My research spans dynamic contracting, financial intermediation, and international finance. My most recent work on financial intermediation analyzes the interplay between financial regulation and risk-taking incentives in the financial sector. The corresponding papers are published in top general interest journals (Econometrica) and leading field journals such as the Journal of Economic Theory, the Journal of Financial Economics and the Journal of International Economics. The paper “Target revaluation after failed takeover attempts - Cash versus stock” won the 2016 Jensen prize for the best paper published in the Journal of Financial Economics in the areas of corporate finance and organizations (first place). My favorite papers are “Impatience versus incentives,” “Only time tell: A theory of deferred compensation,” and “Rating agencies in the face of regulation.” I have been a board member of the Finance Theory Group from 2016 to 2018. I won the 2017 Poets and Quants “Top 40 under 40” award for professors of world-wide business schools, the 2018 Marianne and Marcus Wallenberg foundation grant (~USD 450k) and the 2018 Riksbankens Jubileumsfonds (~USD 250k).
(7) “Target Revaluation after Failed Takeover Attempts - Cash versus Stock,” 2016, joint with Ulrike Malmendier & Farzad Saidi, Journal of Financial Economics, 119, 92-106. Winner of 2016 Jensen Prize for the best Corporate Finance paper published in the Journal of Financial Economics. Online Appendix
Main insight: Capital markets interpret a cash offer as a economically large and positive signal about the fundamental value of target resources (in contrast to a stock offer). We expose a significant look-ahead bias affecting the previous literature on this topic.
Main insight: We study the dynamics of contracts in repeated principal-agent relationships with an impatient agent. Despite the absence of exogenous uncertainty, Pareto-optimal dynamic contracts generically oscillate between favoring the principal and favoring the agent.
(5) “Markup cycles, dynamic misallocation, and amplification,” 2014, joint with Christine Parlour & Johan Walden, Journal of Economic Theory, 154, 126-161.
(4) “Rating agencies in the face of regulation,” 2013, joint with Christian C. Opp & Milton Harris, Journal of Financial Economics, 108, 46-61. Winner of the 2016 Emerald Citation Award.
(3) “Expropriation risk and technology,” 2012, Journal of Financial Economics, 103, 113-129. Winner of the 2008 John Leusner Award for the best dissertation at the University of Chicago in the field of Finance.
(2) “Tariff wars in a Ricardian model with a continuum of goods,” 2010, Journal of International
Economics, 80, 212-225.
(1) “Rybczynski's theorem in the Heckscher-Ohlin world - anything goes,” 2009, joint with Hugo
Sonnenschein & Christis Tombazos, Journal of International Economics, 79, 137-142.
Completed working papers:
(8) “The aggregate demand for bank capital,” November 2018, joint with Milton Harris and Christian Opp, submitted.
Abstract: We propose a novel conceptual approach to characterizing the credit market equilibrium in economies with multi-dimensional borrower heterogeneity. Our method is centered around a micro-founded representation of borrowers' aggregate demand correspondence for bank capital. The framework yields closed-form expressions for the composition and pricing of credit, including a sufficient statistic for the provision of bank loans. Our analysis sheds light on the roots of compositional shifts in credit toward risky borrowers prior to the most recent crises in the U.S. and Europe, as well as the macroprudential effects of bank regulations, policy interventions, and financial innovations providing alternatives to banks.
(9) “Only time will tell: a theory of deferred compensation,” February 2019, joint with Florian Hoffmann and Roman Inderst, submitted.
Abstract: This paper provides a complete characterization of optimal contracts in principal-agent settings where the agent's action has persistent effects. We model general information environments via the stochastic process of the likelihood-ratio. The martingale property of this performance metric captures the information benefit of deferral. Costs of deferral may result from both the agent's relative impatience as well as her consumption smoothing needs. If the relatively impatient agent is risk neutral, optimal contracts take a simple form in that they only reward maximal performance for at most two payout dates. If the agent is additionally risk-averse, optimal contracts stipulate rewards for a larger selection of dates and performance states: The performance hurdle to obtain the same level of compensation is increasing over time whereas the pay-performance sensitivity is declining. We derive a rich set of testable implications for the optimal duration of (executive) compensation and the maturity structure of claims in financial contracting settings.
(10) “The Economics of Deferral and Clawback Regulation: A Pigouvian Tax Approach,” February 2019, joint with Florian Hoffmann and Roman Inderst, submitted
Abstract: This paper analyzes the effects of mandatory deferral and clawback requirements for managerial compensation contracts in the financial sector. Moderate deferral requirements for bonus payouts induce bank shareholders to incentivize more risk management effort from the manager (and, hence, lower bank failure rates), whereas stringent deferral requirements will lead to higher risk of bank failure. Additional clawback requirements may prevent such backfiring if and only if competition for managerial talent is sufficiently high. We provide conditions for when the optimal mix of capital and compensation regulation can achieve second-best welfare. Our analysis exploits the general idea that any (regulatory) restriction on compensation design can be understood as an indirect Pigouvian tax levied on the principal for incentivizing a given action.
Work in progress:
Abstract: We expose that a reform of capital regulation for insurance companies in 2009/2010 eliminated (to a first-order approximation) capital requirements for holdings of non-agency mortgage backed securities. Post reform, insurance companies allocate 54% of their purchases of new MBS issues toward non-investment grade assets (as opposed to 6% pre reform), a large increase in risk-taking.