Working Papers

1. Supply Network Fragility, Inventory Investment, and Corporate Liquidity, Job Market Paper, 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. The Unicorn Puzzle
   with Daria Davydova, Rüdiger Fahlenbrach, and René Stulz
   
   Abstract: From 2010 to 2021, 639 US VC-funded firms achieved unicorn status. We investigate why there are so many unicorns and why founders grant investors privileges to obtain unicorn status. Unicorns rely more than other VC-funded startups on organizational capital and network effects. Unicorn status enables startups to access new sources of capital, and growth in available funding causes the number of unicorns to increase. As a result, unicorns can stay private longer, which enables them to grow their organizational intangible assets with less expropriation risk and better capture the economies of scale on which their business model relies.
   
   Media: Harvard Law School Forum on Corporate Governance, NBER digest.

3. Disclosure Processing Costs and Corporate Innovation
   R&R, the Accounting Review
   with Michael Dambra and Atanas Mihov
   
   Abstract: We examine how changes in disclosure processing costs affect corporate innovation. Our research design employs the staggered implementation of the SEC’s EDGAR system as a shock that lowered information acquisition costs and facilitated the dissemination of public companies’ regulatory filings. Difference-in-differences estimates show that treated firms reduce innovation investment following the implementation of EDGAR. In contrast, treated firms’ innovation investment cuts are met with an increase in innovation investment by their rivals. These results are more pronounced when treated firms are innovation leaders or from industries that rely on innovation secrecy. Consistent with the decrease in innovation investment by EDGAR-treated firms, we further document a decrease in their innovation output, but an improvement in their innovation quality. Overall, our results are consistent with a competition channel whereby firms subject to lower disclosure processing costs reduce investment in innovative projects whose returns negatively depend on information spillovers.

4. 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.

5. Economic Policy Uncertainty and Multinational Companies
   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.