Publications

How Does Firms' Innovation Disclosure Affect Their Banking Relationships? (with Alminas Zaldokas) 

Management Science (forthcoming)

Firms face a trade-off between patenting, thereby disclosing innovation, and secrecy. We show that this trade-off interacts with firms' financing choices. As a shock to innovation disclosure, we study the American Inventor's Protection Act that made firms' patent applications public 18 months after filing, rather than when granted. We find that such increased innovation disclosure helps firms switch lenders, resulting in lower cost of debt, and facilitates their access to syndicated-loan and public capital markets. Our evidence lends support to the idea that public-information provision through patents and private information in financial relationships are substitutes, and that innovation disclosure makes credit markets more contestable.

Life below Zero: Bank Lending under Negative Policy Rates
(with Florian Heider and Glenn Schepens) 

Review of Financial Studies (September 2019), Editor's Choice

We show that negative policy rates affect the supply of bank credit in a novel way. Banks are reluctant to pass on negative rates to depositors, which increases the funding cost of high-deposit banks, and reduces their net worth, relative to low-deposit banks. As a consequence, the introduction of negative policy rates by the European Central Bank in mid-2014 leads to more risk taking and less lending by euro-area banks with greater reliance on deposit funding. Our results suggest that negative rates are less accommodative, and could pose a risk to financial stability, if lending is done by high-deposit banks.

Shock Propagation and Banking Structure
(with Mariassunta Giannetti) 

Review of Financial Studies (July 2019), Editor's Choice

We explore whether lenders' decisions to provide liquidity in periods of distress are affected by the extent to which they internalize the negative spillovers of industry downturns. We conjecture that high-market-share lenders are more likely to internalize negative spillovers and show that they provide liquidity to industries in distress when fire sales are likely to ensue. High-market-share lenders also provide liquidity to customers and suppliers of distressed industries when the disruption of supply chains is expected to be costly. Our results suggest a novel channel to explain why credit concentration may favor financial stability.

Informational Inequity Aversion and Performance (with Iris Bohnet) 

Journal of Economic Behavior & Organization (March 2019)

In labor markets, some individuals have, or believe to have, less data on the determinants of success than others, e.g., due to differential access to technology or role models. We provide experimental evidence on when and how informational differences translate into performance differences. In a laboratory tournament setting, we varied the degree to which individuals were informed about the effort-reward relationship, and whether their competitor received the same or a different amount of information. We find performance is adversely affected only by worse relative, but not absolute, informedness. This suggests that inequity aversion applies not only to outcomes but also to information that helps achieve them, and stresses the importance of inequality in initial information conditions for performance-dependent outcomes.

Do Universal Banks Finance Riskier But More Productive Firms?
(with Daniel Neuhann) 

Journal of Financial Economics (April 2018)

Using variation in bank scope generated by the stepwise repeal of the Glass-Steagall Act in the U.S., we show that the deregulation of universal banks allowed them to finance firms with 14% higher volatility. This increase in risk is compensated by lasting improvements in firms' total factor productivity of 3%. Using bank-scope-expanding mergers to identify shocks to universal banks' private information about borrower firms, we provide evidence that informational economies of scope across loans and non-loan products account for the firm-level real effects of universal banking.

Target Revaluation after Failed Takeover Attempts: Cash versus Stock
(with Ulrike Malmendier and Marcus Opp) 

Journal of Financial Economics (January 2016), Jensen Prize for the best paper published in the Journal of Financial Economics in the areas of corporate finance and organizations (first place)

Cash- and stock-financed takeover bids induce strikingly different target revaluations. We exploit detailed data on unsuccessful takeover bids between 1980 and 2008, and we show that targets of cash offers are revalued on average by +15% after deal failure, whereas stock targets return to their pre-announcement levels. The differences in revaluation do not revert over longer horizons. We find no evidence that future takeover activities or operational changes explain these differences. While the targets of failed cash and stock offers are both more likely to be acquired over the following eight years than matched control firms, no differences exist between cash and stock targets, either in the timing or in the value of future offers. Similarly, we cannot detect differential operational policies following the failed bid. Our results are most consistent with cash bids revealing prior undervaluation of the target. We reconcile our findings with the opposite conclusion in earlier literature (Bradley, Desai, and Kim, 1983) by identifying a look-ahead bias built into their sample construction.

Understanding the Gender Pay Gap: What's Competition Got to Do with It? (with Alan Manning) 

Industrial and Labor Relations Review (July 2010)

A number of researchers have argued that men and women have different attitudes toward and behavioral responses to competition; that is, women are more likely to opt out of jobs in which performance pay is the norm. Laboratory experiments suggest that these gender differences are rather large. To check these hypotheses and findings against differences in the field, the authors use performance pay as an indicator of competition in the workplace and compare the gender gap not only in incidence of performance pay but also in earnings and work effort under these contracts. They find that although women are less likely than men to work under performance pay contracts, the gender gap is small. Furthermore, the effect of performance pay on earnings is modest and does not differ markedly by gender. Consequently, the authors argue, the ability of these competition hypotheses to explain the gender pay gap seems very limited.

Works in Progress

Sticky Deposit Rates and Allocative Effects of Monetary Policy (with Anne Duquerroy and Adrien Matray) 

This paper documents that monetary policy affects credit supply through banks' cost of funding. Using administrative credit-registry and regulatory bank data, we find that banks can incur funding costs that deviate from the monetary-policy rate by at least 30 basis points before they adjust their lending. For identification, we exploit the existence of regulated-deposit accounts in France whose interest rates are set by the government and are, thus, not directly affected by the monetary-policy rate. When banks' funding cost increases and they contract their lending, we observe portfolio reallocations consistent with risk shifting: banks that depend on regulated deposits lend less to large firms, and relatively more to small firms and entrepreneurs. This reallocation has redistributive effects, favoring more constrained borrowers especially in low-income areas where savings are held primarily in regulated deposits.

Monetary Policy, Bank Lending, and Financial Stability in a Currency Union: Does One Size Fit All? (with Christian Bittner, Diana Bonfim, Florian Heider, Glenn Schepens, and Carla Soares)

This paper studies different modes of monetary-policy transmission via banks' supply of credit to firms in the euro area. To assess the differential transmission in the core and the periphery, we use a unique combination of confidential credit-registry data from Germany and Portugal. Banks' cost of funding, especially the rates they pay on deposits, plays a key role. In the wake of the sovereign debt crisis, deposit rates vary substantially across the euro area, which impacts the degree to which monetary policy can stimulate bank lending. For identification, we exploit the introduction of negative monetary-policy rates in the euro area, because they may affect banks' cost of funding differentially. We find that when lower, negative policy rates do not translate into lower deposit rates, as is the case in Germany but not in Portugal, standard channels of monetary-policy transmission, such as the bank-equity channel, are dominated by the effect on high-deposit banks' cost of funding.

Regulatory Forbearance in the U.S. Insurance Industry: The Effects of Eliminating Capital Requirements (with Bo Becker and Marcus Opp) 

This paper documents the long-run effects of an important reform of capital regulation for U.S. insurance companies in 2009. We show that its design effectively eliminates capital requirements for (non-agency) MBS, implying an aggregate capital relief of over $18bn at the time of the reform. By 2015, 40% of all high-yield assets in the overall fixed-income portfolio are MBS investments. This result is primarily driven by insurers' reduced propensity to sell poorly-rated assets in their existing portfolios. Using a regression discontinuity framework, we can attribute this behavior to capital requirements. We also provide evidence that the insurance industry, driven by large life insurers, crowds out other investors in the new issuance of (high-yield) MBS post reform. Our findings are consistent with the view that the regulation and supervision of the U.S. insurance sector is influenced by short-term industry interests.

Credit Supply, Firms, and Earnings Inequality (with Christian Moser, Benjamin Wirth, and Stefanie Wolter)

We study the effect of a firm-level credit supply shock on the distribution of pay and employment across workers. To this end, we first construct a novel dataset that links individual employment histories to firms' bank-credit relationships in Germany. We then use firms' differential exposure to negative monetary policy rates through their preexisting banking relationships as a source of variation in credit supply. We find that within firms that experience a negative credit supply shock, previously lower-paid workers are more likely to be fired, while previously higher-paid workers are more likely to have their wages cut. As a consequence, wage inequality within affected firms drops. Our results suggest that monetary policy can have important distributional consequences by having heterogeneous effects on firms' credit, pay, and employment decisions.

Bank Concentration and Product Market Competition
(with Daniel Streitz) 

This paper documents that bank concentration is associated with higher markups and lower output in non-financial sectors. We argue that this is due to the higher incidence of competing firms sharing common lenders. Exploiting plausibly exogenous variation in banks' industry market shares stemming from bank mergers, we show that high-market-share lenders charge lower loan rates. In this manner, common lenders induce less aggressive product market behavior among their competing borrowers, thereby internalizing potential adverse effects of higher rates. Consistent with our conjecture, the effect is stronger in industries with competition in strategic substitutes where negative output externalities would be greatest.

Bank Deregulation and the Rise of Institutional Lending
(with Seung Lee and Daniel Neuhann) 

We study the determinants of increased participation of non-bank financial intermediaries in the market for syndicated loans prior to the 2008 financial crisis. Institutional investors who do not have monitoring expertise disproportionately purchase loan tranches originated by banks able to offer both loans and underwriting services to firms. Our argument is that non-loan exposures to firm performance ensure monitoring incentives even when banks retain small loan shares. Since such universal banking was permitted only after the repeal of the Glass-Steagall Act, our findings suggest a direct link from bank deregulation to the rise of non-bank intermediaries.

Informal Finance, Risk Sharing, and Networks: Evidence from Hunter-Gatherers 

This paper analyzes the relationship between informal finance and the risk-sharing properties of networks. I show that in addition to sharing idiosyncratic risk, network members can also support one another in dealing with aggregate shocks. To identify this, I use data from an Amazonian foraging-farming society, and exploit a flood shock in 2006. Villagers outside the network demanded significantly more credit following the flood than did network members, suggesting that networks allow their members to cope with aggregate shocks through non-financial resources rather than through costly loans. The increased credit demand by villagers outside the network was in turn served through a temporary extension of network benefits across the two groups.

Inequality, Relative Income, and Human Capital Investment
(with Jere Behrman, Ricardo Godoy, and Eduardo Undurraga) 

Do investment responses to income transfers depend on the implied level of redistribution because of social comparisons? In a field experiment in 53 villages of an Amazonian foraging-farming society, we allocated substantial in-kind transfers, varied their associated degree of village income inequality, and measured the short-run effects on individual-level determinants of development. We find that the poorest households invested significantly less in human capital and engaged less with the labor market under an inequality-reducing treatment than under income-distribution neutrality. Our evidence suggests that inequality shapes the development process through social comparisons, and has implications for the effectiveness of transfer programs.