Publications

  1. Initial Public Offerings and the Local Economy: Evidence of Crowding Out (with Jess Cornaggia, Matt Gustafson, and Kevin Pisciotta). Forthcoming at Review of Finance.
    We test the effect of going public on economic growth in the areas surrounding IPO firms. We focus on IPO-filing firms, thus ensuring that both treatment and control firms are at similar life cycle stages, and use post-filing stock market fluctuations as an instrument for IPO completion. We show that IPOs that are large relative to the size of their counties lead to a 1.1 percentage point relative reduction in annual county-level establishment growth, with similar effects for employment and population growth. There are no corresponding effects for relatively small IPOs. These negative effects appear to be driven by a crowding out of local sector peers, but the crowding out also disrupts local agglomerations and slows down growth among other businesses that rely on local demand. Overall, our results indicate that macroeconomic gains from IPOs trade off against disruptions in local agglomeration economies where public firms originate.
  2. Do Insiders Hire CEOs with High Managerial Talent? (with Yelena Larkin), 2024, Review of Finance 28, 271–310.
    We examine the effect of the composition of the board of directors on the firm's CEO hiring decision. Using a novel measure of talent, characterized by an individual's ascent in the corporate hierarchy, we show that firms with non-CEO inside directors tend to hire CEOs with greater managerial skills. This effect obtains for both internal and external CEO hires; moreover, the effect is pronounced when inside directors have stronger reputational incentives and limited access to soft information about the candidate. Our findings demonstrate that boards with inside directors more effectively screen for managerial ability, thereby improving the CEO hiring process.
  3. Higher Minimum Wages Reduce Capital Expenditures (with Matt Gustafson), 2023, Management Science 69, 2933–2953.
    Using cross-state and intertemporal variation in whether a state's minimum wage is bound by the federal minimum wage, we provide evidence that minimum wage increases lead U.S. public firms in minimum wage sensitive industries (i.e., retail, restaurant, and entertainment) to cut capital expenditures. These effects are concentrated 1-2 years after the law goes into effect. Prior to the minimum wage increase, investment trends are similar across minimum wage sensitive firms in bound versus unbound states and we find little evidence that minimum wage changes affect U.S. public firm investment outside of these industries.
  4. Revenge of the Steamroller: ABCP as a Window on Risk Choices (with Carlos Arteta, Mark Carey, and Ricardo Correa), 2020, Review of Finance 24, 497–528.
    We use credit-arbitrage asset-backed commercial paper vehicles as a laboratory to empirically examine financial institutions' motivations to take bad-tail systematic risk. By comparing the characteristics of global banks that sponsored credit-arbitrage vehicles prior to the global financial crisis to those that didn't, we show that owner-manager agency problems, government safety nets, and government ownership of banks are associated with bad-tail systematic risk-taking. Although good governance is associated with less risk-taking on average, well-governed banks that also have a high ex ante expectation of being bailed out by the government take more risk. Lastly, we find mixed evidence that tougher bank capital regulation deters bad-tail risk-taking.

    Lead Article, Editor's Choice

  5. 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.

Working Papers

  1. Who Invests in Crypto? Wealth, Financial Constraints, and Risk Attitudes (with Darren Aiello, Scott Baker, Tetyana Balyuk, Marco Di Maggio, and Mark Johnson)
    We provide a first look into the drivers of household cryptocurrency investing. Analyzing consumer transaction data for millions of U.S. households, we find that, except for high-income early adopters, cryptocurrency investors resemble the general population. These investors span all income levels, with most dollars coming from high-income individuals, similar to equity investors. High past crypto returns and personal income shocks lead to increased cryptocurrency investments. Higher household-level inflation expectations also correlate with greater crypto investments, aligning with hedging motives. For most U.S. households, cryptocurrencies are treated like traditional assets
  2. The Effects of Cryptocurrency Wealth on Household Consumption and Investment (with Darren Aiello, Scott Baker, Tetyana Balyuk, Marco Di Maggio, and Mark Johnson)
    This paper uses transaction-level data across millions of accounts to identify cryptocurrency investors and evaluate how fluctuations in individual crypto wealth affect household consumption, equity investment, and local real estate markets. We estimate an MPC out of unrealized crypto gains that is more than double the MPC out of unrealized equity gains but smaller than the MPC from exogenous cash flow shocks. This MPC is mostly driven by increases in cash/check spending and mortgages. Moreover, households sell crypto to increase both discretionary as well as housing spending. As a result, crypto wealth causes house price appreciation-counties with higher crypto wealth see higher growth in home values following high crypto returns. Our results indicate that cryptocurrencies have substantial spillover effects on the real economy through consumption and investment into other asset classes.
  3. When Money Moves In: The Consequences of Housing Wealth (with Darren Aiello and Gregor Schubert)
    Using a novel dataset tracking millions of households across home purchases, we demonstrate that an increase in housing wealth benefits households by allowing them to move up the property ladder, but also causes these households to pay a premium for their new home. These decisions spill over to the broader housing market. In aggregate, the flow of housing equity gains into an area cause upward regional price pressure—a 10% increase in equity gain amongst incoming movers leads to 0.4 percentage point higher house price growth—with these higher prices disproportionately impacting first-time home buyers in the area.
  4. Does Being Private Constrain Geographic Expansion? (with Jess Cornaggia, Matt Gustafson, and Kevin Pisciotta)
    Private firms are more geographically constrained than their public counterparts. After initial public offerings (IPOs), firms complete more geographically diverse acquisitions. Underwriter certification and access to underwriter networks positively predict this expansion. Neither the amount of capital raised in an IPO nor follow-on capital raised predicts geographic expansion. Post-IPO geographic expansion also manifests using measures of establishment distribution or SEC filings mentions, and intensive margin tests indicate that expansion is driven by more than simply post-IPO M&A increases. In sum, our findings suggest that information frictions constrain M&A-based expansion by private firms and impact how firms are spatially organized.
  5. Technological Change, Job Tasks, and CEO Pay
    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.
  6. Do Bank Capital Regulations Concentrate Systematic Risk?
    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.