1) corporate finance: financial intermediation with focus on rating agencies & banking, m&a
2) contracting theory: dynamic contracting, static contracting
3) international/ macro: trade theory, DSGE models
agencies in the face of regulation,'' 2013, joint with Christian C. Opp & Milton Harris, Journal of Financial Economics, 108, 46-61.
"Tariff wars in a Ricardian model with a continuum of goods," 2010, Journal of International Economics, 80 (2), 212-225.
"Rybczynski's theorem in the Heckscher-Ohlin world - anything goes," 2009, joint with Hugo Sonnenschein and Christis Tombazos, Journal of International Economics, 79 (1), 137-142.
“Impatience vs. Incentives,” March 2013, joint with John Zhu.
Abstract: This paper studies the long-run dynamics of Pareto-optimal self-enforcing contracts in a repeated principal-agent framework with differential discounting. Impatience concerns encourage contracts to favor the more patient player in the long run, and incentives concerns encourage contracts to favor the agent in the long run. When the agent is relatively impatient, the impatience and incentives forces are in conflict. If the conflict is strong, we show that optimal contracts oscillate between favoring the principal and favoring the agent as a way to cater to both forces in the long-run. This occurs in the absence of uncertainty or any need to randomize. When the impatience and incentives forces are aligned or one force dominates the other, we show that every optimal contract converges to a steady state in the long run in a well-behaved way. The results of Ray (2002) and Lehrer and Pauzner (1999) can be recovered as limiting cases.
“A Theory of Dynamic Resource Misallocation and Amplification," January 2013, joint with Christine Parlour and Johan Walden.
“Cash is King - Revaluation of Targets after Merger Bids”, December 2012, joint with Ulrike Malmendier and Farzad Saidi.
Abstract: We provide evidence that a significant fraction of the returns to merger announcements reflects target revaluation rather than the causal effect of the merger. In a sample of unsuccessful merger bids from 1980 to 2008, we find that targets of cash offers are revalued by 15% after deal failure, which is a sizeable portion of the average announcement effect of 25%. In contrast, stock targets revert to their pre-announcement levels. These results hold for deals where failure is exogenous to the target's stand-alone value. We show that the differential revaluation of cash and stock targets is not explained by differences in future takeover activity. We also find that the values of cash bidders revert to pre-announcement levels, while stock bidders fall below. Our revaluation estimates imply economically large mismeasurement when using naive announcement-based estimates of the causal effect of mergers.
“Regulating Deferred Incentive Pay,” April 2013, joint with Florian Hoffmann and Roman Inderst.
Abstract: We show when mandating a longer deferral of bonus payments induces banks to incentivize their agents to exert higher diligence so as to prevent the occurrence of events that are possibly rare but critical and when, instead, there will be lower diligence under the thereby constrained optimal incentive compensation. By interfering with the optimal choice of compensation, regulation can increase rather than decrease a bank's marginal cost of inducing higher diligence from its agents, such as mortgage brokers, financial advisors to retail customers, or senior executives. This tends to reduce diligence in equilibrium. Diligence can still increase with compensation regulation when the bank places sufficient weight on incentives for growth and acquisition, but regulation backfires when exerting diligence is already an agent's main task or when the bank already places sufficient weight on avoiding the respective negative event. Our analysis is set in a multi-task model of (deal or customer) acquisition and diligence and we provide an explicit characterization of the optimal size and timing of both up-front and long-term bonus payments with and without regulation.
Abstract: Credit ratings are an integral part of world-wide regulatory frameworks such as the recently proposed Basel III. Yet regulators' reliance on credit ratings has been criticized, not least because of the poor accuracy of ratings of structured products in the years leading up to the recent financial crises. Consistent with these criticisms the Dodd-Frank Act abolishes regulatory reliance on ratings and mandates that regulators find alternative risk measures to regulate financial institutions. In this paper we propose a model to analyze the optimal regulatory reliance on credit ratings provided by an independent, profit-maximizing rating agency, and the potential effectiveness of using market-based risk measures. We find that reliance on market prices instead of credit ratings may be generically ineffective, since equilibrium prices in markets, in which banks are marginal, reflect government bailouts, and thus tend to reveal little information about actual risk exposures. Optimal reliance on credit ratings not only depends on banks' leverage, CRAs' expertise and asset complexity, but also the social value added banks provide when holding debt securities to maturity rather than selling them to investors outside the banking system.
work in progress:
"Replacing Ratings," joint with Bo Becker.
"Industrial Asset Pricing," joint with Christine Parlour and Johan Walden.
Project on "Ratings for idiosyncratic and systematic risk assets,"
additional references :
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