Lucian (Luke) Taylor
Assistant Professor of Finance
Wharton School
University of Pennsylvania
Email: luket@wharton.upenn.edu
Phone: (215) 898-4802
[curriculum vitae]
Working Papers
Dynamic Debt Runs: Evidence from a Structural Estimation
(with
Gustavo Suarez
and
Enrique Schroth )
(Revised November 17, 2011)
We use data from the 2007 asset-backed commercial paper (ABCP) crisis to estimate a dynamic model of debt runs. The model features long-term investment financed with dispersedly held, short-term debt with staggered maturities. Yields change endogenously over time, which introduces dilution risk: lenders demand high yields to compensate them for being diluted by future lenders, which makes runs more likely. This model of fundamental-driven runs fits several features of the data, including the ten-fold increase in yield spreads leading up to runs, the high probability of recovering from a run, the positive relation between yield spreads and future runs, and the positive relation between yield levels and yield volatility. We measure the effectiveness of several policy interventions designed to prevent runs and find that interventions targeting asset liquidity and conduit leverage are most effective.
CEO Wage Dynamics: Evidence from a Learning Model
(Revised October 1, 2010)
Good news about a CEO's ability creates a positive surplus. Empirically, CEOs capture most of this surplus by bidding up their pay. However, CEOs bear almost none of the negative surplus resulting from bad news about ability. These results are consistent with the optimal contracting benchmark of Harris and Holmstrom (1982). Since CEOs do not capture their entire surplus, CEO ability matters more for shareholders, which is supported by predictions and data on unanticipated CEO deaths. The model helps explain the sensitivity of CEO pay to lagged returns, and also the changes in return volatility around CEO successions.
Accepted Papers
Why are CEOs Rarely Fired? Evidence from Structural Estimation
Journal of Finance, 2010, 65(6): 2051-2087
I evaluate the forced CEO turnover rate and quantify effects on shareholder value by estimating a dynamic model. The model features costly turnover and learning about CEO ability. To fit the observed forced turnover rate, the model needs the average board of directors to behave as if replacing the CEO costs shareholders at least $200 million. This cost mainly reflects CEO entrenchment rather than a real cost to shareholders. The model predicts shareholder value would rise 3% if we eliminated this perceived turnover cost, all else equal. In addition, the model helps explain the relation between CEO firings, tenure, and profitability.
Technical Appendix
Entrepreneurial Learning, the IPO Decision, and the Post-IPO Drop in Profitability
(with Lubos Pastor and Pietro Veronesi)
The Review of Financial Studies, 2009, 22(8): 3005-3046.
We develop a model of the optimal IPO decision in the presence of learning about the average profitability of a private firm. The entrepreneur trades off diversification benefits
of going public against benefits of private control. Going public is optimal when the firm's
expected future profitability is suffciently high. The model predicts that firm profitability
should decline after the IPO, on average, and that this decline should be larger for firms
with more volatile profitability and firms with less uncertain average profitability. These
predictions are supported empirically in a sample of 7,183 IPOs in the United States between
1975 and 2004.
Technical Appendix