Working Papers

Social Media Censorship, Policy Targeting and Electoral Competition [SSRN] (solo authored)

Leverage, Engagement and Welfare in Decentralised Financial Markets [SSRN] (solo authored)

Can financial intermediaries help solve the externalities of the real-economy, even when all investors are purely return-driven? This paper develops a general equilibrium model in which firms underinvest in socially valuable transitions and investors allocate capital based solely on financial returns. In this environment, mandated activist funds that seek to influence firm behaviour are not sufficient on their own as other funds free-rides on influence outcome. However, this conclusion changes once households with limited market participation are introduced. When a subset of households saves exclusively through bank deposits, their savings provide low-cost funding that allows activist funds to access leverage through the banking system. This leverage increases the relative returns of activist funds, supports their survival in equilibrium, and enables welfare improvements. This results imply that limited stock market participation—often viewed as a friction—can play a constructive role in addressing real-economy externalities by supporting financial intermediation channels that would otherwise fail to operate.

Publications

Bigger pie, bigger slice: liquidity, value gain and underpricing in IPOs [SSRN], with Lily Y. Li and Hongda Zhong

Journal of Financial Markets, January 2025, Vol 72, 100949 

Since investor participation is essential for successful IPOs, we hypothesize that issuers share value gain from IPOs with IPO investors, resulting in IPO underpricing. We test the positive relation between value gain and underpricing from the liquidity angle, as improved liquidity via IPO increases firm value. We find supporting evidence that underpricing is positively related to the expected post-IPO liquidity of the issuer. Using two regulation changes as exogenous shocks to share liquidity before and after IPO, we further show that underpricing is more pronounced with better expected post IPO liquidity or lower pre-IPO liquidity. 

Work in Progress

Brown spinning, with Jianing Yuan and Hongda Zhong 

We model spinoffs of polluting subsidiaries as private value auctions. Greener preference among current shareholders results in more spinoffs. However, the winning buyer who has the highest valuation of the subsidiary tends to care least about the environment; and therefore, creates more pollution after acquiring the subsidiary. Despite the ex-post undesirable outcome, the possibility of spinoffs shifts the manager towards greener actions ex-ante. Such a “green shift” occurs even when the manager has stronger green preferences than shareholders. Finally, spinoffs only exist when agents’ green preferences are “narrow” — they suffer disutility only from self-generated pollution rather than economy-wide pollution.