Assistant Professor of Finance
Pontifical Catholic University of Chile (PUC-Chile)
School of Management
Avenida Vicuña Mackenna 4860
My research interests are in the interaction of Household Finance, Financial Intermediation, Real Estate, and Entrepreneurship.
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
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
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.
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)
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
The 1995 CRA reform led to a two-tiered evaluation scheme determined by a bank's asset value. Using this feature, we examine the consequences of regulatory avoidance in the context of the CRA. Banks exploit the attribute-based regulation by strategically slowing asset growth, bunching below the $250M threshold. Exploiting the introduction of the asset threshold, we find that regulatory avoidance also has real effects. Banks near the threshold prior to the 1995 reform 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 independent 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.
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.
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)
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