- Presented at: American University, 2019 CEPR/Study Center Gerzensee (scheduled).
- Abstract: Considerable effort has been devoted by economists to understand the aggregate impact of debt finance. Despite the lack of similar attention to equity, we show empirically that equity finance plays a leading role in corporate asset growth. An extra dollar of equity issuance is associated with $0.93 more real assets, while an extra dollar of debt is associated with an extra $0.14 of real assets. We find a typical financing-growth sequence in which equity finance comes first, then real assets grow, and after that debt increases while equity is repurchased. To explain this process we provide a model in which debt is tax-preferred, but it requires collateral. 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 use the model to evaluate: 1) the 1996 National Securities Markets Improvement Act that facilitated equity financing, 2) a government policy to limit corporate debt, and 3) a government policy to limit share buybacks.
"Listing Gaps, Merger Waves, and the Privatization of American of Equity Finance," with Gabriele Lattanzio and William Megginson. (July 2019) [Online Appendix]
- Media: Columbia Law School Blue Sky blog. Presented at: 2019 EFA (scheduled), 2019 CICF, 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, and University of Oklahoma.
- Abstract: A cross-country predictive model shows that the U.S. economy has experienced over the last 25 years sharply declining numbers of listed firms, abnormally large volumes of merger activity and private equity investments, and abnormally high levels of stock market capitalization. We combine these trends and document a transition in the U.S. equity financing, from public to private capital raising. We find that the U.S. listing gap exclusively opens from 1997 to 2003 and is mostly explained by the rise of M&A activity and private equity 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 EFA, 2018 FMA, 2018 MFA, 2017 AFA PhD students poster session, 2017 Minnesota MARS, 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.
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.