Research Interests: Financial Economics, Corporate Governance, Applied Econometrics

Curriculum Vitae

Working Papers:
Yesterday's Heroes: Compensation and Creative Risk Taking (October 2009)
(with Harrison Hong and Jose Scheinkman, Princeton)
Abstract: We investigate the link between compensation and risk-taking among finance firms during the period of 1992-2008.  First, there are substantial cross-firm differences in total executive compensation residualized for firm size.  Second, residual pay is correlated with price-based risk-taking measures including firm beta, return volatility, tail cumulative return performance, and the sensitivity of firm stock price to the ABX subprime index.  Third, residual compensation is also weakly correlated with balance-sheet based risk-taking measures such as holdings of non-GSE mortgage-backed securities and book leverage.  Fourth, these risk-taking measures are correlated with residual pay even though executives are highly incentivized as measured by insider ownership.  Finally, compensation and risk-taking are not related to governance variables but covary with ownership by institutional investors who tend to have short-termist preferences and the power to influence firm management policies.  Our findings suggest that our residual pay measure is picking up other important high-powered incentives not captured by insider ownership.  They also point to substantial heterogeneity in both firm culture and investor preferences for short-termism and risk-taking.

Corporate Governance Spillovers (August 24, 2009)
Abstract: Failures of corporate governance at one firm spill over into short-termism and incentives for managers at other firms to manipulate earnings fraudulently when relative performance evaluation is a factor in CEO retention. The model predicts that (i) manipulation should be U-shaped as a function of relative performance in the presence of spillovers, that (ii) weak governance predicts earnings manipulation at competing firms, and (iii) the link between manipulation and peer governance should be stronger when tolerance for relative underperformance is small. I provide empirical evidence consistent with these predictions and the implication that a few "bad apples" can lead to increased misbehavior at other firms.

Ongoing Projects (Drafts Forthcoming):

Is Short-Term Debt Hazardous? Dynamic Debt Runs, Agency, and Bailouts
(with Konstantin Milbradt, MIT-Sloan)

Do Capital Market Frictions Affect Corporate Policies? A Study in S&P 500 Index Addition

Consumption Inequality During the Great Compression
(with Jonathan Parker, NWU-Kellogg)