Assistant Professor of Finance
Catholic University of Chile (PUC-Chile)
Avenida Vicuña Mackenna 4860
Corporate Finance, Household Finance, Financial intermediation
I empirically analyze how banks reallocate capital across lending markets following funding shocks. I exploit a new source of quasi-experimental variation in bank funding from lottery winners. Exposure to jackpot shocks leads to a significant increase in both deposits and lending at the bank level. Funds are transmitted across markets, but allocations are five times greater in the state in which the shock occurs. Features of banking regulation (Section 109) negatively affect fund mobility and loan performance. These results suggest that state boundaries matter for capital mobility in part because of regulatory distortions.
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 Wealth Shocks on Career Decisions (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 local house price declines 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, differences in local labor demand do not explain these results. Consistent with individuals relying on home equity extraction during job searches, these negative shocks have a greater impact on lower-equity and less-wealthy homeowners. These short-term wealth shocks also affect long-term career trajectories.
The Effect of Principal Reduction on Household Distress: Evidence from Mortgage Cramdown (with Jacelly Cespedes and Clemens Sialm)
Media Coverage: Columbia Law School’s Blue Sky Blog
Funded by NBER-HF Small Grants Program
Mortgage cramdown has been proposed as a mechanism to avoid mortgage foreclosures in times of crisis. In this restructuring, the underwater portion of the mortgage is treated as unsecured debt and can be discharged during Chapter 13 bankruptcy. To quantify the ex-post effects of bankruptcy discharge in cramdown courts, we use a new dataset of district courts that allowed mortgage cramdown over the period from 1989 to 1993. We take advantage of the random assignment of cases to judges who exhibit significant differences in leniency. We find that a successful bankruptcy filing in cramdown courts reduces the five-year foreclosure rate by 29 percentage points and decreases the number of moves post-bankruptcy. Although cramdown is beneficial for all demographic groups, we observe that cramdown particularly helps female filers, who are also less likely to receive a debt discharge during bankruptcy. Our results support that principal write-downs explain the vast majority of the reduction in foreclosure, and thus debt overhang considerations play an important role in explaining homeowners' default.
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.