Research

Published

Wall Street and the Housing Bubble (with Ing-Haw Cheng and Wei Xiong), American Economic Review, 2014, 104(9), pp. 2797-2829.

We analyze whether midlevel managers in securitized finance were aware of a large-scale housing bubble and a looming crisis in 2004-2006 using their personal home transaction data. We find that the average person in our sample neither timed the market nor were cautious in their home transactions, and did not exhibit awareness of problems in overall housing markets. Certain groups of securitization agents were particularly aggressive in increasing their exposure to housing during this period, suggesting the need to expand the incentives-based view of the crisis to incorporate a role for beliefs.

Supplementary materials: online appendix, data

Related coverage: voxeu, Econbrowser (Hamilton), FT, WSJ, TheStreet

Ultimate Ownership and Bank Competition (with José Azar and Martin Schmalz), Financial Management, 2021, pp. 1-43.

We document substantial time-series and cross-sectional variation in branch-level deposit account interest rates, maintenance fees, and fee thresholds, and examine whether variation in bank concentration helps explain variation in these prices. HHI alone is not correlated with any of the outcome variables. A “generalized HHI” (GHHI) capturing both common ownership (the degree to which banks are commonly owned by the same investors) and cross-ownership (the extent to which banks own shares in each other), is strongly correlated with all prices, even when we limit cross-sectional variation in bank ownership to only that predicted by the growth of index funds.

Related coverage: The Economist, Slate, New Yorker, New York Times

Debtor Income Manipulation in Consumer Credit Contracts (with Slava Mikhed, Barry Scholnick, and Mandy Zhang), Journal of Financial Economics, forthcoming.

We show that forcing insolvent consumer debtors to repay a larger fraction of debt causes them to strategically manipulate the data they report to creditors. Exploiting a policy change that required insolvent debtors to increase debt repayments at an arbitrary income cutoff, we document that some debtors reduce reported income to just below this cutoff to avoid the higher repayment. Those debtors who manipulate income have a lower probability of default on their repayment plans, consistent with having access to hidden income. We estimate this strategic manipulation costs creditors 12% to 36% of their total payout per filing.

Working papers

The Economic Value of Strategic Political Capital (with Sheng-Jun Xu), April 2023.

We study how firms respond to the strategic political influence of their local region. Exploiting shocks to the political importance of swing states relative to partisan states stemming from partisan gridlock in the U.S. Senate, we show that greater regional political influence results in increased investments by local firms, indicating a stimulus effect rather than a crowding out effect. This effect is mostly concentrated in investment in intangible capital, consistent with tangible capital being relatively unresponsive to rapid and uncertain shifts in policy. Further tests, including an event study based on the 2021 Georgia runoff election that produced an unexpected balancing of the Senate, show that firm valuations respond positively to increases in regional political influence. Exploring potential mechanisms behind the positive investment and valuation effects, we find evidence that firms benefit from lower taxes and favorable trade policies. Subsequent tests reveal that our findings are unlikely to be driven by local demand spillovers from increased regional spending or quid pro quo exchanges between politicians and politically-connected firms.

Reducing Strategic Default in a Financial Crisis (with Sumit Agarwal, Vyacheslav Mikhed, Barry Scholnick, and Man Zhang), August 2022.

We document that increasing penalties for default reduces strategic default in financial crises by exploiting the 2009 changes to Canadian consumer insolvency regulations. Our novelty is that the incentives from increasing penalties for default operate in the opposite direction from incentives in more typical financial crisis policy interventions, which increase the liquidity of debtors. We can identify strategic default because our policy intervention is independent of debtors’ liquidity and initial selection into long-term debt contracts. Our results imply that even insolvent debtors can be incentivized to reduce default during financial crises without the typical interventions, which increase debtors’ liquidity.

The Effect of Competition in Upstream and Downstream Industries on Firm Boundaries (with Kuncheng Zheng), October 2021.

How does competition in upstream and downstream industries affect firm boundaries? We use instrumented Chinese import penetration into up- and downstream industries to study this question. We find that greater competition in up- and downstream indus- tries causes firms’ boundaries with vertically linked industries to contract, as predicted by double-marginalization. Further, we find firms diversify into non-vertically linked industries when up- or downstream competition threatens their survival, consistent with the “growing out of trouble” hypothesis. Our research highlights the importance of trading partners’ competition for firms’ choice of scope and boundaries and has implications for antitrust and international trade regulations.

Partisan Gerrymandering, Congressional Polarization, and Distributive Politics (with Sheng-Jun Xu), June 2021.

Prior attempts to link gerrymandering to incumbency advantage and political polar- ization overlook an important strategic nuance: a partisan gerrymanderer has an in- terest in “attacking” vulnerable incumbents of the opposing party while “protecting” vulnerable incumbents from its own party. Tracking incumbents in the U.S. House of Representatives before and after redistricting, we show that a narrow loss for the gerrymandering party’s candidate in the pre-redistricting election predicts greater in- cumbent vulnerability in the post-redistricting election relative to a narrow win for the gerrymandering party’s candidate. We develop a simple model to show that elected politicians who lose partisan support will compensate by changing their optimal mix of partisan positioning and individual effort. We test the model’s predictions using the discontinuity in incumbency advantage predicted by partisan gerrymandering, and find that incumbents weakened by gerrymandering are indeed less partisan in their congressional voting behavior and bring more discretionary federal spending to their districts.

VCs, Founders, and the Performance Gender Gap, January 2021.

VC-financed startups founded by women perform worse than startups founded exclu- sively by men. Do VCs influence this performance gap? To answer this question, I compare the gender gap in performance between startups initially financed by syn- dicates led by VCs with only male general partners (GPs) and startups financed by syndicates led by VCs with female GPs. I find a much larger performance gap among startups financed by syndicates with only male lead GPs. I show this disparity is driven by differences in VCs’ ability to evaluate female-led startups. These findings imply that VCs contributed to the performance gender gap in startups.

SSRN Abstract 2846047

Works in progress

Financial Constraints of Entrepreneurs and the Self-Employed (with Philippe d’Astous, Vyacheslav Mikhed, and Barry Scholnick).

CEO Connections and Collusion (with Ran Duchin and Kuncheng Zheng).

Learning about Lower Brand Quality from Peers (with Sumit Agarwal, Souphala Chomsisengphet, Barry Scholnick, and Mandy Zhang).