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Short Sales and Trade Classification Algorithms
This paper demonstrates that short sales are often misclassified as buyer-initiated by the
Lee-Ready and other commonly used trade classification algorithms. This result is due in
part to regulations which require short sales be executed on an uptick or zero-uptick.
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Vintage Capital and Creditor Protection
We provide novel evidence linking the level of creditor protection provided by law to the degree
of usage of technologically older, vintage capital in the airline industry. Using a panel of aircraftlevel
data around the world, we find that better creditor rights are associated with both aircraft
of a younger vintage and newer technology as well as firms with larger aircraft fleets.
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Asset Pricing with Uncertainty About the Long Run
When investors have preferences for early resolution of uncertainty, higher uncertainty about
future growth rates raises agents' marginal utility, which generates a premium for bearing uncertainty
risk. If expected growth rates have persistent long-run dynamics, small local uncertainty
about the growth rate can translate into large uncertainty about future cash flows, which amplify
the uncertainty premium.
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Macroeconomic Conditions and the Puzzles of Credit Spreads and Capital Structure
Investors demand high risk premia for defaultable claims, because (i) defaults tend to concentrate in bad times when marginal utility is high; (ii) default losses are high during such times.
I build a structural model of financing and default decisions in an economy with business-cycle
variations in expected growth rates and volatility, which endogenously generate countercyclical
comovements in risk prices, default probabilities, and default losses.
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Rising Through the Ranks: The Evolution of the Market for Corporate Executives, 1936-2003
The market for managers from the 1930s to the 1970s was characterized by
relatively stable pay and low inequality among executives. These patterns have reversed
over the past three decades. To explain these trends, I propose that there has been a shift
in the importance of skills from firm-specific to more general managerial skills for top
executives and develop a simple framework where firms have asymmetric information on
the composition of managerial skills.
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Executive Compensation:
A New View from a Long-Term Perspective, 1936-2005
We analyze the long-run trends in executive compensation using a new panel dataset of top
executives in large publicly-held firms from 1936 to 2005, collected from corporate reports.
This historic perspective reveals several surprising new facts that contrast sharply with data
from recent decades. First, the median real value of compensation was remarkably flat from
the end of World War II to the mid-1970s, even during times of rapid economic expansion
and aggregate firm growth. By contrast, the steep upward trajectory of pay since the 1970s
coincided with similarly-large increases in aggregate firm size.
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Executive Compensation:
A New View from a Long-Term Perspective, 1936-2005
We analyze the long-run trends in executive compensation using a new panel dataset of top
executives in large publicly-held firms from 1936 to 2005, collected from corporate reports.
This historic perspective reveals several surprising new facts that contrast sharply with data
from recent decades. First, the median real value of compensation was remarkably flat from
the end of World War II to the mid-1970s, even during times of rapid economic expansion
and aggregate firm growth. By contrast, the steep upward trajectory of pay since the 1970s
coincided with similarly-large increases in aggregate firm size.
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Oil Futures Prices in a Production Economy with Investment Constraints
We document a new stylized fact regarding the term-structure of futures volatility. We
show that the relationship between the volatility of futures prices and the slope of the term
structure of prices is non-monotone and has a “V-shape”. This aspect of the data cannot be
generated by basic models that emphasize storage while this fact is consistent with models
that emphasize investment constraints or, more generally, time-varying supply-elasticity.
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Durability of Output and Expected Stock Returns
The demand for durable goods is more cyclical than that for nondurable goods
and services. Consequently, the cash flow and stock returns of durable-good producers
are exposed to higher systematic risk. Using the NIPA input-output tables, we
construct portfolios of durable-good, nondurable-good, and service producers. In the
cross-section, a strategy that is long on durables and short on services earns a sizable
risk premium.
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Debt and Managerial Rents in a Real-Option Model of the Firm
We present a theory of capital investment and debt and equity financing in a real-options
model of a public corporation. The model assumes that managers maximize the present
value of their future compensation (managerial rents), subject to constraints imposed by
outside shareholders' property rights to the firm's assets. Absent bankruptcy costs, managers
follow an optimal debt policy that generates efficient investment and disinvestment. We show
how bankrupcy costs can distort both investment and disinvestment.
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Excess Volatility of Corporate Bonds
This paper examines the connection among corporate bonds, stocks, and Treasury
bonds under the Merton model with stochastic interest rates. The main focus is on the
volatility of corporate bonds and its connection to the equity volatility of the same firm
and Treasury bond volatility. For a broad cross-section of corporate bonds from 2002
through 2006, empirical measures of bond volatility are constructed using bond returns
over daily, weekly, and monthly horizons. Comparing the empirical volatility with its
model-implied counterpart, we find an overwhelming degree of excess volatility that is
difficult to explain with a default-based model.
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Liquidity of Corporate Bonds
This paper examines the liquidity of corporate bonds and its asset-pricing implications
using a novel measure of illiquidity based on the magnitude of transitory price movements.
Using transaction-level data for a broad cross-section of corporate bonds from
2003 through 2007, we find the illiquidity in corporate bonds to be significant, substantially
greater than what can be explained by bid-ask bounce, and closely linked to
liquidity-related bond characteristics.
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How Sovereign is Sovereign Credit Risk?
We study the nature of sovereign credit risk using an extensive sample
of CDS spreads for 26 developed and emerging-market countries. Sovereign credit
spreads are surprisingly highly correlated, with just three principal components accounting
for more than 50 percent of their variation. Sovereign credit spreads are
generally more related to the U.S. stock and high-yield bond markets, global risk
premia, and capital flows than they are to their own local economic measures.
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The Importance of Holdup in Contracting: Evidence from a Field Experiment
This paper explores how the relationship specificity of the investment affects the ex-ante
structure of contracts and the ex-post resolution of an ensuing holdup problem. We set up
a field experiment in the wholesale market for pens in India where we sent entrepreneurs
as auditors to procure large orders of pens from wholesale dealers. We vary the
specificity of the order by buying either generic or custom-printed lots of pens. We find
that ex ante contracts alleviate the risk of holdup by demanding 25 percent higher upfront
payments on average in the case of custom-printed pens. |
Politicians, Firms and the Political Business Cycle: Evidence from France
This paper tests whether politically connected CEOs alter their hiring and firing decisions
in order to help incumbent politicians in their reelection efforts. We study this question in the
context of France, where more than half of the assets traded on the French stock markets are
managed by CEOs who were formerly in government. Our results show that publicly-traded
firms managed by politically connected CEOs display higher rates of job and plant creation,
and a lower rate of plant destruction, in election years. This is especially true when the firms'
operations are located in politically contested areas. |
The Effect of Judicial Bias in Chapter 11 Reorganization
This paper uses case information on Chapter 11 filings for almost 5000 private companies
across five district courts in the US between 1989 and 2004. We first establish that within
districts cases are assigned randomly to judges, which allows us to estimate judge specific fixed
effects in their Chapter 11 rulings. We find very strong and economically significant differences
across judges in the propensity to grant or deny specific motions.
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