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Published and Accepted Papers

Partisan Professionals:Evidence from Credit Rating Analysts

with Elisabeth Kempf

Forthcoming at The Journal of Finance

2018 Financial Research Association (FRA) Best Paper Award

Abstract: Partisan perception affects the actions of professionals in the financial sector. Using a novel dataset linking credit rating analysts to party affiliations from voter records, we show that analysts who are not affiliated with the U.S. president's party downward-adjust corporate credit ratings more frequently. By comparing analysts with different party affiliations covering the same firm in the same quarter, we ensure that differences in firm fundamentals cannot explain the results. We also find a sharp divergence in the rating actions of Democratic and Republican analysts around the 2016 presidential election. Our results suggest partisan perception has implications for firms' cost of capital.

Coverage: Bloomberg, Bloomberg Opinion, CNBC, VOX, Crain's Chicago Business, CBR Comic


Do Firms Respond to Gender Pay Gap Transparency?

with Morten Bennedsen, Elena Simintzi and Daniel Wolfenzon

Forthcoming at The Journal of Finance

Abstract: We examine the effect of pay transparency on gender pay gap and firm outcomes. This paper exploits a 2006 legislation change in Denmark that requires firms to provide gender dis-aggregated wage statistics. Using detailed employee-employer administrative data and a difference-in-differences approach, we find that the law reduces the gender pay gap, primarily by slowing the wage growth for male employees. The gender pay gap declines by approximately two percentage points, or a 7% reduction relative to the pre-legislation mean. In addition, the wage transparency mandate causes a reduction in firm productivity and in the overall wage bill, leaving firm profitability unchanged.


Drivers of Effort: Evidence from Employee Absenteeism

with Morten Bennedsen and Daniel Wolfenzon

Journal of Financial Economics, Volume 133, Issue 3, September 2019, Pages 658-684

Abstract: We use detailed information on individual absent spells of all employees in 4,140 firms in Denmark to document large differences in average absenteeism across firms. Using employees who switch firms, we decompose days absent into an individual component (e.g., motivation, work ethic) and a firm component (e.g., incentives, corporate culture). We find the firm component explains 50% to 60% of the difference in absenteeism across firms, with the individual component explaining the rest. We present suggestive evidence of the mechanisms behind the firm effect with family firm status and concentrated ownership strongly correlated with decreases in absenteeism. We also analyze the firm characteristics that correlate with the individual effect and find that firms with stronger career incentives attract lower-absenteeism employees.


Do Director Elections Matter?

with Vyacheslav Fos and Kai Li

The Review of Financial Studies, Volume 31, Issue 4, 1 April 2018, Pages 1499–1531

Abstract: Using a hand-collected sample of more than 30,000 directors nominated for election over the period 2001–2010, we construct a novel measure of director proximity to elections— Closeness-to-election. We find that the closer a director is to her next election, the higher is CEO turnover–performance sensitivity. Each year closer to director elections is associated with a 23% increase in CEO turnover–performance sensitivity. Three tests support a causal interpretation of the results. First, when we require directors to have a minimum tenure of three years, there is no material change in the results, suggesting that the timing of when directors join their boards is unlikely to drive the results. Second, we find similar results when we use director Closeness-to-election on other boards as a measure of proximity to elections. Third, when we restrict the analysis to firms with unitary boards, there is no material change in the results, suggesting that director self-selection into firms with staggered boards does not drive the results. Cross-sectional tests suggest that, when other governance mechanisms are in place, CEO turnover–performance sensitivity is affected to a lesser extent by Closeness-to-election. We conclude that director elections have important implications for corporate governance.


Measuring Income Tax Evasion using Bank Credit: Evidence from Greece

with Nikolaos Artavanis and Adair Morse

Quarterly Journal of Economics , May 2016 131 (2)

Winner of the Wharton School-WRDS Award for the Best Empirical Finance Paper, WFA 2013

Featured in The Wall Street Journal, The NY Times, The WashingtonPost, The Financial Times, The Economist Free Exchange and Kathimerini

Abstract: We show that in semiformal economies, banks lend to tax-evading individuals based on the bank's perception of the individual's true income. This observation leads to a novel approach to estimate tax evasion using the adaptation of the private sector to the norms of semiformality. We use bank microdata on household credit, and replicate the bank model of credit capacity decision to infer the bank’s estimate of individuals’ true income. We estimate a lower bound of 28.2 billion euros of unreported income for Greece. The foregone government revenues amount to 32% of the deficit for 2009. Primary tax-evading industries are medicine, law, engineering, education, and media. We provide evidence that tax evasion persists not because the tax authorities are unaware, but because of a lack of paper trail and political willpower. Finally, we speak to the reproducibility and applicability of our method in other semiformal settings.


The Effect of Succession Taxes on Family Firm Investment: Evidence from a Natural Experiment

Winner of the Trefftzs Award, WFA 2010

Journal of Finance Issue (70:2), 1 April 2015

Abstract: This paper provides causal evidence on the impact of succession taxes on firm investment decisions and transfer of control. I exploit a 2002 policy change in Greece that substantially reduced the tax on intra-family transfers of businesses and show that succession taxes lead to more than a 40% decline in investment around family successions, slow sales growth, and depletion of cash reserves. Furthermore, succession taxes strongly affect the decision to sell or retain the firm within the family. I conclude by discussing implications of my findings for firms in the United States and Europe.


Shareholder Democracy in Play: Career Consequences of Proxy Contests

with Vyacheslav Fos

Journal of Financial Economics 114 (2014), pp. 316-340

Abstract: This paper shows that proxy contests have a significant adverse effect on careers of incumbent directors. Following a proxy contest, directors experience a significant decline in number of directorships not only in the targeted company, but also in other non-targeted companies. The results are established using the universe of all proxy contests during 1996-2010. To establish that this effect of proxy contests is causal, we use within-firm variation in directors' exposure to proxy contests and exploit the predetermined schedule of staggered boards that only allows a fraction of directors to be nominated for election every year. We find that nominated directors relative to non-nominated ones lose 45% more seats on other boards. We discuss that this pattern can be expected if proxy contest mechanism imposes a significant career cost on incumbent directors.


Books

Beyond Austerity: Reforming the Greek Economy

Author of Chapter 7, Financial Development and the Credit Cycle in Greece, with Haliassos M, G Hardouvelis, and D Vayanos (2015). Prepared for an MIT Press volume on reforms in Greece, edited by C Meghir, C Pissarides, D Vayanos and N Vettas.


Working Papers


The Political Polarization of U.S. Firms

with Vyacheslav Fos and Elisabeth Kempf

Abstract: Executive teams in U.S. firms are becoming increasingly politically polarized. We establish this new fact using political affiliations from voter registration records for top executives of S&P 1500 firms between 2008 and 2018. The rise in political homogeneity is explained by both a rising share of Republican executives and increased sorting by partisan executives into firms with like-minded individuals. We further document substantial heterogeneity across party lines in executives’ beliefs, as proxied by their trading of company stock around presidential elections, as well as in firms’ investment decisions.


The Labor Effects of Pro-Labor Bias in Bankruptcy

with Aloisio Araujo, Rafael Ferreira, Spyridon Lagaras, Flavio Morales, and Jacopo Ponticelli

Abstract: Judicial decisions in bankruptcy are often influenced by the goal to preserve employment in financially distressed firms. What are the effects of these pro-labor decisions on workers’ earnings and employment trajectories? We construct a new court-level measure of pro-labor bias based on the text of judicial decisions and exploit the random assignment of cases to courts within judicial districts in the state of Sao Paulo in Brazil to study the effect of pro-labor bias on labor market outcomes. We find that workers of firms assigned to high-pro-labor courts experience 4.4% lower post-bankruptcy earnings. This negative effect is primarily driven by wage adjustment rather than the probability of employment, and it is persistent in the five-year period after bankruptcy. We discuss several mechanisms that can drive this result.


Deposit Withdrawals

with Nikolaos Artavanis, Daniel Paravisini, Claudia Robles-Garcia and Amit Seru

Abstract: This paper develops a new approach to identify and quantify different rationales for deposit withdrawals. Exploiting variation in the cost of withdrawal induced by the maturity expiration of time-deposits, the approach can distinguish between withdrawals due to liquidity needs, exposure to fundamental uncertainty, or expectations about how other depositors will behave. Using daily micro-data from a large Greek bank we show that early deposit withdrawal probability quadruples in response to a policy uncertainty shock that doubled the short-run CDS price of Greek sovereign bonds. About two-thirds of this increase is driven by direct exposure to policy uncertainty with the remainder due to changes in expectations of behavior of other depositors. We estimate depositors’ willingness to pay to avoid uncertainty to quantify the effects and find that depositors would have had to be offered annualized returns exceeding 50% to prevent withdrawals during high-uncertainty periods.


Revealing Corruption: Firm and Worker Level Evidence from Brazil

with Emanuele Colonnelli, Spyridon Lagaras, Jacopo Ponticelli and Mounu Prem

Abstract: We study how the disclosure of corrupt practices affects firms and their employees. We construct novel firm-level measures of involvement in corrupt practices using randomized audits and public procurement suspensions in Brazil. On average, exposed firms grow larger after the audits. However, this result masks large heterogeneity depending on the degree of firm involvement in the corruption scheme. Using contract-, loan-, and worker- level data, we show that highly corrupt firms suffer after anti-corruption initiatives, while other exposed firms grow by changing their investment strategy when shifting away from doing business with the government.


Zombie Lending and Cross-Subsidization in a Lending Crisis

with Nikolaos Artavanis, Brian Lee and Stavros Panageas

New draft coming soon


Family Control and the Cost of Debt: Evidence from the Great Recession.

with Spyridon Lagaras

Abstract: The purpose of the paper is to examine the effect of founding family control on the cost of bank debt. We examine the cost of accessing the syndicated market and we use the financial crisis and the unexpected nature of Lehman Brother's collapse as a laboratory in order to tease out the effect of family ownership. We find that the increase in loan spreads around the Lehman crisis was by at least 24 basis points lower for family firms. Furthermore, the gap in spreads among family and non-family firms becomes wider among firms that had pre-crisis relationships with lenders with higher exposure to the shock. The evidence are consistent with family ownership lowering the cost of accessing debt financing especially when lenders are constrained. We further investigate potential channels that drive the effect of family ownership. We provide novel evidence that for 17% of the family firms creditors impose explicit restrictions in private credit agreements that require the founding family to maintain a minimum percentage of ownership or voting power. Thus creditors value the presence of the family. Furthermore, the impact of family control on lowering the cost of bank debt is higher when family CEOs run the firms and among firms with higher ex ante agency conflicts.