Working Papers
Working Papers
Invited by Journal of Financial Economics for Dual Submission (FRA Conference)
In countries with weak institutions, sellers face challenges in assuring buyers of product quality. Using hundreds of audio-recorded trade negotiations in Afghanistan, we document that sellers often invoke God to address this problem. Such verbal commitments are more prevalent when product quality is difficult to verify ex ante and when sellers lack a fixed location, limiting the role of reputation as a commitment device. We posit that these commitments operate as a signaling device, as making false claims under divine invocation is believed to entail cosmic costs. Findings from two field experiments corroborate this interpretation: goods sold under such invocations are of higher quality, and their use significantly increases sales. These effects are stronger when the mechanism is more salient, for example, when sellers exhibit outward signs of religiosity. Our findings indicate that verbal commitments can serve as credible signals, challenging the view that they are merely cheap talk.
Presented at: Tulane University
Despite the rise of household ESG preferences in product markets, evidence remains confined to low-stakes purchases. Exploiting unique institutional features of the Korean housing market, where apartment buildings display developer brands, we find that a scandal involving an executive's socially irresponsible behavior significantly reduces demand for units carrying the implicated firm's brand. We isolate the role of ESG preferences from alternative mechanisms, particularly the possibility that scandals may influence demand by altering beliefs about product quality, an identification challenge unaddressed in the literature. The findings suggest that ESG preferences extend to home-buying decisions, where material benefits are presumed to dominate.
Presented at (*scheduled): AEA*
In democracies, politicians are often required to disclose their asset holdings and wealth, allowing voters to detect and sanction corrupt practices. Using value assessments covering all land parcels in South Korea and leveraging discontinuities in close election outcomes, we find that properties owned by politicians are significantly underassessed. Further analyses suggest that, beyond lowering tax liabilities, an important motive for underassessment is to obscure private returns to public office. Politicians who report lower wealth accumulation while in office tend to perform better in subsequent elections. Our findings highlight a limitation of asset disclosures, a key component of anti-corruption policy worldwide.
Presented at (*scheduled): USC FOM Conference*; EFA
We study how financing frictions amplify and prolong the effect of economic shocks on export activity (e.g., export demand shocks) through a firm balance-sheet channel. In the presence of funding frictions, shocks to export performance can shape firms' ability to finance new export transactions. To analyze the importance of this effect, we estimate how exporters propagate temporary shocks across their export destinations over time. Using transaction-level data on firm exports, we show that temporary exchange rate shocks to some export destinations have strong positive spillovers on firms' subsequent level exports to other destinations. These effects are not driven by economic links across firms' export markets in different countries, captured using detailed product data, or export entry decisions. These spillovers are persistent and match the detailed predictions of the balance-sheet mechanism we propose. Our results suggest that this mechanism is significant for a broad range of firms and can help explain the volatility of export activity, which is significantly higher than the volatility of output.
Does the format of information influence how markets process it? In theory, transformations of existing information, such as discretization into ratings, should not alter beliefs. Yet under cognitive constraints, discretized information can distort perceptions even when it conveys no new information. Using a betting market, we develop a novel test that cleanly distinguishes these competing views by isolating the cognitive channel from coordination, regulatory, and outcome-driven explanations, a challenge unaddressed in prior research. We find that discretization induces misperception, particularly under low economic stakes or high reliance on heuristics. Our findings have implications for how regulators and intermediaries disclose information.
Runner-up for the Engelbert Dockner Memorial Prize for the Best Paper by Young Researchers, EFA 2024
Presented at: EFA; KUBS-KAIST Virtual Finance Seminar; MFA; Tulane University; Korea Development Institute; Nova SBE; Korea Institute of Finance; CUHK; AFA PhD Student Poster Session; AFBC; FMA Doctoral Student Consortium; Nova Finance PhD Countdown
In the presence of limited contract enforcement, borrowers might be unable to commit to repay their debt or avoid actions that hurt creditors' interest after borrowing, e.g., borrowers can have incentives to renegotiate their debt. This lack of commitment can reduce firms' ability to borrow in the first place. In this paper, I provide evidence of the theoretical insight that dispersed creditors can help address this commitment problem in debt markets. Intuitively, dispersed creditors face coordination problems that make defaults and renegotiations costly, improving debtors' incentives to repay and avoid such delinquency events. I study this idea by analyzing its implications for bankruptcy or reorganization law. Legal reforms that facilitate creditor coordination and renegotiation can reduce the ex-post costs of financial distress. However, by facilitating creditor coordination, these reforms can also limit borrowers' ability to commit and borrow using creditor dispersion. I label this effect as the commitment channel and study its importance using a unique reform in Korea, which only affects how creditors make collective decisions (creditor voting rules in private workouts). I isolate the commitment channel by contrasting firms based on their exposure to this channel. To guide this analysis, I present a theoretical framework predicting which firms should rely more on creditor dispersion for commitment and, thus, be more affected by the commitment channel. Using hand-collected data on firm-creditor relationships, I show that firms with high exposure to the commitment channel experience a significant decrease in their borrowing and rely less on creditor dispersion after the reform. Moreover, consistent with the view that these issues are less relevant when creditors are protected by asset liquidations, these effects are concentrated among firms lacking easy-to-liquidate assets. The analysis highlights the role of creditor dispersion as a commitment device even in a legal system with strong creditor protection, such as Korea. My findings also suggest how reforms designed to improve ex-post efficiency in financial distress, a main goal of reorganization law in many countries (e.g., Chapter 11 in the U.S.), can have negative ex-ante effects on the ability of many firms to raise debt financing.
Presented at: EasternFA; FMA
I study how anti-tunneling regulations shape internal markets within business groups. Because regulators often struggle to distinguish tunneling from legitimate transactions, business groups may preemptively avoid even value-enhancing intragroup transactions. Using hand-collected, pair-level data from Korean business groups and exploiting within-firm variation in transaction values, I provide evidence of this cautious behavior, particularly when suspicions of tunneling are difficult to dispel. These patterns intensify following a reform that increased regulatory costs. My findings suggest that while anti-tunneling regulations are essential for well-functioning financial markets, they may inadvertently undermine internal resource allocation, a key source of value creation within business groups.