Research Interests

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

Clickable links lead to full abstracts and paper.

Publications

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.
• International sports results are used as a mood proxy; soccer World Cup elimination leads to a next-day abnormal return of -49bp on the national index.

Working Papers

A Multiplicative Model of Optimal CEO Incentives in Market Equilibrium (with Xavier Gabaix and Augustin Landier)

• Optimal contracting model with (i) multiplicative functional forms for effort in the principal-agent problem (ii) embedding of P-A problem in talent assignment model. Result is a unified framework endogenizing both total pay and incentives
• Model quantitatively explains empirical scaling of incentives with firm size (inconsistent with an additive model). Low incentives in large firms need not be inefficient.
• Incentives are powerful at solving large agency problems (such as strategy choice) but are impotent for smaller issues (such as perks).

Governance Through Exit and Voice: A Theory of Multiple Blockholders (with Gustavo Manso) (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 act competitively in informed trading. This increases the power of disciplinary exit, inducing 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" earn a monthly four-factor alpha of 64 bps.
• Employee satisfaction is associated with higher shareholder value, rather than reflecting excessive non-pecuniary compensation.
• 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 ("SRI") screens need not reduce, and may indeed 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 the returns of past deals advised by a bank and negatively related to its market share.
• However, clients select advisors on the basis of market share and ignore past performance.
• Dissemination of league tables based on value creation may improve banks' incentives to turn down bad deals.

Blockholders, Market Efficiency, and Managerial Myopia - Job Market Paper (slides)

• Theory of blockholders that does not assume intervention, rationalizing the prevalence of small blockholders in the U.S. that lack control rights.
• Blockholders gather information about fundamental value and impound it into prices, thus encouraging long-term investment that temporarily worsens earnings.
• Traditional view is that institutional trading exacerbates myopia, and liquidity is undesirable as it permits shareholder exit. This paper shows that liquid markets and institutional trading can support investment by impounding its effects into short-term stock prices.

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 is superior at attenuating risk-shifting than solvency-contingent bonuses and salaries, as it is sensitive to the value of assets in bankruptcy as well as the incidence of bankruptcy.
• Debt can also improve effort as well as project selection, 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 losses rather than automatically liquidating the 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

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

How Should CEOs Be Compensated? Insights From A Neoclassical Structural Model (with Xavier Gabaix, in preparation for JEEA P&P)

Detail-Independent Optimal Contracting, with an Application to CEO Incentives (with Xavier Gabaix)

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.

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