"The Trade-off Theory of Corporate Capital Structure" with Hengjie Ai and Murray Frank.
Oxford Research Encyclopedia of Economics and Finance, 2021. [published version]
"Dissecting the Listing Gap: Mergers, Private Equity, or Regulation?" with Gabriele Lattanzio and William Megginson. [Internet Appendix]
Covered in: Columbia Law School Blue Sky blog
Abstract: The abnormal decline in the number of US public firms is often blamed on merger activity, private equity investments, and stock market regulations. We compare and quantify the effects of these channels on the evolution of the US listing gap. In the US, an extra 100 mergers is associated with 22.01 additional missing public firms, whereas an extra 100 private equity deals is associated with 3.62 fewer missing listings. Regulatory changes, particularly the Sarbanes–Oxley Act of 2002, are also estimated to have a significant role in the decline of US listings. We then specify the types of mergers and private equity deals that most strongly affect listings in the US. Finally, we document that listing gaps emerge in other developed economies, with a few years of delay. The non-US listing gaps are driven by similar forces as in the US.
*A previous version of this paper was titled "Listing Gaps, Merger Waves, and the Privatization of American Equity Finance."
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.
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.
Work in Progress:
"Corporate Debt Constraints" with Murray Frank.
"Data Processing, Information Asymmetry, and Financing Decisions" with Ioannis Spyridopoulos.
American University, Kogod School of Business.
Business Finance (UG)
University of Minnesota, Carlson School of Management.
Finance Fundamentals (UG)
Received Excellence in Teaching Award, Carlson School of Management, 2016.
Received John Willard Herrick Memorial Teaching Award, Finance Department, 2016.