastinate costly default, and present bias serves as an implicit commitment device that induces the government to repurchase existing debt. 

2. Robust Contracting and Corporate-termism, 2022, Economics Letters.

Ambiguous transitory shocks generate pessimism concerning earnings in the short run, while ambiguous permanent shocks can lead to optimism about the long-run growth rate. Short-run pessimism mitigates agency costs, leading to short-termism. In contrast, long-run optimism exacerbates the cost of incentive provision and reduces the long-run investment below the first-best level.

3. Robust Leverage Dynamics without Commitment, with Shilin Li and Jinqiang Yang, 2022, Economic Theory.

Creditor ambiguity aversion allows a firm to take advantage of the debt tax shield in no-commitment equilibrium. In contrast, shareholder ambiguity aversion mitigates overborrowing incentives only when the default option is out-of-the-money. Interestingly, we show that the commitment against future debt dilution could be suboptimal because of inefficient ambiguity sharing.

Working papers:

1. Dynamic Agency, Corporate Liquidity, and Investment Horizon, with Tak-Yuen Wong, In progress. 

Optimal sharing of liquidity risk drives over-investment in the short term regardless of how capital and earnings shocks are correlated. Cash-rich firms have a relatively long investment horizon and compensate managers with equity-based instead of accounting-based incentives.