Assistant Professor of Finance
Pontifical Catholic University of Chile (PUC-Chile)
School of Management
Avenida Vicuña Mackenna 4860
Corporate Finance, Household Finance, Financial intermediation
Using a new source of quasi-experimental variation in bank funding from jackpot lottery winners, I show that funds are transmitted across markets, but allocations are substantially greater in the state in which the shock occurs. These results are not explained by local demand or bank charter type and are robust to comparing contiguous CBSA-pairs across state borders. Consistent with features of banking regulation reducing fund mobility (Section 109), the effects are more pronounced for banks for which the regulation binds. These results suggest that, despite the banking deregulation, state boundaries matter for capital mobility partly because of regulatory frictions.
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.
More Money, More Options? The Effect of Cash Windfalls on Entrepreneurial Activities in Small Businesses (with Jacelly Cespedes and Xing Huang)
Using a unique setting that exploits the bonuses that retailers earn when selling jackpot winning lottery tickets, we show that large windfalls not only increase revenue and employment but also spur business creation. The new businesses are mainly in nonretail industries and are associated with the closing of existing businesses. There is a pecking order in entrepreneurs' growth decisions: small windfalls increase revenue, whereas windfalls larger than $100,000 trigger business creation and employment. That the probability of creating new businesses increases after constraints cease to bind suggests that wealth effects play an important role in explaining our results.
Almost Famous: The Short- and Long-Term Effects of Housing Wealth Shocks on Career Decision (with Jacelly Cespedes and Zack Liu)
Media Coverage: National Affairs
Using a novel data set of career histories in the film industry, we study the effect of housing wealth shocks on the quality of jobs that individuals pursue. Homeowners facing greater declines in local house price reduce their participation in high-quality projects, such as big-budget films and productions with award-winning talent, while increasing their involvement in low-quality films. Importantly, renters are not affected by these shocks. Consistent with individuals using home equity during job searches, these negative shocks have a greater impact on lower-equity and less-wealthy homeowners. Moreover, house price declines from the housing crisis also affect long-term career outcomes.
The Effect of Principal Reduction on Household Distress: Evidence from Mortgage Cramdown (with Jacelly Cespedes and Clemens Sialm) (R&R at the Review of Financial Studies)
Media Coverage: Columbia Law School’s Blue Sky Blog
Funded by NBER-HF Small Grants Program
Mortgage cramdown enabled bankruptcy judges to discharge the underwater portion of a mortgage during Chapter 13 bankruptcy before the Supreme Court disallowed this practice in 1993. We exploit the random assignment of cases to judges to quantify the ex-post effects of Chapter 13 bankruptcy over the period from 1989 to 1993. We find that a successful Chapter 13 filing in a cramdown court substantially decreases the five-year foreclosure rate, the propensity to move, and the crime rate. Our results suggest that principal write-down considerably reduces homeowner's distress.
Strategically Staying Small: Regulatory Avoidance and the CRA (with Jacelly Cespedes and Jordan Nickerson)
The 1995 CRA reform led to a two-tiered evaluation scheme determined by a bank's asset value. Using this feature, we estimate the cost of the CRA through the lens of costly actions taken by banks and the resulting real effects on the areas they serve. Banks exploit the attribute-based regulation by strategically slowing asset growth, bunching below the $250M threshold. This regulatory avoidance also has real effects, where treated banks experience an increase in the rejection rate of LMI loans, while areas they serve experience a decline in the county-level share of small establishments and entrepreneurial innovation. Taken together, these results highlight a bank’s willingness to take costly actions to avoid increased regulatory oversight, and as a consequence, reduced credit access for individuals the CRA is designed to benefit.
Peer Effects Across Firms: Evidence from Security Analysts (with Jacelly Cespedes)
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.