Working Papers
Working Papers
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 prevailing view that they are merely cheap talk.
Despite the growing prominence of conscious consumption, empirical evidence remains largely confined to low-stakes purchases. This paper examines whether such behavior extends to high-stakes decisions in the housing market. We exploit a unique institutional feature in South Korea, where apartment complexes prominently display the brand of their corporate developers, and leverage a scandal involving the abusive behavior of a senior executive at a real estate firm. Using high-frequency, transaction-level data covering all apartment sales, we find that units carrying the brand of the implicated firm sold for approximately 1 percent less than comparable nearby units following the scandal. Our empirical design addresses alternative explanations, including scandal-induced updates to beliefs about the quality of apartments built by the implicated firm. These findings indicate that consumers may penalize firms for the social misconduct of their executives, even in markets for high-value durable goods, where economic fundamentals are presumed to dominate decision-making.
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 affect how markets process it? Rational models predict that transformations of existing information, such as discretization into ratings or stars, should not affect beliefs. In contrast, models incorporating cognitive constraints suggest that discretized information can distort perceptions even when it conveys no new information. We develop a novel empirical test that cleanly distinguishes between these views by exploiting a setting whose unique institutional features ensure that discretized information has no real effects. This setting allows us to isolate the cognitive channel from coordination, regulatory, or outcome-driven mechanisms, a challenge rarely overcome in conventional financial contexts. Our analysis provides robust evidence that information discretization induces investor misperception, particularly when economic stakes are low or reliance on heuristics is high. These results have important implications for how regulators and intermediaries present information to investors.
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.