Working Papers

1. Supply Network Fragility, Inventory Investment, and Corporate Liquidity [SSRN Link]
   
   Abstract: This study uses a novel dataset of over 11,000 foreign suppliers to U.S. manufacturers to investigate the impact of supply network fragility on corporate policies. The scarcity of suppliers offering specialized inputs emerges as a key driver of fragility. Both theoretical and empirical evidence indicate that firms with fragile supply networks maintain more input inventories, less cash, and higher leverage. Moreover, plausibly exogenous variation in fragility from technology adoption and disruptions supports a causal interpretation of the results. My findings indicate that because specialized inputs lack a spot market post-disruptions, firms with fragile supply networks favor operational over financial hedging.

2. Why do Startups Become Unicorns Instead of Going Public?
   with Daria Davydova, Rüdiger Fahlenbrach, and René Stulz
   
   Abstract: Unicorns are startups that choose to stay private even though they are large enough to go public. We propose an efficiency explanation for their existence. Startups relying highly on organization capital are more vulnerable to expropriation of their organization capital if they go public before their position is sufficiently secure. Our main empirical findings are that shocks to the fragility of organization capital decrease the IPO likelihood, unicorn status enables startups to stay private longer by giving them access to new sources of capital, and unicorns and their industries have higher organization capital intensity than other startups.
   
   Media: Harvard Law School Forum on Corporate Governance, NBER digest.

3. Cross-Border Activities as a Source of Information: Evidence from Insider Trading during the COVID-19 Crisis
   Abstract: Insider trading during the early months of the COVID-19 pandemic provides a unique opportunity to study how corporate insiders benefit from information flows in their network of business contacts. I find that insiders at firms with activities in China sell more shares of their companies than other insiders and do so earlier. Consistent with an information channel, I show that firms with supply-chain relationships and subsidiaries in China, more local assets and employees, and insiders overseeing global operations drive these effects. Insiders’ private information seems to have been forward-looking, which allowed them to avoid significant losses during the period.

4. Economic Policy Uncertainty and Multinational Companies
   Conditionally accepted, The Review of Finance
   with Leming Lin and Atanas Mihov
   
   Abstract: We study the impact and propagation of economic policy uncertainty (EPU) via subsidiary networks of U.S. multinational corporations (MNCs). We find that increases in host-country EPU lead to significant decreases in MNC valuations. We document heterogeneous effects across important firm- and country-level dimensions such as intangible capital intensity, financial constraints, and country institutional quality. Higher EPU in host countries is associated with a decline in the growth of local MNC subsidiary assets and employment. We find no significant average spillover effects of host-country EPU on MNC subsidiaries in other countries and some evidence of negative spillover effects among vertically linked subsidiaries.

Publications

1. Property Rights Institutions, Foreign Investment, and the Valuation of Multinational Firms
   with Leming Lin, Atanas Mihov, and Detelina Stoyanova, Journal of Financial Economics, 2019, 134 (1): 214-235.
   
   Abstract: We study the effect of property rights institutions in host countries, the institutions protecting investors from expropriation by host country agents, on the geographic structure and valuation of US multinational corporations (MNCs). We provide firm-level evidence that better property rights attract investment from MNCs. We disentangle the effects of the Stulz (2005) “twin agency problems” in the context of foreign direct investment and show that our results are not driven by legal institutions protecting investors from expropriation by corporate insiders. Further, we show that changes in the quality of property rights in locations where MNCs operate have material impact on MNCs’ valuations.

2. Foreign Investment, Regulatory Arbitrage, and the Risk of U.S. Banking Organizations
   with Atanas Mihov and W. Scott Frame, Journal of Financial and Quantitative Analysis, 2020, 55 (3): 955-988.
   
   Abstract: This study investigates the implications of cross-country differences in banking regulation and supervision for the international subsidiary locations and risk of U.S. bank holding companies (BHCs). We find that BHCs are more likely to operate subsidiaries in countries with weaker regulation and supervision and that such location decisions are associated with elevated BHC risk and higher contribution to systemic risk. The quality of BHCs’ internal controls and risk management plays an important role in these location choices and risk outcomes. Overall, our study suggests that U.S. banking organizations engage in cross-country regulatory arbitrage, with potentially adverse consequences.

3. Global Banks and Systemic Risk: The Dark Side of Country Financial Connectedness
   with Atanas Mihov and Ping McLemore, Journal of International Money and Finance, 2022, 129: 102734.
   
   Abstract: We study the relation between country financial connectedness and systemic risk for U.S. banking organizations with global exposures. Using supervisory data on U.S. banks’ foreign claims, we find that banks with exposure to countries with globally connected financial markets contribute more to U.S. systemic risk. These adverse effects are amplified by systemically important and less capitalized banking organizations. Consistent with the idea that financial connectedness is a conduit for risk transmission, risk spillovers to the U.S. from foreign financial crises are magnified when the countries in crisis are well financially connected. Our findings are relevant for macro-prudential policy given the concentration of U.S. financial claims in well-connected markets.

4. Unintended Real Effects of EDGAR: Evidence from Corporate Innovation
   with Michael Dambra and Atanas Mihov, The Accounting Review, 2024, 99: 75-99
   
   Abstract: We study the real effects on innovation of a transformative change in corporate disclosure dissemination, the implementation of the SEC’s EDGAR system. On the one hand, increased disclosure dissemination can lower firms’ cost of capital, thereby stimulating innovative activity. On the other hand, increased dissemination can exacerbate proprietary disclosure costs, reducing firms’ incentives to innovate. We show that treated firms reduce innovation investment following EDGAR’s implementation. In contrast, EDGAR reporting firms’ innovation investment cuts are met with an increase in innovation investment by their technology rivals. Consistent with an increase in proprietary costs, EDGAR-filers disclose less about their innovation activities. We also find evidence of a redistribution of innovative activity from public to private firms not subject to EDGAR disclosure requirements. Overall, our results are consistent with increased disclosure dissemination crowding out investment in innovative projects, whose returns negatively depend on information spillovers.