Globally Consistent Creditor Protection, Reallocation, and Productivity Revise & Resubmit, Journal of Finance
2019 Cubist Systematic Strategies Research Paper Award
Conferences: AEA 2020, WFA 2019, Annual Conference in Financial Economics Research by Eagle Labs at the Arison School of Business IDC Herzliya, SFS Cavalcade North America 2019
Abstract: This paper documents that resource reallocation across firms is an important mechanism through which creditor rights affect real outcomes. I exploit the staggered adoption of an international convention that provides globally consistent strong creditor protection for aircraft finance. After this reform, country-level productivity in the aviation sector increases by 12%, driven mostly by across-firm reallocation. Productive airlines borrow more, expand, and adopt new technology at the expense of unproductive ones. Such reallocation is facilitated by (i) easier and quicker asset redeployment; and (ii) the influx of foreign financiers offering innovative financial products to improve credit allocative efficiency. I further document an increase in competition and an improvement in the breadth and the quality of products available to consumers.
Conferences: AFA 2022, NFA 2021, SFS Cavalcade North America 2021
Abstract: Using firms' asset-level investment and utilization history, this paper examines how legal and trading frictions in collateralization collectively affect investment and production decisions. I exploit the staggered adoption of a global reform that strengthens creditor protection for aircraft finance as a shock to legal frictions. Following the reform, firms invest more in redeployable assets that are subject to lower trading frictions, due to a disproportionate boost in the debt capacity of these assets. Such shifts happen at the cost of less efficient aircraft utilization since airlines deviate from investing in firm-specific assets, highlighting the trade-off between financing cost and asset-firm match. The homogeneous demand for more redeployable asset types significantly changes the upstream market structure in aircraft manufacturing. Asset-type concentration goes up while domestic market share declines. Overall, the results uncover the real effects of interactions between traditional financial contracting frictions and trading frictions in real asset markets.
Conflicting Fiduciary Duties and Fire Sales of VC-backed Start-ups, with Yingxiang Li and Casimiro A. Nigro
Conferences: HEC-McGill Winter Finance Workshop (scheduled), CELS 2022 (scheduled), Southern California PE Conference (scheduled), The Political Economy of Financial Regulation Workshop
Abstract: This paper studies the interactions between corporate law and VC exits by acquisitions, an increasingly common source of VC-related litigation. We find that transactions by VC funds under liquidation pressure are characterized by (i) a substantially lower sale price; (ii) a greater probability of industry outsiders as acquirers; (iii) a positive abnormal return for acquirers. These features indicate the existence of fire sales, which satisfy VCs' liquidation preferences but hurt common shareholders, leaving board members with conflicting fiduciary duties and litigation risks. Exploiting an important court ruling that establishes the board’s fiduciary duties to common shareholders as a priority, we find that after the ruling maturing VCs become less likely to exit by fire sales and they distribute cash to their investors less timely. However, VCs experience more difficult fundraising ex-ante, highlighting the potential cost of a common-favoring regime. Overall the evidence has important implications for optimal fiduciary duty design in VC-backed start-ups.
Conferences: CICF 2021, SFS Cavalcade North America 2021, NFA 2020, Pacific Northwest Finance Conference, 13th Annual Northwestern CLBE Conference on Innovation Economics, EFA 2020, MFA 2020, FIRS 2020 (canceled), 3rd Junior Entrepreneurial Finance and Innovation Workshop
Abstract: We identify strong cross-border institutions as a driver for the globalization of innovation. Using 67 million patents from over 100 patent offices, we introduce novel measures of innovation diffusion and collaboration. Exploiting staggered bilateral investment treaties as shocks to cross-border property rights and contract enforcement, we show that signatory countries increase technology adoption and sourcing from each other; they also increase R&D collaborations. These interactions result in technological convergence. The effects are particularly strong for process innovation, and for countries that are technological laggards or have weak domestic institutions. Increased innovation contracting and exchange of capital are the key channels.
The Supply and Demand for Data Privacy: Evidence from Mobile Apps, joint with Xinchen Ma and Huan Tang
Best Paper Award at the 2022 Annual Conference in Digital Economics
Conferences: 2022 Annual Conference in Digital Economics
Abstract: Since December 2020, Apple has required all apps to disclose their data collection practices by filling out privacy ``nutrition'' labels that are standardized and easy-to-read. We web-scrape these privacy labels and first document the following stylized facts regarding the supply of privacy: (i) 80% of the data collected are used for purposes unrelated to app functionality; (ii) top data collectors tend to be developed by public firms and enjoy a larger market share and better ratings; (iii) games, news, shopping, and entertainment apps collect more data for advertising and marketing purposes. Second, augmenting privacy labels with weekly app downloads and revenues, we study how consumers react to the disclosure of data collection practices. We exploit the staggered release of privacy labels and use the nonexposed Android version of each app to construct the counterfactual. After privacy label release, an average iOS app experiences a 12-15% drop in weekly downloads and revenues when compared to its Android counterpart, with an even stronger effect for more privacy-invasive and substitutable apps. Consumers in the US, UK, and Canada respond more negatively, suggesting that they are most averse to data collection. We also observe adverse stock market reactions, especially among firms that harvest more data. Our findings highlight the lack of consumer awareness of firms' data collection practices as a key barrier to privacy protection.
Conferences: SGF Conference 2022 (scheduled), MFA 2022 (scheduled), AFA 2022, Paris December Finance Meeting 2021, Workshop on Entrepreneurial Finance and Innovation, Munich Summer Institute 2021, Junior Entrepreneurial Finance/Innovation Lunch Group
Abstract: We study the role of Western CEO incentives in fostering the technological rise of China. Due to China’s quid pro quo policy, foreign multinationals face a trade-off between the short-term benefits of accessing China’s vast market and the long-term costs of transferring technology to China. Leveraging microdata on the global patent network, we construct novel measures to describe technological interactions between US firms and over 70 countries. We find that firms managed by CEOs with high-powered incentive contracts form more partnerships with China and transfer more technology to China. These firms subsequently lose R&D human capital to China and face more patenting competition from China, suggesting negative long-term consequences in innovation. The evidence is consistent with the myopia-inducing instead of the effort-inducing property of high-powered CEO incentives. The paper reveals an important real effect of CEO incentives and highlights a novel channel behind China’s technological catch-up.
The Political Economy of Decentralization: Evidence from Bank Bailouts, with Rainer Haselmann, Thomas Kick and Vikrant Vig
CICF Best Paper Award
Abstract: In this paper, we examine how the organizational design of bailout institutions affects the outcome of bank bailout decisions. In the German savings bank sector, distress events can be resolved either by a decentralized county-level politician or by a centralized state-level association. We document that decisions taken by the politicians at the decentralized level are distorted by personal considerations. While the occurrence of distress is not related to the electoral cycle, the probability of local politicians injecting taxpayers' money into a bank in distress is 30 percentage points lower in the year directly preceding an election. Using the timing of the distress event in the electoral cycle as an instrument for who bails out the distressed bank, we show that decentralized bailouts result in inferior economic outcomes. These bailed-out banks perform more poorly and provision credit less efficiently when compared to more centralized bailouts. We also observe a significantly worse real sector performance of localities that have undergone decentralized bailouts. Overall, our results highlight the political economy of decentralization -- local politicians derive private benefits from controlling the bank at the expense of citizens at large.