Working papers
Presented at Illinois Brown-bag, University of Georgia, SUNY Buffalo, Rutgers University
This paper builds a highly tractable theoretical framework to develop a general equilibrium mode of capital structure theory and labor market search. The incentives created by frictional labor market search and wage bargaining with workers influence individual firm’s capital structure decisions, and the endogenous capital structure decisions provide a novel channel through with labor market frictions affect the employment outcomes in the economy.
Presented at Minnesota Corporate Finance Conference, Drexel 8th Annual Academic Conference on Corporate Governance, Brigham Young University Red Rock Finance Conference 2015, American Finance Association Annual Meeting 2016
Many CEOs of corporate America have fixed-term contracts that are subject to renewal at the end of the term. This paper finds large impacts of the career-related incentives created by those incentives on firms’ real behavior.
Presented at Illinois Brown-bag, University of Kentucky, Numeric Investors, Cornerstone Research
I build a sample of leveraged buyouts (LBOs) withdrawn for exogenous reasons. I also use a novel instrument on LBO withdrawal incidence. Compared with firms that fail to go through the LBO process, the successfully bought-out firms experience both capital market revaluation and improvements in operating performance.
Work in progress
- Exploring the Midas Touch: Investment Bank Connections and Mutual Fund Returns (with Mo Liang, Draft available upon request)
Presented at Illinois Brown-bag Seminar
We use social networks to identify information transfer in security markets. We focus on connections between mutual fund managers and investment banks via managers’ past working experience. We find mutual fund managers show significant stock picking skills on firms which are the long-term clients of the investment banks for which the managers formerly work. Managers perform significantly better on connected holdings relative to non-connected holdings. A replicating portfolio of connected stocks outperforms a replicating portfolio of non-connected stocks by approximately 7.4% per annum. We also compare the stock performance before and after two network-break events (firm switching investment bank and Lehman’s collapse) and we find that managers’ stock picking skills disappear when connections break. The results are consistent with mutual fund managers gaining an informational advantage through the social networks.
- Corporate Finance Decisions under Agent Skill Accumulation versus Manipulation
This project develops a dynamic model on the firm’s financing decisions under agency cost of free cash flows and external equity financing costs. Unlike previous literature, the underlying cash flow process is subject to the agent’s (employee) skills and actions, both unobservable to the firm. I assume that the employee can either take a costly action that improves the skill (skill-accumulation) or a costless action that pumps up the cash flow temporarily (manipulation). I examine the interactions between the firm’s payout, refinancing/bankruptcy policy and the employee’s choice between skill accumulation and manipulation.
Publications
Journal of Accounting Research 51, 165-200
Trading commissions from mutual funds comprise a large share of revenues of brokerage firms. We conjecture that this business tie between mutual funds and brokerage firms might create perverse incentive for the analysts to bragging the stocks heavily held by their mutual fund clients. Data on mutual fund commissions posit a major challenge for this research. We overcome the data restriction by using a unique data set that discloses brokerage firms’ commission income derived from each mutual fund client as well as the shareholdings of these mutual funds. The empirical results confirm our conjecture. We uncover an important yet previously overlooked incentive problem in sell-side analyst industry.