Faculty & Research

Lin William Cong

Assistant Professor of Finance

Phone :
1-773-834-1436
Address :
5807 South Woodlawn Avenue
Chicago, IL 60637

Lin William Cong is a professor of Finance and PhD advisor at the University of Chicago, and a faculty affiliate at the Center for East Asian Studies. His main research fields are dynamic corporate finance and information economics. His research interests include financial innovation and technology, real options, information and mechanism design, entrepreneurial finance, capital market imperfections, and China's economy and financial system. For his work, Cong has received the Finance Theory Group Best Paper Award, the Shmuel Kandel Award, and the Zephyr Prize for Best Paper in Corporate Finance, amongst other honors and fellowships. He was also a George Shultz Scholar at the Stanford Institute for Economic Policy Research and a Doctoral Fellow at the Stanford Institute for Innovation in Developing Economies. Additionally, his undergraduate research in physics and applied mathematics resulted in publications in a variety of science journals. Cong currently serves as an advisor for the Wall Street Blockchain Alliance (non-profit), and a member of multiple professional organizations such as the American Economic Association and the Econometric Society.

Cong earned a Ph.D. in finance and a MS in statistics from Stanford University, where he received the Gerald Lieberman Fellowship for outstanding contributions in research, teaching, and university service, and the Asian American Award for graduate leadership. He also holds dual degrees from Harvard University where he graduated top in Physics in 2009 with summa cum laude and Phi Beta Kappa, receiving an A.M. in physics, an A.B. in math & physics, a minor in economics, and a language citation in French.

Cong is a native of Shenyang, China. Outside his research and teaching, Cong practices Chinese Calligraphy, and enjoys reading, sports, cross fitness, guitar, as well as learning French and Japanese. Cong is also passionate about technological innovations, education in China and in the U.S., and integrating quantitative and fundamental approaches to investments in various asset classes, to which he first coined the term "Quantimental Investing" in 2014.

 

2017 - 2018 Course Schedule

Number Name Quarter
35125 Quantimental Investment 2018 (Spring)
35600 Seminar: Finance 2017 (Fall)

REVISION: Up-Cascaded Wisdom of the Crowd
Date Posted: Nov  19, 2017
Financing activities such as crowdfunding often involve both fund-raising and information production, and feature all-or-nothing (AoN) rules that contingent the financing upon achieving certain fundraising targets. Motivated by this observation, we introduce endogenous AoN target into a classical model of sequential sales and information cascade, and find that AoN leads to uni-directional cascades in which investors rationally ignore private signals and imitate preceding investors only if the preceding investors decide to invest. Consequently, an entrepreneur prices issuance more aggressively, and fundraising may succeed rapidly but never fails rapidly. Information production also becomes more efficient, especially with a large crowd of investors, yielding more probable financing of good projects, and the weeding-outs of bad projects that are absent in earlier models. More generally, endogenous pricing with AoN targets leads to greater financing feasibility and better ...

REVISION: Up-Cascaded Wisdom of the Crowd
Date Posted: Nov  19, 2017
Financing activities such as crowdfunding often involve both fund-raising and information production, and feature all-or-nothing (AoN) rules that contingent the financing upon achieving certain fundraising targets. Motivated by this observation, we introduce endogenous AoN target into a classical model of sequential sales and information cascade, and find that AoN leads to uni-directional cascades in which investors rationally ignore private signals and imitate preceding investors only if the preceding investors decide to invest. Consequently, an entrepreneur prices issuance more aggressively, and fundraising may succeed rapidly but never fails rapidly. Information production also becomes more efficient, especially with a large crowd of investors, yielding more probable financing of good projects, and the weeding-outs of bad projects that are absent in earlier models. More generally, endogenous pricing with AoN targets leads to greater financing feasibility and better ...

REVISION: Insider Investor and Information
Date Posted: Nov  13, 2017
We model dynamic financing of innovative projects where relational financiers observe entrepreneurs' experimentation and thus information they endogenously produce, before deciding on whether to continue financing. We show that entrepreneurs' optimal information productions follow threshold strategies. Insider financiers extract no rent even with full information monopoly, and projects are not efficiently financed. Independent experimentation by insiders mitigate the problem, but can be either a complement or substitute to entrepreneurs' information production. Moderate competition also facilitates information production and relationship financing. We characterize how investors' relative sophistication and competition interact to produce the non-monotone empirical patterns linking relationship formation and competition. Our model also allows general forms of security design, timing of experimentation and offer negotiation, and applies to venture financing. Finally, entrepreneurs ...

REVISION: Persistent Blessings of Luck
Date Posted: Nov  10, 2017
Persistent fund performance in venture capital is often interpreted as evidence of differential abilities among managers. We present a dynamic model of venture investment with endogenous fund heterogeneity and deal flows that produces performance persistence without innate skill difference. Investors work with multiple funds and use tiered contracts to manage moral hazard dynamically. Recently successful funds receive continuation contracts that encourage greater innovation, and subsequently finance innovative projects through assortative matching. Initial luck, therefore, exerts an enduring impact on performance by altering managers' future investment opportunities. The model generates implications broadly consistent with empirical findings, such as that persistently outperforming funds encourage greater innovation and attract better entrepreneurs even with worse terms. The model further predicts 'incumbent bias' in investing in funds, mean-reversion of long-term performance, ...

REVISION: Blockchain Disruption and Smart Contracts
Date Posted: Oct  17, 2017
Distributed ledger technology embodied in blockchains features decentralized consensus as well as low-cost, tamper-proof, and algorithmic executions, and consequently enlarges the contracting space through smart contracts. Meanwhile, the process of generating decentralized consensus, which involves information distribution, necessarily alters the informational environment. We analyze how decentralization improves consensus effectiveness, and how the quintessential features of blockchain reshape industrial organization and the landscape of competition. Smart contracts can mitigate information asymmetry and deliver higher social welfare and consumer surplus through enhanced entry and competition, yet blockchains may also encourage collusion due to the irreducible distribution of information. In general, blockchains can sustain market equilibria with a larger range of economic outcomes. We further discuss anti-trust policy implications targeted to blockchain applications, such as ...

REVISION: Insider Investor and Information
Date Posted: Oct  16, 2017
We model dynamic financing of innovative projects where relational financiers observe entrepreneurs’ experimentation and thus information they endogenously produce, before deciding on continued financing. We show that entrepreneurs’ optimal information productions follow threshold strategies. Insider financiers extract little or no interim rent even with full information monopoly, hindering efficient financing ex ante. Independent experimentation by insiders mitigate the problem, but can be either a complement or substitute to entrepreneurs’ information production. Moderate com- petition also facilitates information production and relationship financing. We characterize how investors’ relative sophistication and competition interact to produce the non-monotone empirical patterns linking relationship lending and competition. Our model also allows general forms of security, timing of experimentation and offer negotiation, and applies to venture financing. Finally, entrepreneurs’ ...

REVISION: Timing of Auctions of Real Options
Date Posted: Oct  09, 2017
This paper endogenizes auction timing and initiation in auctions of real options. Revenue-maximizing timing deviates from welfare-maximizing or bidders' preferred timing because the information rent the seller pays makes her face a "virtual strike price' higher than the option exercise cost. The irreversible nature of time endows a seller potential control over the winning bidder's eventual option exercise. As long as she does not strongly prefer early exercise, she inefficiently delays the auction; otherwise auction timing is efficient, but option exercises are always inefficiently delayed. When the seller lacks commitment to auction timing and offer finality, bidders always initiate in equilibrium regardless of the divergence in their and the seller's preferred option exercise. The model also predicts that bidder initiation corresponds to faster option exercise, consistent with empirical evidence from the selling and drilling of oil and gas tracts.

REVISION: How Public Markets Foster Firm Standardization: Evidence from Chinese IPOs
Date Posted: Sep  10, 2017
To go public, private firms must (a) commit going-concern value to arm’s length financiers, (b) minimize concerns about agency conflicts, and (c) reduce perceived information asymmetry. We use IPO suspensions in China to explore how public market access affects this standardization process. Among firms already approved to IPO, the surprise suspensions of indeterminate length caused plausibly exogenous and uncertain listing delay. We find that suspension-induced delay negatively affects proxies for all three standardization activities, with especially large effects on patent applications. Responsiveness varies with venture capital backing. Neither window dressing nor a capital supply shock can independently explain the results.

REVISION: Credit Allocation under Economic Stimulus: Evidence from China
Date Posted: Aug  23, 2017
We study credit allocation across firms and its real effects during China's economic stimulus plan of 2009-2010. We match confidential loan-level data from the 19 largest Chinese banks with firm-level data on manufacturing firms. We find that the stimulus-driven credit expansion disproportionately favored state-owned firms and firms with lower marginal product of capital, reversing the process of capital reallocation towards private firms that characterized China high growth before 2008. We rationalize these findings in a dynamic model with financial frictions. In normal times, growth is driven by gradual reallocation of resources from low to high productivity firms. Recessions can slow down or even reverse this process due to implicit government bailout favoring state-connected firms. Credit expansion further amplifies this effect.

REVISION: Dynamic Interventions and Informational Linkages
Date Posted: Jun  15, 2017
We model a dynamic economy with strategic complementarity among investors and endogenous government interventions that mitigate coordination failures. We establish equilibrium existence and uniqueness, and show that one intervention can affect another through altering the public-information structure. A stronger initial intervention helps subsequent interventions through increasing the likelihood of positive news, but also leads to negative conditional updates. Our results suggest optimal policy should emphasize initial interventions when coordination outcomes tend to correlate. Neglecting informational externalities of initial interventions results in over- or under-interventions, depending on intervention costs. Moreover, saving smaller funds before saving the big ones costs less and generates greater informational benefits under certain circumstances. Our paper is informative of multiple intervention programs such as those enacted during the 2008 financial crisis.

REVISION: Price of Value and Divergence Factor
Date Posted: May  22, 2017
Price of Value, measured by the ratio of market price to accounting-based valuation, subsumes the power of book-to-market and to a large extent of various quality measures in predicting the cross-section of average returns. Price-of-value strategies generate significantly higher returns than traditional value and other anomaly strategies even after common factors adjustments, and provides natural hedge against momentum strategies. A four factor model using the Market, Small-Minus-Big, Momentum, and Price-Value Divergence Factor improves over alternative factor models.

REVISION: Auctions of Real Options: Security Bids and Moral Hazard
Date Posted: Mar  04, 2017
Governments and corporations frequently sell assets with embedded real options to competing buyers using both cash and contingent bids. I characterize the auction and option exercise equilibrium. I find that common security bids create moral hazard and distort investments, and modify conventional knowledge about auctions. "Steepness" of securities has a non-monotone effect on the seller's revenue. Optimal security aligns investment incentives by combining down payment and non-uniform royalty payment and delays investment. Furthermore, sellers' commitment to security design affects option exercise: without pre-specified security bids, bidding and allocation are equivalent to cash auctions, and investment is socially efficient. The results are broadly consistent with empirical observations, and are informative of formal auctions such as the sales of oil leases and real estate, as well as informal auctions such as acquisitions of patents and entrepreneurial firms.