- Friends or Foes? Target Selection Decisions of Sovereign Wealth Funds and Their Consequences (with Ugur Lel), 2011, Journal of Financial Economics 101, 360–381.
This paper examines investment strategies of Sovereign Wealth Funds (SWFs), their effect on target firm valuation, and how both of these are related to SWF transparency. We find that SWFs prefer large and poorly performing firms facing financial difficulties. Their investments have a positive effect on target firms' stock prices around the announcement date but no substantial effect on firm performance and governance in the long-run. We also find that transparent SWFs are more likely to invest in financially constrained firms and have a greater impact on target firm value than opaque SWFs. Overall, SWFs are similar to passive institutional investors in their preference for target characteristics and in their effect on target performance, and SWF transparency influences SWFs' investment activities and their impact on target firm value.
This paper was previously circulated under the title, Friends Or Foes?: The Stock Price Impact of Sovereign Wealth Fund Investments and the Price of Keeping Secrets.
- Technological Change, Job Tasks, and CEO Pay—Job Market Paper
This paper examines how changes in the composition of the human capital of the workforce impact the CEO. Over the last fifty years, technological change has caused the tasks workers perform to shift from routine to nonroutine work. I estimate that these changes in the workforce caused CEO pay to double over the last thirty years, explaining roughly one third of the aggregate increase in CEO pay. Consistent with this effect being caused by the existence of synergies between CEOs and nonroutine workers, I use text analysis of 10-K statements to show that managers of nonroutine workforces focus relatively more on employees and that this focus leads to large increases in firm value and profitability. Together, this suggests that a substantial portion of the increase in CEO pay over the past three decades represents an optimal response to skill-biased technological change.
- Revenge of the Steamroller: ABCP as a Window on Risk Choices (with Carlos Arteta, Mark Carey, and Ricardo Correa), April 2013.
We empirically examine financial institutions' motivations to take systematic bad-tail risk in the form of sponsorship of credit-arbitrage asset-backed commercial paper vehicles. A run on debt issued by such vehicles played a key role in the crisis that began in the summer of 2007. We find evidence consistent with important roles for both owner-manager agency problems and government-induced distortions, especially government control or ownership of banks.
- Do Bank Capital Regulations Concentrate Systematic Risk?, Link Coming Soon.
As a result of the Enron scandal, new regulations were enacted that increased the capital charge for holding assets in off balance sheet vehicles. I utilize a triple difference specification to identify the effect of this exogenous regulatory shock on bank systematic risk exposure. I find that after the regulation, banks' exposure to off-balance sheet assets at vehicles with high systematic risk increases relative to vehicles with low systematic risk and relative to non U.S. banks which are not affected by the regulation. These results suggest that capital regulation might have the perverse effect of increasing the systemic risk of the U.S. financial system.
Work in Progress
- Twitter Use as a Signal of Innovation, July 2013.
I examine if manager attention to innovation, in the form of early adoption of corporate Twitter use, impacts real firm outcomes. In April 2009, Oprah Winfrey promoted Twitter on her popular daytime talk show; the number of new Twitter users immediately exploded. This effect also holds for corporate Twitter accounts; as a result, accounts created before April 2009 credibly signal commitment to innovation in a way that later accounts can not. I use this natural experiment to identify manager attention to innovation. The 3-day cumulative abnormal return to joining Twitter is 82 basis points for firms that join before April 2009, but zero for firms that join Twitter after that date. Using a regression discontinuity design, I demonstrate that firms that joined Twitter in the six months before Oprah's show subsequently file more patents than firms that join Twitter in the six months after. These results reveal that manager focus has a real effect on innovation.