Brown Bag Seminar Past Events

Date:                    Wednesday, March 6th
Time:                   12:00-1:00pm
Location:              CSOM L-118

Title: More Cash Flows, More Options? The Effect of Cash Windfalls on Small Firms
Authors:  Jacelly Cespedes, Xing Huang and Carlos Parra
Abstract: This paper studies the effect of shocks to firms’ internal resources on business success. We use a new source of variation in cash flows by exploiting the bonus that retailers earn when selling jackpot winning lottery tickets. Increases in firms’ internal resources reduce the probability of survival. The evidence is not consistent with deteriorating credit behavior or owner retirement. Small business owners receiving large cash windfalls are more likely to start new businesses in non-retail industries. This effect becomes stronger when owners reside in low-income ZIP codes or own no real estate assets. Findings highlight importance of considering business owners’ outside options when studying small firms.

Date:                    Wednesday, March 27th
Time:                   12:00-1:00pm
Location:              CSOM L-118

Title: Gender Complimentary and the Market Value of the Firm
Authors:  Alex Pecora
Title: Effects of banking crises on firms' real and financial quantities

Authors:  Christos Kamara

Date:                    Wednesday, April 3rd
Time:                   12:00-1:00pm
Location:              CSOM L-118

Title: Capital misallocation and risk sharing" is with Hengjie Ai, Anmol Bhandari and Chao Ying
Authors:  Yuchen Chen

Title: Estimating and Testing Investment-Based Asset Pricing Models, with Frederico Belo and Juliana Salomao
Authors:  Yao Deng

Title: Information provision of the intermediary with reputation concern
Authors:  Fangyuan Yu

Title: Financial Institution Misconduct and the Rise of FinTech
Authors:  Keer Yang

Date:                    Wednesday, April 10th
Time:                    12:00pm-1:00pm
Location:              CSOM L-118

Title: Do Shocks to Intermediaries' Balance Sheet Impact Aggregate Risk Premium?
Author: Ramin Hassan

Title: Minsky Cycles
Author: Dan Su

Title: Public market's discipline and managers' incentives
Author: Colin Ward and Chao Ying
Abstract: We revisit Jensen’s (1986) manager-investor relationship fraught with conflicting interests over the use of firm resources in a dynamic optimal contracting environment with costly external finance. Managers’ private quest for resource control separates these interests and endogenously creates a role for public markets as a provider of discipline. 

Kaushalendra Kishore

Date: 9/5/2018

Time: 12:00-1:30

Location: CSOM 1-123

Title: "Why Risk Managers"


A CEO relies on risk managers to prevent their employees from taking excessive risk. Why can't the CEO directly incentivize his employees by offering him the right contract instead of relying on the risk manager? I show that having a separate risk manager is not only more profitable for banks but is also socially efficient. I build a model where a CEO incentivizes an employee to choose between two projects based on his private signal and then exert effort on the project chosen. When the CEO incentivizes both tasks, there is a trade-off between rent extracted by the employee and efficient project choice, and in equilibrium the CEO sacrifices some efficiency to reduce the rent extracted. But if the tasks are split between a trader who exerts effort and a risk manager who chooses the project, then efficient outcome can be achieved.  I further examine some reasons for risk management failure where a CEO may ignore the risk manager when he suggests that safe project or where the risk managers may not be able to coordinate their action to convince the CEO to choose the safe project.

Jincheng Tong 

Date: 9/12/2018

Time: 12:00-1:30

Location: CSOM 1-123

Title:"A Dynamic Agency Based Asset Pricing Model with Production"


We develop a dynamic-agency based production asset pricing model in General Equilibrium. The key agency friction is a lack of commitments problem: firm owners and workers cannot commit to any labor contract that provides continuation values below their outside options. We show that incomplete risk-sharing due to agency friction amplifies the conditional volatility of the pricing kernel. History-dependent wage contracts generate a form of labor-induced operating leverage, thus leading to heterogeneity in firms' risk exposures. The benefit of mitigating agency friction also creates additional incentives for firms’ investment. Quantitatively, we show that these implications of agency frictions allow us to jointly account for the high level and significant time-variation of the equity premium, a low and smooth risk-free interest rate, a sizable value premium and large cross-sectional standard deviation of firms’ investment.  Empirical results based on a variance decomposition of firms' investment in the data confirm our model mechanism. 

Wei Zhang

Date: 9/19/2018

Time: 12:00-1:30

Location: CSOM 1-123

Title: Bank Liquidity Supply and Corporate Investment in the 2008-2009 Financial Crisis


I use matching, loan-level, and firm-level regressions to study whether bank liquidity shocks affect corporate investment in the 2008-2009 crisis. The matching method exploits the predetermined variation of whether firms have lines of credit maturing in crisis to investigate whether firms with lines of credit maturing in crisis are more adversely affected. I find that firms whose last pre-crisis lines of credit mature in crisis (treated firms) cut investment by more. This effect is stronger for financially constrained firms and firms whose pre-crisis banks are unhealthy or have large exposures to mortgage-backed securities. Treated firms with unhealthy banks are less likely to obtain lines of credit in crisis than those with healthy banks. Using loan-level regressions, I find that unhealthy banks reduce lines of credit by more than healthy banks to the same firm. Firm-level regressions show that firms whose pre-crisis banks are unhealthy decrease the credit lines and investment growth by more. This effect is restricted to only unrated firms. In addition, bank liquidity supply shocks affect the composition of lines of credit and cash. Overall, this paper highlights the lines of credit channel through which bank liquidity supply shocks are transmitted to firms.

Yuchen Chen, Christos Kamaras, Alexandre Pecora

Date: 9/26/2018

Time: 12:30-1:30

Location: CSOM 1-123

Christos Kamaras
Title:  Haircut vs Bailout on Unsustainable Debt
Abstract: I explore conditions under which in equilibrium a creditor country bails out its debtor country's unsustainable debt, vs conditions under which there is no such bailout and the debtor country applies a direct haircut on the unsustainable part of the debt. In a two period model, a debt haircut results in a deposit haircut for the debtor country, which makes a bailout preferable. However, whether such bailout is on the creditor country's best interest depends on who can commit to an action first.

Alexandre Pecora
Title:  "Financial Frictions, News Shocks and Business Fluctuations
Abstract:  "This project applies news shocks to an overlapping generations economy with credit frictions. As is well known in the Real Business Cycles (RBC) literature, credit frictions have an amplifying effect in the economy response to productivity shocks. Our results show that implementing news about future productivity shock increase even more the response and persistence of output and investment. In particular, the investment impulse response is hump-shaped as in real US data."

Yuchen Chen
Title:  The age dynamics of misallocation
Abstract:  Empirical evidence shows that young firms, which are more financially constrained, have higher and more volatile marginal product of capital (MPK) than the old firms, even after controlling for the size effect. I develop a model of firm entry and exit with collateral constraint in the incomplete market, which explains how the age dynamics is related to capital misallocation through financial friction. I also examine the effect of relaxation of collateral constraint on the distribution of MPK.

Keer Yang, Ramin Hassan

Date: 10/3/2018


Location: CSOM 1-123

Keer Yang

Title: Does Finance Flow to High Productivity Firms?

Abstract: This paper studies the impact of productivity on corporate use of debt and equity. Using machine learning methods (Lasso and Gradient Boosting) with the standard corporate accounts, we derive a new method of estimating firm productivity that is more empirically robust than the usual methods. In the model output is sales revenue after tax. We find that the inputs are cost of goods sold, selling general and administrative expenses and total assets. Using this model, high productivity firms are found to be smaller. Asset growth is U-shaped in productivity, with lower growth at the medium productivity firms. High productivity firms have higher book leverage but lower market leverage. They typically pay out more to the debt and equity markets than they take in from the financial markets. However, high productivity firms with a `financing constraint' issue more debt but repurchase equity. So finance does generally flow to high productivity firms that particularly need the money, but there is also equity market evidence that might reflect adverse selection or income tax effects

Ramin Hassan

Title: "Why Does the Relation Between Investment and Asset Prices Vary Over Time?"

Abstract: Andrei, Mann, and Moyen recently showed that the predictive power of average q (book to market value) is weak before 1995 (8% R2), and very strong after (70% R2). There has been considerable debate in the literature on the failure of this relation that links asset prices to Investment decisions. Using bond prices to measure q, as in Philippon (2009), I show predictive power of bond market q is opposite that of stock market q over time. I point out to ratio of growth opportunities to assets in place as the potential reason behind this observation. Preliminary results indicate that in fact the performance of these two measures is related to PVGO/V ratio proxies throughout decades. 

Dan Su

Date: 10/10/2018

Time: 12:30-1:30

Location: CSOM 1-123

Title: Matthew Effect and the Lucas Puzzle

Abstract: This paper shows that the driving force of the Lucas paradox and global imbalance is continuing reallocation of physical capital due to technological specialization. Empirically I find that the marginal product of capital in capital-abundant countries is persistently higher than the marginal product of capital in capital-scarce countries. I rationalize this new fact with a neoclassical growth model including an endogenous direction of technological change. In equilibrium, capital's rate of return is determined by two opposite forces: a convergence effect from diminishing return and a divergence effect from directed technological change. Under some conditions, initially capital-rich countries will favor capital-biased technology, and continuously import capital from capital-poor countries that develop labor-biased technology. I name this pattern as the (international economics version of ) Matthew effect. In this perspective, the global imbalance is not an over-borrowing or over-lending problem. Instead, it is a global structural transformation phenomenon due to biased technical change.

Xuelin Li


Time: 12:30-1:30

Location: CSOM 1-123

Title: Secret Scouting

Abstract: Venture capitalists secretly hire individual "scouts'' that invest on behalf of them at early stage to keep competitors in the dark. This paper provides a theoretical analysis on this strategy and shows though pareto-dominated, it endogenously occurs out of increasingly right-skewed return structure. We characterize the framework in a preemption game with searching and asymmetric information on matching outcomes. The first-mover advantage in winner's payoff contributes to an arm-race of hunting, which simultaneously generates learning externality that leads players to be more pessimistic over time. Equilibrium action depends on the outside option for the runner-up. When it is high, there exists a two-threshold Markov equilibrium where 1) all VCs put maximum effort in searching with optimistic belief, 2) no effort once they become very pessimistic and 3) moderate effort as they are indifferent between preempting and free-riding at intermediate belief level. Players are worse off when this outside option is low. Fear of preemption dominates and the third action region is replaced by the second: greedy scouting is prolonged. Full transparency about outcomes eliminates information externality and improves the expected payoff of players. However disclosing information is not incentive compatible ex-ante as VCs want to eliminate competition by tricking opponents into gloomy belief, which explains the preference of "secrecy'' in searching.

Martin Szydlowski

Date: 10/31/2018

Time: 12:30-1:30

Location: CSOM 1-123

Title: Leaks and Takeovers


Chao Ying

Date: 11/28/2018

Time: 12:30-1:30

Location: CSOM 1-123

Title: Heterogeneous Beliefs and the FOMC Announcements

Abstract: This paper studies the effect of the FOMC announcements on the dynamics of investor’s heterogeneous beliefs. The large trading volume of stocks and announcement premium upon the announcements provide asset-market-based evidence. Using options and futures data, I document the open interest decreases significantly after the FOMC announcements, which indicates the monetary policy released in the announcements reduces the investor’s disagreement. Therefore, instead of investing more aggressively, investors unwind their positions, which mainly accounts for the large trading volume upon announcements. To explain the price and trading volume dynamics jointly, I develop a general equilibrium model with heterogeneous beliefs under learning and announcements. The model implies that the stock holding is not only determined by the investor’s disagreements, uncertainty but also their relative wealth. When they update their beliefs after the announcements, investors disagree less and rebalance their portfolio, and therefore asset prices react to these announcements instantaneously. The reduction of disagreements upon announcements supports the monetary policy has a positive welfare implication in the long run.

Fangyuan Yu

Date: 12/5/2018

Time: 12:30-1:30

Location: CSOM 2-215

Title: Disclosure and Equity Crowdfunding

Abstract: Equity crowdfunding involves the sequential interaction and observational learning among investors. I build on the classical rational herding model with multiple actions to discuss the interaction among investors and how does the issuer affect this interaction by disclosing different precision information. In the model, each investor arrives sequentially, observing private signals and decide whether to contribute to the project and how much to invest if they agree to contribute. The issuer chooses the precision of signals to disclose so as to maximize the probability of financing. Depending on the precision of the signal chosen by the issuer, there exist different herding patterns in the equilibrium. When the precision of signal is low, I find that there exist three herding regions, where when the public belief is very low, no investors are willing to invest, and when the public belief is in the middle, herding with minimum investment can occur; however, when the public belief is very high, there exists a maximum investment herding. The probability of successful financing is not monotone in transparency. When minimum investing is not enough to guarantee successful fundraising, the issuer prefers to high transparency to eliminate the minimum herding, which in return, improves the probability the successful financing. The regulation of transparency of crowdfunding is also discussed.

Yao Deng

Date: 12/12/2018

Time: 12:30-1:30

Location: CSOM 1-123

Title: Extrapolative Expectation, Financial Frictions, and Credit Cycles


Bob Goldstein

March 7th, 2018

Colin Ward

March 21st, 2018 

PhD Students' Presentations

March 28, 2018

PhD Students' Presentations

April 4th, 2018 

Juliana Salomao

April 11th, 2018 

Frederico Belo

April 18th, 2018 

Tracy Wang

April 25th, 2018 

Yao Deng

May 2nd, 2018

Fall 2017
Wei Zhang

September 6th, 2017

Ali Sanati

September 13th, 2017

Kaushalendra Kishore

September 20th, 2017

Ding Luo

September 27th, 2017

Dan Su, Ramin Hassan

October 11th, 2017

Keer Yang

October 18th, 2017

Fangyuan Yu

October 25th, 2017

Yao Deng

November 1st, 2017

Chao Ying

November 8th, 2017

Jincheng Tong

November 15th, 2017

Erik Loualiche

November 29th, 2017

Martin Szydlowski

December 6th, 2017

4/12/2017Frederico Belo

Title: Decomposing Firm Value

**Preliminary work with Vito Gala (Wharton), John Pokorny (U of M) and Juliana Salomao (U of M)

4/19/2017Kaushalendra Kishore

Title: Why can't CEOs foresee a financial crisis?

Abstract: This paper explains why CEOs are unable to curtail risky investments before a crisis. CEOs rely on the advice of their employees to understand the riskiness of their investments. Before a crisis, pro ts from an investment strategy is usually high, and so it is perceived to be good. If employees receive information that the strategy is bad and should be discontinued, they may not disclose their information to avoid being perceived as pessimistic and lose their job. Multiple employees can convince the CEO to discontinue if they disclose together but not if they disclose alone. This creates strategic complementarities in disclosure strategy and results in coordination problem where in the inefficient equilibrium no employee will disclose and the CEO remaining unaware of the risks goes ahead with bad investments. The paper thus provides an explanation for boom bust cycles and also for why CEO's beliefs were optimistic before the crisis.


5/3/2017Ding Luo

Title: Capital Heterogeneity, Time-to-build, and Return Predictability


This paper documents that U.S. equipment investment rate predicts stock market returns better than structures investment rate. This empirical finding is further borne out by industry-level and international data. A general equilibrium model with external habit preference and heterogeneous time-to-build for equipment and structures can explain the empirical findings while matching the salient features of business cycles and asset prices. Equipment investment requires less time to transform into productive capital. It reacts to productivity shocks more timely than structures investment and reflects more information contained in stock prices.

9/7/2016John Pokorny


"Nominal frictions, leverage, and investment"


I find that nominal debt contracts and nominal price stickiness create a channel for inflation to affect real investment and leverage decisions. When debt in is nominal terms, Inflation lowers the real value of current debt, increases the marginal cost of issuing debt, and reduces the optimal amount of leverage. This reduces the degree of debt overhang, increasing investment. Firms with flexible prices invest more. I confirm these predictions empirically using a measure of price stickiness. Firms increase investment and reduce debt when inflation is high. Firms with sticky prices have lower investment and higher debt following inflation shocks.

9/14/2016Chao Ying/Fangyuan Yu


Chao Ying

Authors:  Hengjie Ai, Anmol Bhandari, Jincheng Tong and Chao Ying

TITLE: "Aggregation in Economies with Homogeneous Decision Rules"



Fangyuan Yu


"Adverse selection and asset sales"


I consider a dynamic adverse selection problem in OTC markets. One seller with private information about asset quality searches buyers sequentially in the market. Two types of buyers exist in the market (informed and uninformed). Buyers make private offers to sellers if they meet, and sellers decide whether to accept the offer. I find that there exists a unique stationary market belief, and belief will converge to this stationary belief if trading hasn't occurred. When the market belief is unfavorable, the high type seller trades more slowly, and the average trading time for high type seller is longer than low type; when the market belief is favorable, high type seller trades more quickly, and the average trading time for high type seller is shorter than low type seller.



Tracy Wang


Title: "Skilled Labor Risk and Corporate Policies"

Abstract: In 2013, 86% of the U.S. publicly traded companies mentioned potential failure in attracting and retaining skilled labor as a risk factor in their 10-K filings, up from 37% in 1996. The intensity of the discussion on skilled labor risk in 10-Ks also increased sharply over the years. In this study, we measure skilled labor risk by the intensity of such discussions in 10-Ks, and examine its determinants as well as its impact on firms’ compensation design and financial management. We find that both the local mobility of skilled labor and the lack of access to ample supply of educated labor contribute to firms’ skilled labor risk. Consistent with theories on optimal compensation design in the presence of mobile talents, we find that firms facing higher skilled labor risk use more incentive pay with longer duration. Furthermore, those firms pursue more prudent financial management policies, holding more cash and borrowing less, supporting theories arguing that the skilled labor risk adds to a firm’s overall risk.

9/28/2016Yue Qiu

Title: Debt Structure as a Strategic Bargaining Tool

Abstract: This paper studies the strategic role of debt structure in improving the bargaining position of a firm's management relative to its non-financial stakeholders. Debt structure is essential for strategic bargaining since it affects the ease of debt contract renegotiation and thus the credibility of bankruptcy threats. Using airline industry as the empirical setting, we first show that the degree of wage concessions is strongly related to a firm's debt structure. Debt structure is further shown to be adjusted as a response to an increase in non-financial stakeholders' negotiation power. Using NLRB labor union election as a laboratory setting and employing a regression discontinuity design, we find that passing a labor union election leads to an increase in the ratio of public debt to total assets and a decrease in the ratio of bank debt to total assets in the following three years after elections, while there is no significant change in the level of total debt. Syndication size of newly issued bank loans increases while creditor ownership concentration decreases once the vote share for unions passes the winning threshold. Various tests confirm that the debt structure adjustments after union certification are more likely driven by strategic concerns of management rather than more constrained access to bank loans.

10/5/2016Ali Sanati

Location: CSOM 1-142

Title: Mobility of Skilled Labor and Capital Structure

Abstract: Firms that rely on relatively more high skill and high mobility employees at the same time, operate with lower financial leverages, to reduce the risk of losing their talents in financial distress. To quantify the importance of this channel, I estimate a dynamic model in which a firm hires skilled labor and finances investment by issuing equity and defaultable debt. Wages are not paid in default states and are only partially paid when the firm is distressed. If future wages are expected to be less than a reservation value, not only new workers cannot be hired, but the current workers also leave the firm at a rate that depends on their mobility. The estimated model generates same cross-sectional patterns in leverage as in actual data. Also, model identification is confirmed in a natural experiment using unexpected changes in labor mobility. The model predicts that if firms were not constrained by labor concerns, net debt to asset ratio would increase by 38%, from 0.124 to 0.171. This can be partially achieved if firms pay wages by their bonds, instead of cash or equity

10/12/2016Jincheng Tong

Location: CSOM 1-142

Title: Dynamic-Agency Based Asset Pricing in a Production Economy

Author: Jincheng Tong & Chao Ying

Abstract: We present an asset pricing model in a production economy where neither firms nor workers can fully commit to labor compensation contracts. We embed optimal dynamic contracting in our general equilibrium setup to provide a unified explanation of macroeconomic quantity dynamics and asset market returns. With a risk aversion of four, our model generates an un-levered equity premium of 4% per year, a volatility of the stock market return of 14% per year, and a low and smooth risk-free rate. On the quantities side, it successfully replicates the empirical evidence of the low volatility of aggregate consumption growth and large variations in aggregate investment over the business cycle.

10/19/2016Yao DengLocation: CSOM 1-142

Title:  Industry Competition, Profitability and Stock Returns
10/26/2016Xuelin Li


Location: CSOM L-114

Title: A Race of Unicorns

Abstract: In an emerging industry, successful start-ups, also known as “Unicorns”, compete both in the product market as well as capital markets. The product market condition does not only influence the oligopoly profits, but also influences the investor’s belief on company future growth opportunity in the capital market. In this paper, we model a dynamic competition game between a good unicorn and a bad one. Both companies can choose to raise capitals by IPO and expand the current profit, or to be acquired by the other one. The unicorns time their financing decisions by balancing the adverse selection cost with the loss in expansion. In the model, market condition uniquely divides the financing decisions into three regions: IPO wave, burning money or M&A wave. Good unicorns optimally choose to suffer underpricing if they pool with bad ones in IPO, to give up expansion temporally, or to acquire the bad ones, signal their type and become the monopoly. The model can explain several empirical phenomena like volume fluctuations and market-timing in IPO. Also, the model has some empirical predictions in both pre-IPO competitions and post-IPO wave performance.

11/2/2016Martin Szydlowski

Location: CSOM L-114

Title: The Market for Conflicted Advice
Author: Martin Szydlowski, Briana Chang

Presenter: Martin Szydlowski
We study decentralized markets in which advisers have conflicts of interest and compete for customers via information provision. We show that competition partially disciplines conflicted advisers. The equilibrium features information dispersion and sorting of heterogeneous customers and advisers: advisers with expertise in more information sensitive assets attract less informed customers, provide worse information, and earn higher profits. We further apply our framework to the market for financial advice and establish new insights: it is the underlying distribution of financial literacy that determines the consumers’ welfare. When advisers are scarce, the fee structure of advisers is irrelevant for the welfare of consumers.

11/9/2016Murray Frank

Location: CSOM L-114

Title: The Effect of Taxation on Corporate Financing and Investment
Author: Hong Chen and Murray Frank

Presenter: Murray Frank
This paper studies the impact of taxation on corporate investment, debt, equity, and dividends. There is a classical tax code in which the firm pays tax on profits and the investor pays taxes on dividends, interest, and capital gains. We find that small increases in the dividend tax (or the capital gains tax) has no effect on consumption, production or government revenue.  Instead, the firm alters the dividends and share issuance policies. A small increase in the corporate profits tax (or a cut in the tax on interest) reduces consumption, increases government revenue, and for realistic tax parameters increases production.  There is one approximate symmetry between the impact of corporate profits tax and interest tax, and another between dividend tax and capital gains tax.

11/16/2016Ding LuoTitle: "Capital Heterogeneity and Return Predictability"
11/30/2016Wei ZhangTitle: Credit Supply and the Choice between Cash and Lines of Credit
12/7/2016Richard Thakor

Title:  The Effect of Cash Injections: Evidence from the 1980s Farm Debt Crisis

Authors:  Nittai Bergman, Rajkamal Iyer, Richard Thakor

Abstract:  What is the effect of cash injections during financial crises? Exploiting county-level variation arising from random weather shocks during the 1980s Farm Debt Crisis, we analyze and measure the effect of local cash flow shocks on the real and financial sector. We show that such cash flow shocks have significant impact on a host of economic outcomes, including land values, loan delinquency rates, and the probability of bank failure. Further, we measure how cash injections affect local labor markets, analyzing the impact on employment and wages both within and outside of the sector receiving a positive cash flow shock. Estimates of the effect of local cash flow shocks on county income levels during the financial crisis yield a multiplier of 1.63.

12/14/2016Hengjie Ai


Title: Moral Hazard and Investment-cash-flow sensitivity, with Rui Li (University of Massachusetts) and Kai Li (HKUST)

Abstract: We present a dynamic model of investment with moral hazard. We show that the optimal contract with moral hazard gives rise to endogenous financing constraints and results in investment-to-cash flow sensitivity. In addition, the magnitude of invest-to-cash flow sensitivity does not increase with the tightness of financing constraints and therefore cannot be used as a quantitative measure of such. Our calibrated model replicates the failure of Q-theory, provides an explanation for the existence of investment-cash flow sensitivity, and accounts for the robust
positive relationship between investment-to-cash flow sensitivity and firm size and age in the data.




3/30/2016Yue Qiu


This paper studies the strategic role of debt structure in improving the bargaining position of a firm's management relative to its non-financial stakeholders. Debt structure is essential for strategic bargaining since it affects the ease of debt contract renegotiation and thus the credibility of bankruptcy threat. We first document that the degree of wage concessions is indeed strongly related to a firm's debt structure ex post in the airline industry and the effect is reduced when bankruptcy threat is less credible for employees. Debt structure is further shown to be adjusted ex ante as a response to an increase in non-financial stakeholders' negotiation power. Utilizing NLRB labor union election as a laboratory setting and employing a regression discontinuity design, we find that passing a union election leads to an increase in the ratio of public debt to total asset and a decrease in the ratio of bank debt to total asset in the following three years after elections, while there is no significant change in the level of debt. Syndication size of newly issued bank loans increases while creditor ownership concentration decreases once vote share for unions passes the winning threshold. Various tests confirm that the debt structure adjustment after new unionization is more likely driven by strategic concerns of management rather than more constrained access to bank loans.

4/13/2016Ding Luo

TITLE: Asset Pricing and Risk Sharing with Limited Enforcement and heterogeneous Preferences

We introduce heterogeneous preferences (heterogeneity in risk aversion and time discount factor) into a two-agent endowment economy with enforcement constraints, aggregate and idiosyncratic uncertainty (Alvarez and Jermann (2001 RFS)), and study the corresponding asset pricing and risk sharing implications. We show that the relative time discount factor and the interaction between heterogeneous risk aversion and aggregate uncertainty affect the evolution of the relative Pareto weight of agents. The more patient agent tends to obtain a higher Pareto weight, and the less risk averse agent tends to do so in booms and the reverse in recessions. We demonstrate that preference heterogeneity can generate a positive equity premium with only idiosyncratic uncertainty present since the conditional pricing kernel is time-varying depending on which agent is the marginal pricer. We show that preference heterogeneity boosts the mean and volatility of equity premium quantitatively in a calibrated model, because the more risk averse and/or the more patient agent cannot trade away most of his income risk with the other agent.


4/20/2016Koushalendra Kishore

Title: Why do banks ignore the warnings?


Although the recent financial crisis came as a surprise to many, there were some employees who had warned against these risks. These warnings were ignored by the CEOs of the banks and the employees were fired. In my paper, I provide a theory of when will a CEO fire the employees and go ahead with risky strategies. Under the condition that one may get fired, the decision of the employees to disclose his concerns leads to a coordination problem among the employees. In a global games setting I show that, banks are more likely go ahead with the risky strategies when they seem to be more profitable.

4/27/2016Jincheng Tong

Title: Uninsurable Tail Risks, Operating Leverage and the Value Premium

We provide a theory of value premium based on idiosyncratic risk in productivities in a world where markets are endogenously incomplete. In our model, fully-diversified equity owner compensates workers using long-term risk-sharing labor contract but cannot commit to firms that yield negative NPV of dividends. The optimal contract makes adverse idiosyncratic shocks uninsurable. We show that limited commitment constraint endogenously generates a high market price of risk through labor-induced operating leverage channel. Different levels of operating leverage across firms lead to heterogeneous exposures to aggregate risk, thus giving rise to differences in returns between value and growth firms. 

5/4/2016Ali Sanati

Title: Rational Stock Market Catering



Can the usual tests of the Catering Theory of corporate investment distinguish between behavioral and rational perspectives? Using USA data from 1970 to 2015 we find test result which have been used in support of behavioral Catering Theory. We present a simple rational model of corporate investment and equity issuance. Data generated by the calibrated model produces the same patterns of coefficients as real data. According to behavioral, periods of high market sentiment and booms, are times of overvaluation. Using these periods we find that the patterns of coefficients are consistent with the rational model and not consistent with the behavioral predictions.



Brown Bags take place from 12:00 pm -1:00 pm in room 1-142 unless otherwise specified. 

9/9/15Andy WintonCheating in China: Corporate Fraud and the Role of Financial Markets
9/16/15Kaushalendra KishoreCorrelated Debt, Information Acquisition and Financial Crisis
9/23/15Mark EganRecycling Bad Apples
9/30/15Junyan ShenCapital Misallocation and Financial Market Friction: Some Evidence by User Cost of Capital
10/7/15John PokornyNominal Frictions, Investment, and Leverage
10/14/15Jincheng TongGovernment Investment and Asset Prices
10/21/15Yue QiuLabor Adjustment Cost and Corporate Hedging
11/4/15Wei Zhang 
11/11/15Xuelin Li 
11/18/15Yao Deng 
12/2/15Ali Sanati 
12/9/15Briana Chang 
12/16/15Ding Luo 



2/25/2015Murray Frank
3/4/2015Motohiro Yogo
3/11/2015Hengjie Ai
3/18/2015Spring Break, No Brown Bag
4/1/2015Yue Qiu
4/8/2015Jianfeng Yu
4/15/2015Ding Luo
4/22/2015John Pokorny
5/6/2015Wei Zhang


2/26/14Ashraf Al Zaman

Cash holdings and technological development: Evidence from IT-mediated improvement in inventory management

Since 1980s US manufacturing firms are holding more cash relative to their assets. In this paper, we investigate whether improvements in information technology (IT) and its use have contributed to this increase. We establish that IT contributed to the improvement through inventory channel. IT has enabled firms redeploy their current assets: substituting cash for inventory, engendering an era of sustained higher level of cash holdings. In addition, we also establish that some observed heterogeneity in cash holdings can be explained by the industries firms operate in, the type of inventories they hold, and the financial constraints they face.

3/5/14Jianfeng Yu

Short- and Long-Run Business Conditions and Expected Returns 

(joint with Qi Liu, Libin Tao, and Weixing Wu)

Numerous studies argue that the market risk premium is associated with economic conditions and show that proxies for business conditions indeed predict aggregate market returns. By directly estimating short- and long-run expected economic growth, we show that short-run expected economic growth is negatively related to future returns, whereas long-run expected economic growth is positively related to aggregate market returns. At an annual horizon, short- and long-run expected growth can jointly predict aggregate excess returns with an R2 of 17-19%. Our findings indicate that the risk premium has both high- and low-frequency fluctuations and highlight the importance of distinguishing short- and long-run economic growth in macro asset pricing models.

3/12/14John PokornyTBD
3/19/14Spring BreakNo seminar
3/26/14Hongda ZhongTBD
4/2/14Martin SzydlowskiTBD
4/9/14Kee Seon NamTBD
4/16/14Junyan ShenTBD
4/23/14Raj SinghTBD
4/30/14Frederico BeloTBD
5/7/14Rajesh AggarwalTBD
9/4/13Hengjie Ai

A Mechanism Design Model of Firm Dynamics: The Case of Limited Commitment

We present a general equilibrium-mechanism design model with two-sided limited commitment that accounts for the observed heterogeneity in firms'; investment, payout and CEO-compensation policies. In the model, shareholders cannot commit to holding ;negative net present value projects, and managers cannot commit to ;compensation plans that yield life-time utility lower than their outside ;options. Firms operate identical constant return to scale technologies with i.i.d.\ productivity growth. Consistent with the data, the model endogenously generates a power law in firm size and a power law in CEO compensation. ;We also show that the model is able to quantitatively explain the observed negative;relationship between firms' investment rates and size, the positive relationship between firms' size and their dividend and CEO payout, as well as; variation of firms' investment and payout policies across both size and age.

9/11/13Jeremy Graveline

Crash Risk in Currency Returns

We quantify crash risk in currency returns. To accomplish this task, we develop and estimate an empirical model of exchange rate dynamics using daily data for four currencies relative to the US dollar: the Australian dollar, the British pound, the Swiss franc, and the Japanese yen. The model includes (i) normal shocks with stochastic variance, (ii) jumps up and down in the exchange rate, and (iii) jumps in the variance. We identify these components using data on exchange rates and at-the-money implied variances. We find that crash risk is time-varying. The probability of an upward (downward) jump in the exchange rate, associated with depreciation (appreciation) of the US dollar, is increasing in the domestic (foreign) interest rate. The probability of jumps in variance is increasing in the variance but is not related to interest rates. Many of the jumps in exchange rates are associated with macroeconomic and political news, but jumps in variance are not. On average, jumps account for 25% (and can be as high as 40%) of total currency risk, as measured by the entropy of exchange rate changes, over horizons of one to three months. Preliminary analysis suggests that these properties of currency returns correspond to observed option smiles and that jump risk is priced.

9/18/13Tracy Wang

CEO Investment Cycles

This paper documents the existence of a CEO Investment Cycle, in which firms disinvest early in a CEO's tenure and increase investment subsequently, leading to cyclical firm growth in assets as well as in employment over CEO tenure. The CEO investment cycle occurs for both firings and non-performance related CEO turnovers, and for CEOs with different relationships with the firm prior to becoming CEO. The magnitude of the CEO cycle is substantial: The estimated difference in investment rate between the first three years of a CEO's tenure and subsequent years is approximately 6 to 8 percentage points, which is of the same order of magnitude as the differences caused by other factors known to affect investment, such as business cycles or financial constraints. We present a variety of tests suggesting that this investment cycle is best explained by a combination of agency-based theories: Early in his tenure the CEO disinvests poorly performing assets that his predecessor established and was unwilling to give up on. Subsequently, the CEO overinvests when he gains more control over his board. There is no evidence that the investment cycles occur because of shifting CEO skill or productivity shocks. Overall, the results imply that public corporations' investments deviate substantially from the first-best, and that governance-related factors internal to the firm are as important as economy-wide factors in explaining firms' investments.

9/25/13John PokornyCommodity returns and carry portfolios
10/2/13Amanda HeitzEfficient Contracting, Information Sharing, and Corporate Finance: An International Perspective
10/9/13Yue Qui

CEO Compensation and Maturity of Debt Issues: Evidence From IRC 162(M)

This essay shows that CEO incentives provided by option compensation have significant impacts on maturity of newly issued debt. To identity such impacts, we exploit IRC 162(M) as an exogenous shock to new option grant decisions. IRC 162(M), effective since January 1st, 1994, limits corporate tax deductibility of CEO compensation and also has impacts on new option grant decisions in US firms. Our main findings are: First, after introduction of IRC 162(M), number, volatility sensitivity and price sensitivity of newly granted options in affected firm increase more than those in unaffected firms. Second, maturity of newly issued debt decreases (increases) when volatility (price) sensitivity of new option compensation increases. Overall, results in this essay show that CEO option compensation has large impacts on maturity of newly issued debt.

10/16/13Ding Luo

Short Arbitrage and Abnormal Return Asymmetry

This paper studies how constraints on short arbitrage are associated with abnormal return asymmetry of a broad set of anomalies. Using institutional holdings as a proxy for ease of short selling and idiosyncratic volatility for arbitrage risk, We find that the return asymmetry is stronger when short arbitrage is more constrained (low institutional holdings and high idiosyncratic volatility).

10/23/13Wei ZhangTBD
10/30/13Sangiago BazdreschOut of Sample Prediction tests for a Structural Model of Investment and Financing
11/6/13Motohiro Yogo

Shadow Insurance

Liabilities ceded by life insurers to shadow reinsurers (i.e., less regulated off-balance-sheet entities) grew from $11 billion in 2002 to $363 billion in 2012. Companies that are involved in shadow insurance, which capture 50 percent of the market share, ceded 28 cents of every dollar insured to shadow reinsurers in 2012, up from 2 cents in 2002. Our adjustment for shadow insurance reduces risk-based capital by 49 percentage points (or 3 rating notches) and raises expected loss by at least $15.7 billion for the industry. We develop a structural model to estimate the impact of shadow insurance on the equilibrium supply in the retail market. In the absence of shadow insurance, marginal cost would rise by 1.8 percent, and annual insurance underwritten would fall by $1.4 billion at unit demand elasticity.

11/13/13Kee Seon NamUncertainty about Management and Information Asymmetry
11/20/13Murray Frank

Equilibrium Corporate Capital Structure (work-in-progress with Hong Chen, SAIF)

The trade-off theory of corporate capital structure has been studied in partial equilibrium settings, and in dynamic models that require numerical solutions. Separately, as a result of the financial crisis of 2007-2009, there are studies of financial frictions at the bank. These models are used to study "unconventional Fed policy" along the lines of the policies actually adopted during the crisis. We bring a simple financing friction model closer to the trade-off theory, by permitting equity finance. Cases with and without corporate tax, and the financing friction (bank default) are compared. Results similar to Modigliani-Miller (1958 and 1963) emerge naturally as special cases. Allowing for an equity market tends to undermine the policy justifications of "unconventional Fed policy" because investment tends to avoid distorted markets when an undistorted alternative is available. In contrast to the usual trade-off theory models, the corporate tax rate may affect the volume of household savings and hence the scale of firm production, but not the equilibrium leverage ratio in some equilibria.

12/2/13 - MondayJunyan ShenCapital Misallocation and Financial Intermediary
12/11/13Hongda ZhongThoughts on Optimal Debt Maturity, Number of Creditors and Seniority Structure under Rollover Risk
2/20/13Tracy WangTBD
2/27/13Huihua LiTBD
3/6/13Jeremy GravelineTBD
3/13/13Amanda Heitz 
3/27/13Murray FrankTBD
4/3/13Junyan ShenTBD
4/10/13Kai Li (UBC)
(11:45-1:15 pm.)
4/17/13Sergiy DubynskiyTBD
4/24/13Hongda ZhongTBD
5/1/13Gordon AlexanderTBD
5/8/13Bob GoldsteinTBD
9/5/12Huijun WangThe Role of Exploration and Exploitation in Diseconomies of Scale in the Mutual Fund Industry
9/19/12John PokornyDo Agents Equate Marginal Utility Growth Over the Assets They Can Trade?
9/26/12Tao ShenCredit Spreads and Investment Opportunities
10/10/12Hongda ZhongDynamic Trade with Asymmetric Information and Market Timing
10/17/12Junyan ShenEfficiency or Sentiment, discussion on the role of mutual fund flow
10/24/12Hengjie AiCorporate Finance Frictions and Expected Return on Equity: An Irrelevance Result
10/31/12Jianfeng YuArbitrage Asymmetry and the Idiosyncratic Volatility Puzzle
11/7/12Kee Seon NamNational Culture and Innovation: A Cross-Country Empirical Investigation
11/14/12Sergiy DubynskiyTechnological Diversification and Asset Prices
11/28/12Frederico BeloLabor heterogeneity and asset prices: the importance of skilled labor
12/5/12Doriana RuffinoTBD
12/12/12Amanda HeitzTBD


1/18/12Philip BondThe Effect of Government Guarantees without Risk-Shifting
1/25/12Murray FrankInvestment and the Weighted Average Cost of Capital. How Good is the Standard Model?
2/1/12Stephen ParenteMicro-Simulation of Early Health Savings Account Adoption and Policy Proposals
2/8/12Raj AggarwalInternal Capital Markets and Unrelated Acquisitions
2/15/12Tracy WangFirst Year in Office: How Do New CEOs Create Value?
2/22/12Jianfeng YuExtrapolative Expectation and Asset Pricing Puzzles
2/29/12Huijun WangDoes Effort Matter? A Study on Persistence in Mutual Fund Performance
3/7/12Amanda HeitzBlockholder Preference on Governance: Insights from VC-Backed IPOs
3/21/12Tao ShenCredit Spreads and Investment: Aggregate and Firm-Level Evidence
3/28/12Moto YogoInsurance Regulation and Policy Firesales
4/4/12Sergiy DubynskiyLearning-by-Doing and Asset Prices
4/11/12Raj SinghEffect of Non-Tradability on Risk Aversion
4/18/12Santiago Bazdresch 
4/25/12Gordon AlexanderHow Informed Are Predictive and Reactive Short Sellers around Earnings Announcements?


9/7/11Bob GoldsteinDividend Dynamics
9/14/11Tao ShenA Dynamic Learning Model of Takeovers
9/21/11Andrew WintonLender Moral Hazard and Reputation in Originate-to-Distribute Markets
9/28/11Amanda HeitzThe Social Costs and Benefits of Too-Big-To-Fail Banks: A Bounding Exercise
10/5/11John BoydWhat Made US Banks Susceptible to a Systemic Crisis?
10/12/11Daniil OsipovDoes solvency regulation always reduce product market competition? Evidence from the EU life insurance industry
10/19/11Huijun WangPrecautious Exploration of Mutual Fund Investment
10/26/11Doriana RuffinoEstimating Return Parameters with Short Historical Data: The Case of U.S. Treasury Inflation-Protected Securities
11/2/11Jun LiInvestment-specific shocks and momentum profits
11/9/11Santiago BazdreschProduct Differentiations and Stock Returns: Theory and evidence on Differentiations-Return Dynamics
11/16/11Sergey DubynskiyInvestment and Stock Returns Correlation Puzzle
11/30/11Hongda ZhongHigher Incentives Lead to Lower Effort? Optimal Contracting with Heterogeneous Altruistic Agents
12/7/11Jeremy GravelineExchange Rate Dynamics and International Risk Sharing
12/14/11Junyan ShenInvestor Sentiment and the Economic Forces


1/28/11Motohiro Yogo, Federal Reserve Bank of MinneapolisHealth Data
3/4/11Santiago Bazdresch 
3/25/11Tao Shen and Huijun Wang 
4/1/11Jun Li and Sergiy Dubynskiy 

Amanda Heitz


Hongda Zhong

Estimating Bounds on the Present Discounted Value of Economics of Scale in Large Banks

Continuous Time Agency Problem

4/13/11Santiago Bazdresch 
5/11/11Murray FrankBank Loan Search


8/4/10Jianfeng YuInvestor Sentiment and Anomalies
9/29/10Fan Yang 
10/6/10Daniil Osipov 
10/8/10Philip BondBankers and Regulators
10/13/10Tao Shen Huijun Wang 
10/22/10Jeremy GravelineThe Cost of Short-Selling Liquid Securities
10/27/10Sergiy Dubynskiy and Jun Li 
11/10/10Pedram NezafatCorporate Capital Structure Variation over Time: Capital Market Driven or Investment Driven?
11/17/10Xiaoji Lin, London School of EconomicsMicro Frictions, Asset Pricing and Aggregate Implications
12/15/10Tracy WangCompetition and Corporate Fraud Waves


3/2/10Tao Shen and Huijun WangLiterature Review
3/10/10Murray Frank and Pedram NezafatCredit Market Timing
3/22/10Doriana RuffinoRobust Mean-Variance Portfolio Analysis
5/11/10Xiaoyun YuDo Financial intermediaries During IPOs Affect Long-Term Firm Mortality Rates?
5/19/10Pedram NezafatHigh-Frequency Capital Structure Decisions: Theory and Empirical Test
5/26/10Fan YangA Production-Based Model on the Cross- Section Predictability of Commodity Futures Returns
6/4/10Yihui PanThe Determinants and Impact of Executive-Firm Matches
6/11/10Daniil OsipovTrade-off and Pecking Order Theories of Capital Structure: The Case of the UK Insurance Industry
6/19/10Raj AggarwalAn Empirical Investigation of Internal Governance



Huijun Wang

Tao Shen

Predictability of Excess Returns on Foreign Currency Portfolios and Foreign Equity Portfolios

Replication and Extension: Investment and Value, A Neoclassical Benchmark

9/9/09Yihui PanThe Determinants and Impact of Executive-Firm Matches
9/16/09Tracy WangTolerance for Failure and Corporate Innovation
9/23/09Xiaoyun YuInformation From Relationship Lending: Evidence from Loan Defaults in China
9/30/09Frederico BeloA Labor-Augmented Investment-Based Asset Pricing Model
10/28/09Jianfeng YuPsychological Anchors, Underreaction, Overreaction, and Asset Prices

Jun Li

Daniil Osipov

Investment-based Asset Pricing

Literature Review on Partial Adjustment Toward Target Capital Structures


Fan Yang

Pedram Nezafat

Literature Review of Commodity Pricing

Literature Review of Asset Prices and Business Cycles

12/9/09Frederico BeloIs Investment in Public Capital Good News for the Stock Market?
12/16/09Jianfeng YuA Sentiment-Based Explanation of Forward Premium Puzzle