Research Interests

Corporate finance: corporate governance, executive compensation, information asymmetry and investment decisions, mergers and acquisitions
Behavioral finance

For publications, links lead to final published version in journal. For working papers, links lead to SSRN which is always updated with latest version.

Published and Accepted Papers

Sports Sentiment and Stock Returns (with Diego García and Øyvind Norli) (slides, see bottom of page for press coverage)
Journal of Finance 62(4), 1967-1998
Finalist, Smith-Breeden Prize for Best Paper in the Journal of Finance. Best Paper Award, Caesarea Center 3rd Annual Conference

• Investor mood affects asset prices. Soccer World Cup elimination leads to a next-day abnormal return of -49bp on the national index.

Blockholder Trading, Market Efficiency, and Managerial Myopia (web appendix, slides)
Journal of Finance, forthcoming

• Theory of blockholders that does not assume intervention. Blockholders gather information about fundamental value and impound it into prices through trading, thus encouraging long-term investment that temporarily worsens earnings
• Contrary to popular perception, liquid markets and institutional trading can reduce myopia.

A Multiplicative Model of Optimal CEO Incentives in Market Equilibrium (with Xavier Gabaix and Augustin Landier) (web appendix, slides, summary)
Review of Financial Studies, forthcoming

• Optimal contracting model featuring both moral hazard and CEO assignment; endogenizes both total salary and optimal cash/shares mix
• Multiplicative preferences allow model to quantitatively explain empirical scaling of incentives with firm size. Low incentives in large firms need not be inefficient
• %-% incentives (% change in pay / % change in firm value) advocated as optimal empirical measure. Scale-independent and thus comparable across firms.

Working Papers

NEW: Detail-Independent Contracting (with Xavier Gabaix) (web appendix, summary)

• Extends tractable contracts of Holmstrom and Milgrom (1987) to a broader class of situations that do not require exponential utility, Gaussian noise or continuous time
• Optimal contract is closed-form; slope is independent of noise distribution and various features of agent's utility function. If cost of effort is pecuniary, contract is linear regardless of utility.

NEW: Is CEO Pay Really Inefficient? A Survey of New Optimal Contracting Theories (with Xavier Gabaix)
Prepared for the Journal of the European Economic Association Papers and Proceedings

• Survey paper on recent optimal contracting theories of executive compensation

Takeover Activity and Target Valuations: Feedback Loops in Financial Markets (with Itay Goldstein and Wei Jiang)

• Low valuations attract takeovers, but market expectations of takeovers boost valuations ("anticipation effect"). We demonstrate this dual role of prices empirically
• Financial market efficiency may depress real efficiency. Forward-looking prices can deter the very actions they anticipate

Governance Through Exit and Voice: A Theory of Multiple Blockholders (with Gustavo Manso) (web appendix, slides)

• Model explaining prevalence of multiple blockholders in reality. In traditional theories, a single blockholder is optimal to minimize free-rider problems
• Here, multiple blockholders trade aggressively and competitively when "voting with their feet". This induces greater managerial effort ex ante

Does the Stock Market Fully Value Intangibles? Employee Satisfaction and Equity Prices (summary, slides)
Moskowitz Prize for Best Paper in Socially Responsible Investing, 2007 (audio recording of talk)
Knowledge@Wharton article, UBS Equity Research report, Money Message radio interview, Social Funds, Handelsblatt, Handelsblatt 2

• Fortune magazine's "Best Companies to Work For" earned an annual four-factor alpha of 4% from 1984-2005.
• Employee satisfaction is associated with higher shareholder returns, rather than reflecting unnecessary expenditure.
• Even when intangibles are made visible by a publicly available survey, they are not incorporated into stock prices, supporting for managerial myopia theories
• Socially Responsible Investing screens need not reduce, and may even enhance investment returns

How Should Acquirers Select Advisors? Persistence in Investment Bank Performance (with Jack Bao) (slides, Economist article)

• M&A returns are positively related to an advisor's past returns and negatively related to its market share. But clients ignore past performance and select on market share
• Policy implication: dissemination of league tables based on value creation may improve banks' incentives to turn down bad deals

Inside Debt (slides)
McGraw-Hill/Irwin Best Paper in Corporate Finance Award, 2006 FMA Meetings

• Optimal executive compensation involves debt, rationalizing the recently-documented widespread use of defined benefit pensions
• Debt (i) deters risk-shifitng more effectively than solvency-contingent bonuses, as it is sensitive to the value of assets in bankruptcy as well as the incidence of bankruptcy (ii) can improve effort, even if a reduction in managerial equity accompanies a debt grant. Insufficient effort is not purely an "agency cost of equity"
• Contrary to intuition, it is suboptimal to grant the manager debt and equity in the same proportion as the firm's capital structure

Leverage, Ownership Concentration, and the Tension Between Liquidation and Investment (slides)

• Leverage concentrates equityholders' stakes, giving them incentives to find out the underlying cause of low earningsrather than automatically liquidating a loss-making firm.
• Debt permits liquidation of unskilled managers without inducing myopia in skilled managers
• Leverage is dynamically consistent; dividends are not a substitute for debt

Work In Progress

A Dynamic Model of Scale-Invariant Contracts Under Private Saving (with Xavier Gabaix and Yuliy Sannikov)

Selected Academic Awards

2007-8	Finalist, Helen Kardon Moss Anvil Award for best MBA professor
2007-8	Wharton MBA Core Teaching Award
2007-8	Wharton MBA Core Curriculum Award
2007-8	Goldman Sachs & Co. Research Fellowship
2007	Finalist, Smith-Breeden Award for Best Paper in the Journal of Finance
2007	Moskowitz Prize for Best Paper in Socially Responsible Investing
2006	Best Paper in Corporate Finance Award, Financial Management Association meetings
2006	Best Paper Award, 3rd Caesarea Center Annual Conference
2003-4	UK/US Fulbright Scholarship
2001	Highest Double First in Economics and Management, Oxford University

Other Publications

“Bond Valuation”, Chapter 4 in “The Money Market”, McGraw-Hill
“Financial Options”, Chapter 17 in “The Money Market” (with Jack Bao)

Selected Press Coverage (Sports Sentiment and Stock Returns)

TV interviews: CNBC, ESPN, ROBtv

Radio interviews: BBC Five Live, BBC World Service, BBC Radio 2, MarketWatch

Newspaper coverage in Financial Times 1 , FT 2 , Wall Street Journal 1 , WSJ 2 , WSJ 3 , Bloomberg , Washington Post, Boston Globe , Institutional Investor, Nature, MarketWatch , Newsweek , The Times (UK), The Observer (UK), Le Monde (France), La Tribune (France), Les Echos (France), Frankfurter Allgemeine Zeitung (Germany), Der Speigel (Germany), Die Zeit (Germany), and over 30 other countries.

Non-technical summary for a generalist audience.

Home   |  Research  |  Teaching  |  CV