Carlos Parra
Assistant Professor of Finance
Pontifical Catholic University of Chile (PUC-Chile)
School of Management
Contact Information
Avenida Vicuña Mackenna 4860
Macul 7820436
Santiago, Chile
E-mail: parra.c.carlos.r@gmail.com
Research Interests
My research interests are in the interaction of household finance, financial intermediation, and small businesses.
Published and Accepted Papers
The Effect of Principal Reduction on Household Distress: Evidence from Mortgage Cramdown (with Jacelly Cespedes and Clemens Sialm) (Conditionally accepted at the Review of Financial Studies)
Media Coverage: Columbia Law School’s Blue Sky Blog, Forbes
Funded by NBER-HF Small Grants Program
- Selected Presentations: WFA, ABFER Annual Conference, Virtual Real Estate Seminar, CEPR Workshop on Household Finance, NY Fed / NYU Stern Conference on Financial Intermediation, FIRS
Mortgage cramdown enabled bankruptcy judges to discharge the underwater portion of a mortgage in a Chapter 13 bankruptcy until the Supreme Court disallowed this practice in 1993. We investigate the impact of mortgage cramdown on household distress exploiting the random assignment of cases to judges. We find that cramdown reduced the three-year foreclosure rate by between 15 and 20 percentage points. Our results suggest that large principal reductions considerably reduce homeowners’ distress through a reduction of debt overhang.
The Effects of House Prices and Home Equity Extraction on Career Outcomes (with Jacelly Cespedes and Zack Liu) (Accepted at the Review of Corporate Finance Studies)
Media Coverage: National Affairs
- Selected Presentations: Finance in the Cloud, UTD Finance Conference, European Meeting of the Labor and Finance Group, CEPR Household Finance Seminar Series
This paper investigates the effects of housing wealth shocks on workers' career decisions, particularly job quality, and long-term career outcomes. Using a novel data set of career histories in the film industry, we find that homeowners facing greater house price declines reduce participation in high-quality projects but increase involvement in low-quality films. Conversely, renters are not affected by these shocks. Consistent with individuals using home equity during job searches, these shocks have a greater impact on homeowners who extracted home equity during the housing boom. Moreover, house price declines from the housing crisis affect long-term career paths.
Working Papers
More Money, More Options? The Effect of Cash Windfalls on Entrepreneurial Activities in Small Businesses (with Jacelly Cespedes and Xing Huang) (R&R at the Review of Financial Studies)
- Selected Presentations: NBER SI Entrepreneurship, Northeastern Finance Conference, NYU Conference on Household Finance
Using a novel setting in which retailers receive bonuses when selling jackpot winning lottery tickets, we show that large windfalls lead to both existing business expansion and new business creation. New ventures are larger and have high survival rates; they tend to emerge in nonretail industries, substituting for existing business expansion. We also show that high-quality owners who are financially constrained respond the most to cash windfalls. Our findings contrast with the prevailing view that small businesses lack the desire to grow and highlight that financial frictions not only impede growth but also limit industry choices for constrained entrepreneurs.
Strategically Staying Small: Regulatory Avoidance and the CRA (with Jacelly Cespedes and Jordan Nickerson)
Media Coverage: Columbia Law School’s Blue Sky Blog
- Selected Presentations: WFA, FIRS, CFPB Research Conference, FDIC, Villanova Webinars in Financial Intermediation, ABFER Annual Conference, Chicago Fed LMI/Minority Housing Workshop, St. Louis Fed Community Banking Conference
Using the introduction of an asset-based two-tiered evaluation scheme in the 1995 CRA reform, we examine the consequences of regulatory avoidance. Banks respond by strategically bunching below the \$250M threshold. In a difference-in-differences design, we show that banks near the threshold prior to the reform reduce asset/loan growth, and increase loan rejection rates in low-to-moderate-income areas, a void unfilled by other banks. Regulatory avoidance produces real effects: areas with greater exposure to these banks experience a decline in small establishment shares and independent innovation. Our results highlight banks' willingness to incur costs to avoid regulations, negatively impacting CRA's beneficiaries.
Capital Mobility and Regulation Frictions: Evidence from U.S. Lottery Winners
Media Coverage: Fox Business, National Affairs, Dawn
- Selected Presentations: FRA, FIRS, ISB Summer Research Conference, St. Louis Fed Community Banking Conference
Despite the banking deregulation that lifted restrictions on bank expansion across state lines, I find that state borders are still relevant for credit allocation in the United States. Using a new source of quasi-experimental variation in bank funding from lottery winners, I show that small business lending mostly increases in the state where the shock occurs. Results are not explained by local demand or bank charter type and are robust to comparing contiguous CBSA pairs across state borders. Consistent with part of the banking regulation reducing capital mobility, the effects are more pronounced for banks for which the regulation binds.
Branching Out Inequality: The Impact of Credit Equality Policies (with Jacelly Cespedes, Erica Xuewei Jiang, and Jinyuan Zhang)
- Selected Presentations (including scheduled): HEC-McGill Winter Finance Conference, NBER Corporate Finance, UNC Conference on Wealth Inequality Solutions, Fed Philadelphia Mortgage Market Conference, CFPB Research Conference, NY Fed / NYU Stern Conference on Financial Intermediation, European Banking – Tilburg Summit
We uncover that the Community Reinvestment Act (CRA), a major policy aimed to reduce geographic inequality in credit access, can widen disparities across regions, despite enhancing credit equality within certain regions. This adverse effect arises because banks withdraw branches from economically disadvantaged areas to sidestep the rules. As financial activities shift towards shadow banks, the adverse impact of the CRA is amplified, expanding the set of disadvantaged areas suffering from branch withdrawals. Using a regression discontinuity design centered on a CRA eligibility threshold, we estimate banks' shadow costs of violating the CRA. We then show that banks with higher costs of CRA violation retract their branches from disadvantaged areas following the expansion of shadow banks. This retraction results in declines in small business lending, business establishments, and employment, predominantly in low-income neighborhoods within these disadvantaged regions. Such dynamics could contribute to the worsening cross-region disparities in credit access observed over the recent decade
How Does Consumer Bankruptcy Protection Impact Household Outcomes?
2015 PhD Outstanding Paper Award, Olin - Washington University in St. Louis
Selected Presentations: WFA, ASSA-AREUEA
Chapter 7 bankruptcy, the main debt relief program for U.S. households, provides more than $150 billion in debt relief each year, yet its impact on consumers remains unclear. Using unique hand-collected data from individual bankruptcy petitions, I employ a regression discontinuity design to estimate Chapter 7’s effect on households’ subsequent real investment and financial performance. Chapter 7 protection increases the probability of a debtor creating a new business, becoming a first-time homeowner, and avoiding home foreclosure. Although Chapter 7 protects people in a variety of ways—for example, by stopping creditor harassment—the above findings arise because of debt relief.
Peer Effects Across Firms: Evidence from Security Analysts (with Jacelly Cespedes)
- Selected Presentations: SOLE
We assess the magnitude and mechanisms of workers’ productivity spillovers by estimating the peer effects among those working in the same occupation across firms using the setting of security analysts. The empirical design exploits one feature of social networks: the existence of partially overlapping peer groups. This refers to analysts who cover similar industries but not exactly the same group of industries, which generates peers of peers (excluded peers). This allows the identification of both peer characteristics and peer outcome effects. In addition, to deal with common group shocks, the exogenous characteristics of excluded peers are used as instruments. We find strong evidence of spillovers in terms of peer outcomes and characteristics. In particular, peer accuracy is positively related to analyst accuracy, while the number of industries followed by analysts' peers negatively impacts accuracy. In terms of the potential mechanisms that account for the spillover effects, we find that the effects are stronger when analysts see their peers performing well and that besides imitation, knowledge spillovers also help explain the results.
Selected Work in Progress
Small Business Boundaries
Funded by NBER-HF Small Grants Program