(Review of Corporate Finance Studies, Volume 9, Issue 1, March 2020)
Summary: When institutional investors hold both the debt and the equity of the same firm, they reduce firm investment distortion because 1) they are more incentivized and better equipped to monitor managers; 2) they align shareholder-creditor incentives and lead to less risk-shifting between the two parties.
(Finance Research Letters, Forthcoming)
Summary: Prior studies have shown evidence that common ownership improves governance since common owners are more incentivized and better equipped to monitor. I show that creditors, who often bear monitoring responsibilities, account for the governance benefits by common owners and exert less monitoring effort in firms with high common ownership.
(Revise and Resubmit at Journal of Financial Economics)
Presented at: (*by Coauthor)
FIRS 2021 (Scheduled); SFS Calvacade 2020*; AFA 2020 ; AFA 2019 Poster Session; EFMA 2019; FMA Europe 2019; 2nd CESC; FMA Asia/Pacific 2019; 27th Spanish Finance Forum*; IV Madrid-Barcelona Workshop on Banking and Corporate Finance*
Featured at Competition Policy International
Summary: We show that in seemingly value-destroying acquisitions, diversified institutional shareholders of the acquirers often profit at the industry portfolio level thanks to gains from their stakes in not only the targets, but also non-merging industry rivals.
LSE; IESE; 28th Finance Forum PhD Day (Awarded Best Paper Prize); AFA Poster Session 2021; Fudan FISF; CEIBS; UC3M; SKEMA; SYSU; Bristol; SMU (Cancelled); HEC Montreal; Stevens Institute of Technology
Summary: Using mergers between the firm's existing lenders as shocks to incentives and bargaining power to monitor, I show that intensified lender monitoring mitigates managerial agency costs, yet also induces firm policies that can be over-conservative for shareholders.
Featured at the Duke University School of Law FinReg Blog
Summary: While creditors' simultaneous equity holdings in their borrowers have been shown to be beneficial as shareholder-creditor incentives are more aligned, we show that a new type of conflict arises in syndicates with such dual holders, due to the heterogeneity across syndicate members’ equity-to-loan positions.
Summary: Using institutional dual holding as a setting for lower shareholder-creditor conflicts, we show that equity lending supply increases in firms with dual holders. Shareholders are less likely to recall shares before a vote when dual holders are present. Our results indicate that shareholder-creditor conflicts can give rise to limits to arbitrage, because shareholders tend to hold on to their shares to 1) retain bargaining power against creditors; and 2) prevent stock price decline which can trigger creditor intervention.
7. Bank Control and Corporate Diversification
Summary: When banks hold their borrowers' equity, they often only have the control right yet not the cash flow right, as they do so through their trust accounts. I show that firms with such dual holders are more likely to be diversified and pursue diversifying takeovers, suggesting that banks use their control power to reduce credit risk. I establish causality using exogenous variation in bank dual holder presence induced by financial institution mergers. I find that nonbank dual holders mitigate this effect, which is consistent with the notion that nonbank dual holders facilitate shareholder-creditor incentive alignment, rather than creditor risk shifting.