Research

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.

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. Herfindahl–Hirschman Index (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.

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.

We examine how firms are affected by the political bargaining power of their headquarters’ region. Exploiting variation in the strategic importance of swing states stemming from shifting partisan balance in the U.S. Senate, we find that corporate valuations and investments positively respond to increases in regional political influence. We verify the valuation findings using an event study based on the 2021 Georgia runoff election that unexpectedly produced a 50-50 balance in the Senate. We investigate potential policy mechanisms and find that tax incentives constitute the most likely channel through which firms benefit from the political bargaining power of their headquarters’ region.

Do networks unintentionally formed between capital suppliers and demanders through third parties uninvolved in matchmaking facilitate the flow of capital between them? We study this question here by examining the effect on venture finance deal formation of prior indirect connections through law firms between startups and venture capitalists (VCs). We find that the links formed through shared law firms increase the likelihood of deal formation when a VC has little experience in the startup's industry and have no effect on it when they are in the same industry. When we consider geographic distance and recency of information, we find a greater effect at greater distances and with more recent information. Overall, our findings imply that these shared law firms act as information intermediaries in settings where the startup and VC are less likely to have information about each other.

We study the effect of higher default penalties on debtors' labor market behavior using an unexpected 2009 Canadian policy reform that increased penalties for default on a long-term debt-repayment contract. The reform, which only affected debtors above an arbitrary income-based cutoff, did not alter current liquidity or net worth, providing a unique setting to examine the effect of default penalties. We implement a difference-in-differences strategy comparing debtors just above and below the income cutoff and find that higher default penalties reduce default hazard by 11%. To avoid default, treated debtors become more likely to be employed, hold multiple jobs, and find new employment more quickly, but accept lower wages and are more likely to work for employers without pension contributions. Upon exiting debt repayment, the positive effect on employment dissipates, but lower earnings persist. Our findings imply that consumers trade off job match quality for reduced unemployment risk when default becomes more costly. These findings highlight how the cost of default can shape debtors' labor market choices, with important implications for credit market design and consumer welfare.

We estimate the causal effects of a financial windfall on consumption, savings, and wage earnings using linked administrative data on a large sample of Canadian lottery winners. Using separate linkages of lottery winners to income tax records and credit bureau data, we estimate how lottery winnings affect consumption measured through credit card spending, savings through financial asset accumulation and debt repayment, and wage earnings from tax records. We then examine how these responses vary across the income distribution. We find that high-income individuals allocated a larger share of lottery winnings to savings and leisure, while low-income individuals spent a larger share on consumption. We illustrate the policy relevance of these heterogeneous responses through three applications: designing fiscal stimulus programs, evaluating a Universal Basic Income (UBI), and determining optimal top tax rates on wage earnings and savings.

Using wealth windfalls from lottery winnings and matched employer-employee tax files, we compare the effect of additional wealth on the entrepreneurial activity of older and younger individuals. We find that additional wealth leads older winners (aged 55 to 64) to reduce business ownership and growth (as measured by sales, revenue, and employees). In contrast, extra wealth increases younger winners' (aged 21 to 54) business ownership, but it has no effect on their business growth. The increase in business activity of a young winner does not offset the negative growth for an older winner, which may hurt economic growth.

We show that individuals overweight product quality information from a single peer, despite this information being idiosyncratic and unrepresentative. Using geocoded data on purchases and warranty claims of consumer durable goods, and a hyper-local spatial difference-in-differences identification strategy, we show that individuals reduce consumption of a brand when a single neighbor makes a warranty claim on that brand. A single warranty claim causes a 7% shift to other brands by close neighbors of the claimant. This evidence shows the importance of single unrepresentative peers in consumption decisions.

Prior attempts to link gerrymandering to incumbency advantage and political polarization overlook an important strategic nuance: a partisan gerrymanderer has an interest 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 incumbent 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.

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 industries 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.

VC-financed startups founded by women perform worse than startups founded exclusively by men. Do VCs influence this performance gap? To answer this question, I compare the gender gap in performance between startups initially financed by syndicates 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.