Research Interests

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

My primary research field is corporate finance. In particular, I study three corporate governance mechanisms. I show how blockholders can exert governance through trading a firm's shares, how this channel justifies multiple blockholder structures, and that managers may voluntarily issue debt to elicit blockholder monitoring. In executive compensation I use optimal contracting models to explain that CEO incentives should be low and decline with firm size. I develop a framework for tractable contracts under risk aversion which I apply to study the effect of risk on the CEO market equilibrium and optimal dynamic contracts under private saving and manipulation. I demonstrate that CEOs should be compensated with debt as well as equity. In mergers and acquisitions I show how low valuations drive takeovers and that investment banks matter for M&A returns. My secondary research field is behavioral finance. I show that the market does not fully incorporate value-relevant information, but responds to non-value-relevant information such as sentiment.

A primer on tractable incentive contracts. Brief, non-technical summary of the framework for achieving tractable incentive contracts developed in Tractability in Incentive Contracting and used in The Effect of Risk on the CEO Market and Dynamic CEO Compensation.

Working Papers

(REVISED) December 2012: Financing Through Asset Sales (with William Mann) (web appendix)
Analyzes choice between asset sales and equity issuance as financing channels. Firms need not issue the claim with lowest information asymmetry, in contrast to Myers and Majluf (1984).
Coverage: Knowledge@Wharton, Harvard Law School Corporate Governance Forum

June 2012: Feedback Effects and the Limits to Arbitrage (with Itay Goldstein and Wei Jiang) (slides)
Shorting a stock induces an optimal corrective action, reducing the trader's profits. Arbitrage is limited because firm value is endogenous to the act of exploiting the arbitrage.

(NEW) November 2011: Contracting With Synergies (with Itay Goldstein and John Zhu) (slides)
Optimal effort, pay and incentives under with asymmetric synergies (A's influence on B differs from B's influence on A). Pay varies within a team, even if agents perform similar tasks.

June 2010: The Responsible Homeowner Reward: An Incentive-Based Solution to Strategic Mortgage Default
Named one of the 50 best inventions of 2010 by Time Magazine
A potential solution to strategic default based on incentives and behavioral economics. $107 million of rewards are currently being implemented across 45 states.
Coverage: VoxEU, Knowledge@Wharton, Financial Times

Published and Forthcoming Papers

16. The Effect of Liquidity on Governance (with Vivian Fang and Emanuel Zur) (slides, web appendix)
Review of Financial Studies 26(6), 1443-1482, June 2013
Stock liquidity increases governance through "exit"/trading and to a lesser extent "voice"/intervention. We use decimalization to identify causal effects.
Coverage: Knowledge@Wharton, Harvard Law School Corporate Governance Forum, VoxEU, Oxford University Press

15. The Link Between Job Satisfaction and Firm Value, With Implications for Corporate Social Responsibility
Academy of Management Perspectives 26(4), 1-19, November 2012 (lead article)
Management-oriented version of Does the Stock Market Fully Value Intangibles? Employee Satisfaction and Equity Prices
Coverage: AMP press release

14. The Real Effects of Financial Markets (with Philip Bond and Itay Goldstein)
Annual Review of Financial Economics 4, 339-360, October 2012
Survey paper at the intersection of asset pricing and corporate finance. Secondary financial markets can have real effects, even though they do not lead to capital flows to/from firms.

13. Dynamic CEO Compensation (with Xavier Gabaix, Tomasz Sadzik and Yuliy Sannikov) (web appendix, slides)
Journal of Finance 67(5), 1603-1647, October 2012
Best Paper Award, Financial Research Association 2009
Dynamic model of CEO pay featuring manipulation and private saving. Proposes a reform of CEO compensation to address problems that led to the financial crisis.
Coverage: Fox Business Network (TV) NPR (radio), Knowledge@Wharton, VoxEU, Wall Street Journal, Reuters, Harvard Law School Corporate Governance Forum, press release,

12. The Real Effects of Financial Markets: The Impact of Prices on Takeovers (with Itay Goldstein and Wei Jiang) (web appendix, data on mutual fund flows)
Journal of Finance 67(3), 933-971, June 2012
Terker Family Prize in Investment Research, 2009
Low market valuations attract takeovers, consistent with disciplinary role of takeover market. We use an IV approach as prices are endogenous and reflect takeover expectations.
Coverage: Knowledge@Wharton, Harvard Law School Corporate Governance Forum

11. Short-Term Termination Without Deterring Long-Term Investment: A Theory of Debt and Buyouts
Journal of Financial Economics 102(1), 81-101, October 2011
Managers voluntarily take on debt as it concentrates investors' stakes, inducing monitoring. Rather than automatically terminating a loss-making manager, investors find out if losses result from investment.

10. Tractability in Incentive Contracting (with Xavier Gabaix) (web appendix, non-technical primer)
Review of Financial Studies 24(9), 2865-2894, September 2011 (lead article)
NYU Glucksman Prize for Best Working Paper in Finance, 2008/9 (First Place)
Develops a framework that delivers tractable (i.e. closed-form) optimal contracts, with few restrictions on the utility function, cost of effort or noise distribution

9. Does the Stock Market Fully Value Intangibles? Employee Satisfaction and Equity Prices
Journal of Financial Economics 101(3), 621-640, September 2011
FIR-PRI Prize for Best Paper in Finance and Sustainability, 2011
Moskowitz Prize for Best Paper in Socially Responsible Investing, 2007 (audio of talk)
Fortune's "Best Companies to Work For" outperformed by 3.5%/year from 1984-2009. Employee satisfaction is associated with higher stock returns, rather than being wasteful expenditure.
Coverage: UBS research report 2009, 2011, Money Message (radio) BBC (radio), Knowledge@Wharton, The Economist, Time, Kiplinger, Smart Money, Harvard Business, Daily Telegraph, HR Online

8. The Effect of Risk on the CEO Market (with Xavier Gabaix)
Review of Financial Studies 24(8), 2822-2863, August 2011
Risk aversion causes distortions to a standard assignment model - risky firms hire less talented CEOs. Firm size is not a proxy for talent. Pay depends not only on firm size, but also risk and disutility.

7. Governance Through Trading and Intervention: A Theory of Multiple Blockholders (with Gustavo Manso) (web appendix)
Review of Financial Studies 24(7), 2395-2428, July 2011
Model justifying prevalence of multiple blockholders in reality. MBs trade aggressively when "voting with their feet," inducing greater managerial effort ex ante

6. Do Investment Banks Matter For M&A Returns? (with Jack Bao) (web appendix, data on investment bank mergers)
Review of Financial Studies 24(7), 2286-2315, July 2011
Documents a significant investment bank fixed effect to the announcement returns of an M&A deal: a bank's M&A performance is persistent. But performance is negatively related to market share.
Coverage: Wall Street Journal, Economist, New York Times, Knowledge@Wharton

5. Inside Debt (with Qi Liu)
Review of Finance 15(1), 75-102, January 2011
Spängler IQAM Prize for Best Paper in the Review of Finance (runner-up)
McGraw-Hill/Irwin Best Paper in Corporate Finance Award, 2006 FMA Meetings
Optimal executive compensation involves debt, rationalizing the widespread use of defined benefit pensions. But manager's debt/equity mix need not equal the firm's
Coverage: IESE Insight, VoxEU, Knowledge@Wharton, Reuters, CFOZone, Financial Times, Harvard Law School Corporate Governance Forum

4. A Multiplicative Model of Optimal CEO Incentives in Market Equilibrium (with Xavier Gabaix and Augustin Landier) (web appendix, data on CEO incentives)
Review of Financial Studies, 22(12), 4881-4917, December 2009
Neoclassical model of both total salary and optimal cash/shares mix. Quantitatively explains negative empirical scaling of incentives with firm size.
Coverage: Harvard Law School Corporate Governance Forum

3. Blockholder Trading, Market Efficiency, and Managerial Myopia (web appendix)
Journal of Finance 64(6), 2481-2513, December 2009
Blockholders can exert governance even if they cannot intervene. By trading, they impound information about long-run value into prices, attenuating myopia.
Coverage: Harvard Law School Corporate Governance Forum

2. Is CEO Pay Really Inefficient? A Survey of New Optimal Contracting Theories (with Xavier Gabaix)
European Financial Management 15(3), 486-496, June 2009 (lead article)
Survey paper on recent theories arguing that executive compensation is efficient. A response to the Bebchuk-Fried critique that CEOs are stealing from shareholders.

1. Sports Sentiment and Stock Returns (with Diego García and Øyvind Norli)
Journal of Finance 62(4), 1967-1998, August 2007
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.
Coverage: Non-technical summary, CNBC, (TV), ESPN (TV), ROBtv (TV), BBC Five Live (radio), BBC World Service (radio), MarketWatch (radio), Financial Times 1 , FT 2 , Wall Street Journal 1 , WSJ 2, WSJ 3, Bloomberg, Boston GlobeMarketWatch 1, MarketWatch 2, Newsweek , The Times, Le Monde, Frankfurter Allgemeine Zeitung, Die Zeit

Policy Pieces

How to Fix Executive Compensation
Wall Street Journal, February 27, 2012

What's Right, What's Wrong, and What's Fixable: A Dispassionate Look at Executive Compensation (with Xavier Gabaix)
Pathways, Summer 2010, 13-16. Published by Stanford Center for the Study of Poverty and Inequality; accompaniment to debate at Economic Policy Institute Executive Compensation Policy Lab

Debt-Based Pay May Give Much-Needed Balance
IESE Insight, Q4 2010, 28-33. Non-technical summary of Inside Debt (with Qi Liu, Review of Finance 15(1), 75-102, January 2011)

Selected Academic Honors

Other Publications

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

OTHER MEDIA INTERVIEWS

General Interviews on CEO Compensation

Kiplinger: Taming Executive Pay Will Be Up To Shareholders, 6/3/09
KGO radio (part of ABC networks), 3/18/09

General Interviews on Role of Behavioral Finance / Investor Sentiment in the Current Crisis

New York Times: Wall Street and the Fear Factor, 1/6/09
Newsweek: The Anatomy of Fear, 10/11/08
Philadelphia Inquirer: Economic Turmoil is Real, and it Feeds Fear Among Us, 10/5/08
Investment Dealers' Digest: Nothing to Fear, 1/5/09

General Interviews on Mergers and Acquisitions

Wall Street Journal: Genentech Shareholders May Hold Advantage In Roche Tender, 2/4/09

Home   |  Research  |  Data  |  Teaching  |  CV