2019 Cubist Systematic Strategies Research Paper Award
Revise & Resubmit, Journal of Finance
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: 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, Oxford Finance Job Market workshop, HEC Paris Workshop, Wheeler Institute PhD Conference, 2018 Trans-Atlantic Doctoral Conference, London Business School
INFORMS CIST 2020 Best Paper Award
Accepted, Review of Economics and Statistics
Abstract: Individualism has long been linked to economic growth. Using the COVID-19 pandemic, we show that such a culture can hamper the economy's response to crises, a period with heightened coordination frictions. Exploiting variation in US counties' frontier experience, we show that more individualist counties engage less in social distancing and charitable transfers, two important collective actions during the pandemic. The effect of individualism is stronger where social distancing has higher externality and holds at the individual level when we exploit migrants for identification. Our results suggest that individualism can amplify economic downturns by exacerbating collective action problems.
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.
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: 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.
Conferences: AFA 2022 (scheduled), NFA 2021 (scheduled), SFS Cavalcade North America 2021
Did Western CEO Incentives Contribute to China's Technological Rise?
(Joint with Jean-Marie Meier)
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 myopic CEOs 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 results reveal an important real effect of CEO incentives and highlight a novel channel behind China's technological catch-up.
Conferences: AFA 2022 (scheduled), Munich Summer Institute
Read more here: ProMarket, 2017 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.
Abstract: In this paper we analyze the impact of government and private ownership of banks on corporate innovation. We find that firms with more financing from government-owned banks are less (more) likely to initiate (exit) innovation. Among the innovators, firms that finance more through private banks have more innovative output. These findings could be driven by a selection of lending relationships based on firms' preferences to innovate or, alternatively, by the crowding out of innovation due to the presence of government-owned banks. To differentiate between these two explanations, we use the timing of government-owned bank distress events over the electoral cycle as an instrument. We show a remarkable increase in innovation following an exogenous decrease in government ownership of banks. Moreover, the allocation of credit is more responsive to the financing needs of future innovators among private banks, shedding light on the mechanism. Overall our results suggest that government involvement in the allocation of credit crowds out private banking and comes at the cost of lower corporate innovation.
Conferences: AFA 2019, Institute of Innovation and Entrepreneurship Symposium 2018, CREDIT 2017 Conference, EEA 2017, CICF 2017