Publications

When reviewing bank mergers for antitrust, regulators typically argue that higher market concentration leads to higher prices. However, in loan markets, adverse selection can create a negative relationship between market concentration and prices. Using supervisory data, we show that interest rates and banks private risk assessments are higher in markets with more banks. We also create a measure of markup that is orthogonal to borrower risk and show that markups are higher in markets with more banks and after repeated borrowing relationships. We provide causal support for the adverse selection channel by using a shock to large banks lending capacities.

We investigate the effects of private equity firms on product markets using price and sales data for an extensive number of consumer products. Following a private equity deal, target firms increase retail sales of their products 50% more than matched control firms. Price increases---roughly 1% on existing products---do not drive this growth. The launch of new products and geographic expansion do. Competitors reduce their product offerings and marginally raise prices. Cross-sectional results on target firms, PE firms, the economic environment, and product categories suggest that private equity generates growth by easing financial constraints and providing managerial expertise.

In recent years, data privacy has vaulted to the forefront of public attention. Scholars, policymakers, and the media have, nearly in unison, decried the lack of data privacy in the modern world. In response, they have put forth various proposals to remedy the situation, from the imposition of fiduciary obligations on technology platforms to the creation of rights to be forgotten for individuals. All these proposals, however, share one essential assumption: we must raise greater protective barriers around data. As a scholar of corporate finance and a scholar of corporate law, respectively, we find this assumption problematic. Data, after all, is simply information, and information can be used for beneficial purposes as well as harmful ones. Just as it can be used to discriminate and to embarrass, information can be used to empower and to improve. And while data privacy is often pitched at ending unauthorized data sharing, it all too often leads simply to the end of data sharing, period. This comes at a cost. Data silos can inhibit consumer choice, protect the positions of powerful incumbents, and reduce the efficiency of markets. The best example of these costs comes from the financial industry. For more than a century, banks and other financial institutions have built their information technology systems to keep financial records as private and nonshareable as possible. While security concerns can be a primary reason for such closed systems, banks also understand that financial data is an advantage that can protect them from market entry and competition. Banks can hold up consumers with unfavorable rates and inferior products as a result, and a set of market failures make it difficult for consumers to opt out. First, information asymmetries between consumers and financial institutions are large and difficult to resolve. Second, search and switch costs, the difficulty of finding out more information about the risks and benefits of financial products and of switching to a better financial service, are high in the financial industry. Finally, individuals struggle to take advantage of even simple financial strategies to save, borrow, and invest. Data sharing can help resolve these problems. The emergence of a new regulatory and technological framework called open banking raises the possibility of consumers being able to task trusted intermediaries with automatically analyzing their financial data, nudging them to achieve their goals, and switching them to better products, all in order to reduce the substantial inefficiencies in their financial lives. There is one problem, however. A combination of market failure and regulatory ambiguity has led to a situation in which data is limited, siloed, and inaccessible, thereby preventing individuals from using their data in efficient ways. Ultimately, this Article contends, resolving these problems will require us to replace the clarion call of data privacy with a new, more comprehensive concept, that of data autonomy, the ability of individuals to have control over their data. Data autonomy balances the need for data to be protected and secure with the need for it to be accessible and shareable. In this Article, we lay out a set of key principles that grant individuals a legal right to data autonomy, including a right of ownership over data, as well as obligations on institutions to safely share standardized and interoperable data with third parties that consumers so choose. Perhaps counterintuitively, the only way of expanding consumer welfare and protection today is by breaking down the barriers of data privacy.

We document a strong decline in corporate-diversification activity since the late 1970s, and we develop a dynamic model that explains this pattern, both qualitatively and quantitatively. The key feature of the model is that synergies endogenously decline with technological specialization, leading to fewer diversified firms in equilibrium. The model further predicts that segments inside a conglomerate should become more related over time, which is consistent with the data. Finally, the calibrated model also matches other empirical magnitudes well: output growth rate, market-to-book ratios, diversification discount, frequency and returns of diversifying mergers, and frequency of refocusing activity.

This paper shows that managers are influenced by their social peers when making corporate policy decisions. Using biographical information about executives and directors of U.S. public companies, we define social ties from current and past employment, education, and other activities. We find that more connections two companies share with each other, more similar their capital investments are. To address endogeneity concerns, we find that companies invest less similarly when an individual connecting them dies. The results extend to other corporate finance policies. Furthermore, central companies in the social network invest in a less idiosyncratic way and exhibit better economic performance.

We show that business microloans to U.S. subprime borrowers have a very large impact on subsequent firm success. Using data on startup loan applicants from a lender that employed an automated algorithm in its application review, we implement a regression discontinuity design assessing the causal impact of receiving a loan on firms. Startups receiving funding are dramatically more likely to survive, enjoy higher revenues, and create more jobs. Loans are more consequential for survival among subprime business owners with more education and less managerial experience.

We find evidence of systematic optimism and pessimism among credit analysts, comparing contemporaneous ratings of the same firm across rating agencies. These differences in perspectives carry through to debt prices and negatively predict future changes in credit spreads, consistent with mispricing. Moreover, the pricing effects are the largest among firms that are the most opaque, likely exacerbating financing constraints. We find that masters of business administration (MBAs) provide higher quality ratings. However, optimism increases and accuracy decreases with tenure covering the firm. Our analysis demonstrates the role analysts play in shaping investor expectations and its effect on corporate debt markets.

We find strong evidence that three key dimensions of national culture (trust, hierarchy, and individualism) affect merger volume and synergy gains. The volume of cross-border mergers is lower when countries are more culturally distant. In addition, greater cultural distance in trust and individualism leads to lower combined announcement returns. These findings are robust to year and country-level fixed effects, time-varying country-pair and deal-level variables, as well as instrumental variables for cultural differences based on genetic and somatic differences. The results are the first large-scale evidence that cultural differences have substantial impacts on multiple aspects of cross-border mergers.

We propose and test a view of corporate diversification as a strategy that exploits internal information markets, by bringing together information that is scattered across the economy. First, we construct an inter-industry network using input-output data, to proxy for the economy information structure. Second, we introduce a new measure of conglomerate informational advantage, named excess centrality, which captures how much more central conglomerates are relative to specialized firms operating in the same industries. We find that high-excess-centrality conglomerates have greater value, and produce more and better patents. Consistent with the internal-information-markets view, we also show that excess centrality has a greater effect in industries covered by fewer analysts and in industries where soft information is important.

We use panel data on S&P 1500 companies to identify external network connections between directors and CEOs. We find that firms with more powerful CEOs are more likely to appoint directors with ties to the CEO. Using changes in board composition due to director death and retirement for identification, we find that CEO-director ties reduce firm value, particularly in the absence of other governance mechanisms to substitute for board oversight. We also find that firms with more CEO-director ties engage in more value-destroying acquisitions. Overall, our results suggest that network ties with the CEO weaken the intensity of board monitoring.

In July 2013, Moodys unexpectedly increased the amount of equity credit that speculative-grade firms receive for preferred stock from 50% to 100%. Firms affected by the rule change were suddenly considered less levered by Moodys even though their balance sheets did not change. These firms responded by issuing debt, targeting a leverage ratio as defined by Moodys, and growing their assets. The rule change transferred value from bond to equity holders, and led to an increase in preferred stock issuance. How rating agencies assess risk thus has a significant causal impact on firms financing, investment, and security design decisions.

Momentum is one of the most widespread, persistent, and puzzling phenomenon in asset pricing. The prevailing explanation for momentum is that investors under-react to new information, and thus asset prices tend to drift over time. We use a unique feature of cryptocurrency markets: the fact that they are open 24/7, and report returns over the last 24 hours. Thus, the one-day return is subject to predictable fluctuations based on the removal of lagged information. We show that investors respond positively to changes in reported returns that are unrelated to any new release of information, or change in the asset fundamentals. We call this behavioral anomaly Pure Momentum.

The regulatory treatment of cryptoassets depends primarily on three main governance characteristics: transparency, decentralized decision-making, and the effect of governance on token prices. We offer the first comprehensive analysis of the decision-making process of Ethereum, the leading programmable blockchain. We find that its governance is open and transparent, with all Ethereum Improvement Proposals (EIPs) disclosed and discussed in public venues, engaging thousands of people. At the same time, EIPs are predominantly shaped by a core group of influential authors: 10 individuals are responsible for proposing 68% of all implemented Core EIPs. The success of these proposals is significantly associated with key attributes of the proposers, including their social outreach, community engagement, and company affiliation. Furthermore, we observe a notable concentration in client development, where on average 10 people per client implementation are responsible for 80% of all software changes, and identify stablecoin issuers and oracle providers as potential governance centralization vectors. The governance concentration has been slowly decreasing over time, with the Ethereum Foundation still playing an important role. Finally, we find that governance decisions influence crypto prices: Ether price increases 12% leading to the final discussion of Core EIPs.