REVISION: Resource Allocation within Firms and Financial Market Dislocation: Evidence from Diversified Conglom
Date Posted: Apr 05, 2013
When external capital markets are stressed they may not reallocate resources between firms. We show that resource allocation within firms' internal capital markets provides an important force countervailing financial market dislocation. Using data on U.S. conglomerates we empirically verify that firms shift resources between industries in response to shocks to the financial sector. We estimate a structural model of internal capital markets to separately identify and quantify the forces driving t
New: Advertising Expensive Mortgages
Date Posted: Mar 16, 2013
We use a unique dataset that combines information on advertising by subprime lenders and mortgages originated by them from 2002 to 2007 to study the relationship between advertising and the nature of mortgages obtained by consumers. We exploit the richness of our data and measure the relative expensiveness of a given mortgage as the excess rate of a mortgage after accounting for a broad set of borrower, contract, and regional characteristics associated with a given mortgage -- less expensive mor
REVISION: Debt and Creative Destruction: Why Could Subsidizing Corporate Debt Be Optimal?
Date Posted: Feb 04, 2013
We illustrate the welfare benefit of tax subsidies to corporate debt financing. Two firms engage in a socially wasteful competition for survival in a declining industry. Firms differ on two dimensions: exogenous productivity and endogenously chosen amount of debt financing, resulting in a two dimensional war of attrition. Debt financing increases incentives to exit, which, while socially beneficial, is costly for the firm. Therefore the planner can increase welfare by subsidizing debt financing.
New: Is an Automaker's Road to Bankruptcy Paved with Customers' Beliefs?
Date Posted: Oct 08, 2012
Durable goods producers can face a pernicious feedback loop between their financial health and the demand for their products. Financial distress can reduce demand for a firm’s products if it causes consumers to worry about the firm’s ability to supply flows of goods and services — such as warranties, spare parts, and maintenance — that are typically bundled with the primary durable good. This drop in demand harms the firm’s profitability, exacerbating its financial distress, which in t
REVISION: Cross-Ownership, Returns and Voting in Mergers
Date Posted: Jan 12, 2012
We show that institutional shareholders of acquiring companies on average do not lose money around public merger announcements, because they also hold substantial stakes in the targets and make up for the losses from the former with the gains from the latter. Depending on their holdings in the target, acquirer shareholders may realize different returns from the same merger, some losing money and others gaining. Using a novel dataset we show that this conflict of interests is reflected in the mut
REVISION: Strategic Proxy Voting
Date Posted: Feb 17, 2009
Despite its importance, voting in the elections of corporate boards of directors remains relatively unexplored in the empirical literature. We construct a comprehensive dataset of 3,204,890 mutual fund votes in director elections that took place between July 2003 and June 2005. We find substantial systematic heterogeneity in fund voting patterns: some mutual funds are management friendly, and others are less so. We construct and estimate a model of voting in which mutual funds impose externaliti