"The Trade-off Theory of Corporate Capital Structure" with Hengjie Ai and Murray Frank, 2020, Oxford Research Encyclopedia of Economics and Finance.
Presented at: 2020 MFA (scheduled), 2020 FIRS (scheduled), 2020 SFS Cavalcade, 2019 CEPR/Study Center Gerzensee, American University, University of Minnesota.
Abstract: Considerable research focuses on the aggregate impact of debt financing. We show that equity is empirically more important for firm growth than generally understood. An extra dollar of equity issuance is associated with an extra $0.93 of real assets, whereas an extra dollar of debt issuance is associated with an extra $0.14 of real assets. Firms issue equity first, then increase real assets, and finally issue debt while repurchasing equity. We explain this sequence using a model in which debt is tax preferred relative to equity but is subject to limited commitment. In the model, firms initially issue equity to finance investments. After they obtain assets that can be pledged to lenders, firms substitute debt for equity to benefit from interest tax deductions. We estimate the model and use it to evaluate the effect of several government policies on corporate growth through their impact on the sources of financing.
"Listing Gaps, Merger Waves, and the Privatization of American of Equity Finance," with Gabriele Lattanzio and William Megginson. [Online Appendix]
Presented at: 2019 EFA, 2019 CICF, 2019 Cass M&A Conference (City University of London), 2019 DC Juniors conference, 2019 INFINITI (University of Glasgow), 2019 SIOE (Stockholm School of Economics), 2019 FMA Latin America, 2018 Paris Financial Management Conference (keynote speech), 2018 Economics and Management of Networks conference (Havana, Cuba), King Fahd University, Peking University, SUNY Buffalo, University of Alabama, University of Nevada-LV, and University of Oklahoma. Media: Columbia Law School Blue Sky blog.
Abstract: The US listing gap---an abnormal decline in the number of stock market listings relative to other countries---is often interpreted as a warning sign for the US public equity markets. We show that, over the same period that the US listing gap expands, the US economy has experienced abnormally high aggregate stock market valuations, merger activity, and private equity (PE) investments. We investigate the relations among these dimensions and document a transition in the US equity financing model. Our revised estimation shows that the US listing gap is created in two distinct waves, the timing of which suggests a negative role for the regulation of listed firms. The US listing gap is virtually fully explained by the rise of mergers and acquisitions activity, as the leading factor, and PE investments since the mid-1990s. Finally, we document that this phenomenon is emerging in other developed economies, with a few years of delay.
Best paper in corporate finance award, semi-finalist, FMA 2018. Presented at: 2018 FMA, 2018 Econometric Society NASM, 2018 MFA, 2018 EFA, 2017 AFA PhD students poster session, American University, Cornerstone Research, Florida State University, University of Minnesota, University of Oklahoma, and University of Wisconsin-Madison.
Abstract: Using a new measure of labor mobility instrumented by state-level shocks, I find that an increase in worker mobility negatively affects firms' average leverage and investment rates, but only in firms that rely on high-skill workers. I develop a dynamic model that provides an economic mechanism to rationalize these findings. In the model, firms make investment and financing decisions, hire labor with different levels of skill and mobility, and set wages through bargaining. Skilled workers with high mobility receive high-value outside job offers more frequently. Firms that rely on this type of labor operate with low leverage in anticipation of the outside offer shocks, in order to retain their workforce against those shocks. The differences in investment are generated both by the capital-labor complementarity and by the differences in financing policies, which affect the cost of capital. I estimate the model to quantify the effect of changes in labor mobility on different aspects of firms' decisions. Counterfactual analyses imply that policies that exogenously change workers' ability to move among firms have a sizable impact on the leverage, investment, hiring, and wages of high-skill firms. My results highlight the importance of considering this channel in evaluating the economic impact of policies that change workers' mobility.
Presented at: CKGSB, Peking University, Shanghai Advanced Institute of Finance, Tsinghua University, and University of Minnesota.
Abstract: Tests using American data from 1970 to 2015 support the behavioral hypothesis that firms Cater to investor whims. We show that the standard tests cannot distinguish between the behavioral interpretation, and a rational model in which the firm optimally chooses investment, equity issuance, and dividends; while investors optimally choose consumption, equity, and bank account deposits. The rational model shows the importance of two-way financial flows between investors and firms that are generally ignored in the literature. Using booms, sentiment, and behavioral mispricing measures, we construct new tests of behavioral Catering Theory. In all cases that theory is rejected.
American University, Kogod School of Business.
Business Finance (UG): Fall 2018, Spring 2020.
University of Minnesota, Carlson School of Management.
Finance Fundamentals (UG): Fall 2015; Spring 2016.
Received Excellence in Teaching Award, Carlson School of Management, 2016.
Received John Willard Herrick Memorial Teaching Award, Finance Department, 2016.