Research

• • Breaching the Chinese Wall: Cross-Market Information Flow Following Financial Institution Mergers (Job Market Paper) [SSRN] [Latest Version]

with Navid Akbaripour (Stockholm School of Economics)

Abstract: How does access to private loan information affect institutional investors' equity returns? Exploiting mergers between asset managers and lenders as a plausibly exogenous shock to loan-side information access, we find that after gaining access institutional investors earn higher abnormal equity returns: within institutions, managers earn 3.1 pp higher annualized returns on stocks for which they have loan-side access than on their other holdings without such access, and across institutions trading the same stock, informed managers outperform equity-only peers by 1.7 pp annualized, consistent with debt positions conferring information unavailable to pure shareholders. Mechanism tests show larger gains when financial-reporting covenants bind; where such covenants exist pre-merger, returns rise by roughly 2 pp. Firms with dual holders adjust: public voluntary disclosures decline by about 11%, new facilities are 11–17% more likely to include information-intensive covenants, and loan pricing improves. Public markets respond with wider bid–ask spreads. By comparing holdings with loan-side access to managers’ other positions and to uninformed holders of the same stock, the design isolates causal loan-to-equity information flow, linking mergers between equity- and lending-side entities to trading rents and to shifts in the public information environment.

• Working Papers

•  Why Venture Later? Incentives, Learning, and Industry Allocation in VC Funds [SSRN] [Latest Version]

Abstract: Venture funds enter new high-tech industries with delay. I develop and estimate a structural model with two frictions that generates a socially inefficient delay to enter. Inside deals, managers need credible early evidence from entrepreneurs about viability of new ventures, but because monitoring is costly they do too little. Between investors and managers, LPs cannot verify or directly reward that monitoring, so incentives under-provide it. Estimating the model on matched pairs of funds shows the first friction reduces the share of capital allocated to new sectors, while the second keeps monitoring too low and limits the scale of those investments. Combined frictions imply average welfare losses of nearly $40B per year (around 3% of VC and 12% of new-sector capital). I examine the effectiveness of policy tools, such as exploration bonus for managers, temporary public risk-sharing, and lower-cost funding for new-sector deals, in raising early exploration and investment scale.

• The Agency Cost of Debt and Innovation [Latest Version]

Abstract: This paper isolates the effect of the agency cost of debt on the firm’s innovative activities. I use the presence of debtholders who also own equity in the firm as a proxy to measure this agency cost. I find that firms with reduced agency costs engage in fewer innovative projects relative to their peers. At the same time, these firms receive 12% more total future citations to their patents, and the average market value of their patents is also 7% higher. I argue that the reduction in the level of the firm’s business risk and the following reallocation of internal funds is the likely channel behind these effects.

• Green Loans and Household Behavior: Selection, Real Effects, and Windfalls [SSRN]

with Navid Akbaripour (SSE), Marieke Bos (SSE, CEPR, VU Amsterdam, Tinbergen Institute), and Arna Olafsson (CBS, CEPR)

Abstract: Financial markets are increasingly seen as pivotal in mitigating climate change by influencing consumer choices. This paper studies the introduction of a green loan program in Iceland that offers an interest rate rebate for electric vehicle (EV) purchases, and analyzes who selects these loans and how adopting an electric car affects household finances. Using transaction-level data from a large Icelandic bank, we compare green car loan takers to regular car loan takers. We find that green loan adopters tend to be more affluent, have larger families, live in areas with strong Green Party support, and are more financially literate and more likely to have previously invested in green bonds, indicating both pro-environment and financial-awareness channels in selection. They also exhibit different pre-purchase consumption patterns (e.g., lower spending on gasoline and higher spending on other carbon-intensive goods) even before switching to an EV. After the purchase, green loan households dramatically reduce gasoline expenditures (about 30% on average) while increasing electricity costs modestly (around 13%), resulting in a net decline in monthly car-related outlays of roughly 10,000 ISK. This corresponds to a 0.8 percentage point drop in the household's energy-expenditure-to-income ratio and implies sizable reductions in fuel-related CO2 emissions. We further show that exogenous liquidity windfalls significantly increase the likelihood of choosing a green car loan: lottery winners who subsequently buy a car are 12-13 percentage points more likely to opt for an EV. However, because current green loan take-up is heavily skewed toward wealthier, already green consumers, the aggregate carbon reductions remain limited. Our findings suggest that green loan programs can both cut carbon emissions and save consumers money, but only if complemented by policies to broaden access beyond the environmentally motivated and financially well-off.

• Work in Progress

• The Global Rise of Index-Based Ownership of Firms

with Bo Becker (SSE, ECGI & CEPR) and Rüdiger Fahlenbrach (EPFL, ECGI & CEPR)

Abstract: We develop a simple, replicable four-variable model that identifies index-based investors with 97% accuracy. We deploy the model globally and show that index ownership has grown from 3% of global market capitalization in 2004 to 16% by 2023. The rise in indexing is driven by explicit indexing, whereas closet indexing remains modest. We can calculate index ownership for each listed firm. Index funds own at least 10 percent of almost 2,000 firms globally. There is considerable heterogeneity: whereas American mid-caps see more index ownership than large-caps, in Asia and Europe the size-index ownership relationship is monotonically increasing and only the largest firms are affected. These difference partially reflect differences in free float and the pace of growth of indexing.