"Non-Executive Directors at Early-Stage Startups" (with Buvaneshwaran Venugopal)
Forthcoming, Review of Corporate Finance Studies

"Firm Size, Capital Investment and Debt Financing over Industry Business Cycles" (with Praveen Kumar)
Journal of Financial and Quantitative Analysis, 2025, Vol. 60, pp. 524--550

"Reference Prices, Relative Values, and the Timing of M&A Announcements" (with Sangwon Lee)
Journal of Corporate Finance, 2022, Vol. 76

"Do Sunk Costs Affect Prices in the Housing Market?" (with Dimuthu Ratnadiwakara)
Management Science, 2022, Vol. 68, pp. 9061--9081

"Seed-Stage Success and Growth of Angel Co-investment Networks" (with Buvaneshwaran Venugopal)
Review of Corporate Finance Studies, 2022, Vol. 11, pp. 169--210
(Here's the Internet Appendix)

"Monitoring in Originate-to-Distribute Lending: Reputation versus Skin in the Game" (with Andrew Winton)
Review of Financial Studies, 2021, Vol. 34, pp. 5886--5932
(Here's the Internet Appendix)

"Optimal Capital Structure and Investment with Real Options and Endogenous Debt Costs" (with Praveen Kumar)
Review of Financial Studies, 2018, Vol. 31, pp. 3452--3490

"Uncertainty, Capital Investment, and Risk Management" (with Hitesh Doshi and Praveen Kumar)
Management Science, 2018, Vol. 64, pp. 5769--5786
(Here's the Internet Appendix)

"Debt Maturity Structure and Credit Quality" (with Radhakrishnan Gopalan and Fenghua Song)
Journal of Financial and Quantitative Analysis, 2014, Vol. 49, pp. 817--842

"Market Efficiency, Managerial Compensation, and Real Efficiency" (with Rajdeep Singh)
Journal of Corporate Finance, 2014, Vol. 29, pp. 561--578

"Stronger Risk Controls, Lower Risk: Evidence from U.S. Bank Holding Companies" (with Andrew Ellul)
Journal of Finance, 2013, Vol. 68, pp. 1757--1803
(Here's the Internet Appendix)

"Moral Hazard, Hold-up, and the Optimal Allocation of Control Rights"
RAND Journal of Economics, 2011, Vol. 42, pp. 705--728

"Does poor performance damage the reputation of financial intermediaries? Evidence from the loan syndication market"
(with Radhakrishnan Gopalan and Vikram Nanda)
Journal of Finance, 2011, Vol. 66, pp. 2083--2120

"Why do Firms Form New Banking Relationships?" (with Radhakrishnan Gopalan and Gregory F. Udell)
Journal of Financial and Quantitative Analysis, 2011, Vol. 46, pp. 1335--1365

"Entrepreneurial Finance: Banks versus Venture Capital" (with Andrew Winton)
Journal of Financial Economics, 2008, Vol. 88, pp. 51--79

"The effect of decimalization on the components of the bid-ask spread" (with Scott Gibson and Rajdeep Singh)
Journal of Financial Intermediation, 2003, Vol. 12, pp. 121--148

"Effects of Shadow Bank Competition on Bank Strategies and Risk" (with Dimuthu Ratnadiwakara)
Abstract: Increases in the conforming ("jumbo") loan limit after 2017 increased shadow bank competition for banks with high pre-2017 jumbo exposure. Using a shift-share empirical design based on differences in weighted-average house price increase across banks' local markets, we show that banks exposed to increased shadow bank competition shift from loans to securities, increase their reliance on non-core funding, and reduce branches and staffing relative to assets which is consistent with a shift away from information-sensitive lending. These effects are stronger for small banks compared to large banks. The exposed banks also experience declines in profitability, credit quality, and supervisory ratings.

"The Effect of Unlimiting Bankers' Incentive Pay on Bank's Risk Profile and Value" (with David De Angelis, Hitesh Doshi, and Mark Liang)
Abstract: How does allowing banks to offer higher incentive compensation affect bank risk and shareholder value? We address this question using UK's recent banker pay deregulation, which removed major restrictions on variable pay imposed earlier by the EU that were binding for UK banks. Contrary to policymakers' fears, UK banks do not experience any increase in tail risk following the pay deregulation, but there is an increase in their systematic risk and leverage. Surprisingly, the pay deregulation does not have a positive effect on UK banks' equity value, which we attribute to intensified labor competition for banker talent. Using hand-collected data, we document a significant increase in the per-person remuneration of senior managers at UK banks, driven by an increase in their variable pay even as fixed pay remains unchanged. This effect is stronger for UK banks that relied more on variable pay prior to the imposition of EU's bonus cap a decade ago, which is consistent with the existence of a persistent bonus culture at some banks. Our findings highlight the unintended labor market effects of regulating bankers' pay.

"Specific Performance, Deal Tightness, and Merger Dynamics" (with Sangwon Lee)
Abstract: Merger agreements are carefully crafted to balance the target's desire for certainty of closing versus the bidder's desire to maintain flexibility in the event of unexpected changes. Taking a holistic view of merger agreements, we construct a deal tightness index (DTI) which measures how tightly the agreement binds the bidder to complete the transaction. We do this by examining three key contractual provisions identified by legal scholars as crucial in limiting the bidder's flexibility: the specific performance provision, material adverse effect (MAE) exclusions, and bidder termination provisions. Deals with higher DTI are more likely to be completed, have a shorter time to completion, are less likely to see offer price reductions, and have lower arbitrage spreads, all of which are consistent with the idea that deal tightness provides more closing certainty for the target. DTI is negatively related to the offer premium and target announcement return, which suggests that bidders negotiate advantageous financial terms in exchange for a tighter agreement. Bidders also experience higher short- and long-term announcement returns in deals with high DTI. Examining the interactions of the constituents of DTI, we show that a strong specific performance provision often subsumes the effect of MAE exclusions. Overall, our study highlights how key contractual provisions interact to shape offer terms and merger dynamics.

"Toxic Pollutants and Business Activity" (with George Zhe Tian and Buvaneshwaran Venugopal)
Abstract: We use toxic chemical spills to study the effects of toxic pollutants on business activity. Toxic spills have persistent adverse effects on local businesses, increase business concentration due to their disproportionate adverse effects on smaller establishments, and change the sectoral composition of business activity due to their disproportionate effects on the retail and services sectors. We attribute these effects to the exodus of population and income from the affected counties and worsening of credit frictions. Highlighting the importance of heightened health risk perceptions, these effects are significantly stronger for highly toxic spills compared to moderately toxic spills.

"Customer Concentration, Systematic Risk, and Equity Returns" (with Cathy Chan and Praveen Kumar)
Abstract: A large number of firms transact with a relatively small number of "major" customers. But how do equity markets price exposure to customer concentration? To help resolve the conflicting conceptual arguments in the literature, we study the relationship between excess stock returns and various measures of firms' customer-base profile. We find that, on average, firms with major customers have significantly lower excess returns compared with firms without major customers. This finding is robust to controlling for various commonly recognized risk factors and firm characteristics. This effect is stronger for small firms, young firms, firms with lower analyst coverage, and during aggregate business cycle recessions. However, controlling for the presence of a major customer, excess stock returns do not vary with customer concentration. Our findings indicate that equity investors view firms with major customers as being less exposed to systematic risk because of the certification, insurance, and efficiency benefits provided by major customers.

"Effect of Bank Mergers on the Price and Availability of Mortgage Credit" (with Dimuthu Ratnadiwakara)
Abstract: Banks which gain large local market shares through acquisitions increase approval rates for conventional mortgage applications but increase rejection rates for the relatively riskier FHA mortgage applications in the post-acquisition period; and the increase in FHA rejection rate is stronger for low-income and minority applicants. Acquiring banks also charge higher interest rates on high-risk non-agency mortgages after the acquisition, but not for conforming mortgages sold to government-sponsored entities. Notably, we find no evidence of a reduction in mortgage rates due to merger efficiency gains. Overall, our results indicate that the effect of bank mergers on the price and availability of mortgage credit vary significantly by borrower risk, income, and race.

"Executive Fiduciary Duties and Workplace Safety" (with Sichen Shen and Hong Zou)
Abstract: Does enhanced legal accountability of non-director executives improve workplace safety? We exploit an exogenous increase in executive legal accountability triggered by Delaware Supreme Court's 2009 "Gantler ruling" to address this question. In a difference-in-differences framework, we show that the workplace injury rate of establishments of Delaware-incorporated firms decreases significantly following the Gantler ruling relative to similar establishments of non-Delaware-incorporated firms. This effect is stronger in firms that have adopted enterprise risk management or have higher labor union membership before the Gantler ruling, but is attenuated by financial constraints or non-director executives' performance-based compensation. Moreover, the reduction in workplace injuries brought about by the Gantler ruling benefits shareholders by leading to higher factor-adjusted stock returns. This study adds to the limited research on the efficacy of corporate operational risk management and non-director executive accountability.

Trade Policy Uncertainty and Shareholder Returns in Mergers and Acquisitions" (with Praveen Kumar and George Zhe Tian)
Abstract: We use a change in US trade policy, which eliminated potential tariff increases on Chinese imports, to examine the effect of resolution of trade policy uncertainty on merger and acquisition (M&A) activity and shareholder value of acquiring and target firms. After this policy change, industries with greater resolution of tariff uncertainty experience higher within-industry and cross-industry M&A activity, and acquiring firms in these industries experience higher announcement returns, but there is no corresponding effect on target announcement returns. Acquirer shareholder wealth effects are stronger for R&D-intensive acquirers; in transactions involving publicly-traded targets, especially for less profitable and high-leverage targets; and for cross-industry acquisitions, especially those in which the target is in a less competitive and less fluid product market than the acquirer. The effects on acquirer shareholder wealth indicate that elimination of trade policy uncertainty and increase in import competition raise the bargaining power of acquirers relative to targets.

"EBITDA Add-backs in Debt Contracting: A Step Too Far?" (with Miguel Faria-e-Castro, Radhakrishnan Gopalan, Avantika Pal, and Juan M. Sanchez)
Abstract: Financial covenants in syndicated loan agreements often rely on definitions of EBITDA that deviate from the GAAP definition. We document the increased usage of non-GAAP addbacks to EBITDA in recent times. Using the 2013 Interagency Guidance on Leveraged Lending, which we argue led to an exogenous increase in non-GAAP EBITDA addbacks, we show that these addbacks increase the likelihood of loan delinquency and default, and also increase the likelihood of the borrower experiencing a ratings downgrade. Greater use of non-GAAP EBITDA addbacks also makes it more likely that lead arrangers lower their loan share exposures through secondary market sales. Our results highlight that covenants based on customized measures of EBITDA hurt loan performance by worsening lead arrangers' incentives to monitor borrowers and by hampering their ability to take timely corrective actions.

Bauer M.S. in Finance Program

The Finance Department

C. T. Bauer College of Business