- Corporate finance, financial contracting, information economics, credit ratings.
- The Real Costs of Corporate Credit Ratings.
Abstract: Credit rating agencies emphasize the importance of specific financial ratio thresholds in their rating process. Firms on the favorable side of these thresholds are more likely to receive higher ratings than similar firms that are not. I show that firms near these salient thresholds respond to the incentive to improve their appearance on this dimension by distorting real investment activities during periods leading up to bond issuance. These firms are significantly more likely to reduce R&D and SG&A expenditures compared to observationally similar firms not near a threshold. Subsequently, they are more likely to experience declines in innovation output, profitability, and Tobin's Q. These distortions highlight an important cost of arms-length financing and an adverse consequence of transparency in credit rating criteria.
- Design of Financial Securities: Empirical Evidence from Private-label RMBS Deals.
with Amiyatosh Purnanandam
Abstract: Using a representative sample of residential mortgage-backed security (RMBS) deals from the pre-crisis period, we show that deals with a higher level of equity tranche have a significantly lower foreclosure rate that cannot be explained away by the underlying loan pool's observable credit risk factors. The effect is concentrated within pools with a higher likelihood of asymmetric information between deal sponsors and potential buyers of the securities. Further, securities that are sold from high-equity-tranche deals command higher prices conditional on their credit ratings. Our study provides the first in-depth analysis of the effectiveness of the equity tranche in mitigating informational frictions in this market.- Utah Winter Finance Conference (Scheduled), February 2014.
- Washington University Corporate Finance Conference, November 2013.
- Carefin-Bocconi, September 2013.
- NBER Summer Institute, July 2013.
- USC PhD Conference in Finance, June 2013.
- FIRS Conference, June 2013.
- SFS Finance Cavalcade, May 2013.
- Philadelphia Federal Reserve Bank Workshop, September 2012.
- Signaling, Financial Constraints, and Performance-Sensitive Debt.
Abstract: This paper examines how good borrowers use the design of performance sensitive debt contracts to alleviate financial constraints. I show that borrowers use a convex pricing grid (i.e., a contract where the increase in the loan spread following a decline in performance exceeds the decrease in the spread following a performance improvement) to signal their unobservable creditworthiness and receive better bank loan terms. I find that constrained firms that use convex pricing grids receive loans that are 21-28% larger with a spread that is 31-37 basis points lower than observationally similar borrowers that use fixed spread loans. Consistent with the notion that a costly signal should positively correlate with future financial health, I find that constrained borrowers that use a loan with a convex pricing grid are one third less likely to experience financial distress during the term of their loans.
- SFS Finance Cavalcade, May 2013.
- Conference on Financial Economics and Accounting (CFEA), November 2012.
- BBA - Finance 317: Corporate Financing Decisions; Fall 2011. (syllabus)
- Instructor Rating: 4.93/5.
- EMBA - Quantitative Skills Workshop; Summer 2011, 2012, 2013.
- Instructor Rating: 4.86/5.
- EMBA - Finance 602: Managing Capital, Teaching Assistant; Fall 2011, 2012.
- Coursera - Introduction to Finance, Teaching Assistant; 2012.