“The difficulty lies not so much in developing new ideas as in escaping from old ones”
- John Maynard Keynes -
My current research interests include financial intermediation, credit markets, monetary policy, financial crises, institutions, and corporate finance. I am particularly interested in projects with real implications for policy-making, corporate decisions, and the broad economy.
I have presented my work at academic events such as the Financial Intermediation Research Society Conference, the FDIC/JFSR Annual Bank Research Conference, and the Financial Management Association Annual Conference. And I have held research seminars at many renowned venues that include the Federal Reserve System, the Central Bank of Argentina, and a number of universities around the globe. My recent work has been published by the Journal of Financial and Quantitative Analysis and the Journal of Banking and Finance.
“Economic Policy Uncertainty and the Supply of Business Loans”
With Andrea Civelli
Journal of Banking and Finance, 2020
Using a Vector Autoregressive framework of analysis, we show that banks contract their supply of business credit in response to an exogenous increase in economic policy uncertainty. This contraction takes two main, distinct forms. On the one hand, banks restrict their supply of spot funds, which we document using flows of loans and term loan originations. On the other hand, banks also curtail their provision of liquidity insurance, reducing the amount of new credit lines and embedding in them a pricing structure that reduces the probability of borrowers drawing down on the lines. At the peak of the responses, we find that a one-standard-deviation increase in EPU causes a contraction in the supply of business loans between 3 and 5% on the extensive margin.
“Business Loans and the Transmission of Monetary Policy”
With Andrea Civelli and Nicola Zaniboni
Journal of Financial and Quantitative Analysis, 2019
We study the transmission mechanism of monetary policy through business loans and illustrate subtle aspects of its functioning that relate to loans' contractual characteristics and borrower-lender types. We show that the puzzling increase in business loans in response to monetary tightening, documented before the Great Recession, is largely driven by drawdowns from existing commitments at large banks. Spot loans also rise and take considerable time to adjust. Banks, nonetheless, do curtail credit supply by shortening maturities of new loans. Following the Great Recession, the mechanism has worked differently, with loan responses to monetary tightening displaying a significant downward shift.
“Sleeping with the Enemy: The Perils of Having the Government
With Martín Rossi and Christian Ruzzier
We study the causal effect of unsought political connections on firm value. To address concerns of potential endogeneity and sample-selection bias we exploit the nationalization of Argentina’s pension system, a unique natural experiment yielding exogenous variation in new political connections. We find unsought political connections to have a large negative effect on the value of newly connected firms. Yet this result only materializes when, in addition to becoming a shareholder, the government also obtains the right to appoint directors. Decreased stock liquidity or higher stock volatility do not explain this result, suggesting a channel that decreases expected cash flows to shareholders.
“The Short-Term Effect of the Paycheck Protection Program on
With Martín Rossi and Timothy Yeager
We study the short-term causal effect of the Paycheck Protection Program on unemployment. Using the 2019 density of Small Business Administration member bank offices in a county as an instrument for PPP loans originated in that county during April 2020, we find statistically and economically significant effects from the program on unemployment. Our results highlight the importance of this relief policy and the financial system infrastructure in preserving jobs during the COVID-19 crisis.
“Financial Crisis and the Supply of Corporate Credit”
With Wayne Y. Lee and Timothy J. Yeager
Nearly a decade after the onset of the financial crisis, no consensus has emerged among researchers as to the importance of the bank lending channel in explaining the contraction in corporate investment. Kahle and Stulz (2013) document a tenuous connection between bank distress and corporate investment, but other researchers find large negative effects of bank distress on employment and investment. We improve upon previous research by matching syndicated loans from publicly traded U.S. firms to their lead banks. We then track the connection between lead-bank distress and corporate debt migration and investment. We show that lead-bank distress negatively affected borrowing in 2008, and investment in 2009, but only for rated firms. Firm migration to the public debt market was insufficient to offset the adverse effects from the contraction in bank credit. Ultimately, we document that the bank lending channel indeed accounts for a significant portion of the 2009 decline in corporate investment.
“Economic Distress and the Maturity of Debt”
This paper explores the relationship between aggregate economic distress and the maturity of debt. I argue that lenders would prefer shorter maturity of debt during periods of economic distress. I develop a model where a lender chooses the debt contract tenor that maximizes her expected profits. In doing so, she weighs the role of capital rotation with the expected margin on each transaction and the probability that the borrower defaults. The probability of a borrower defaulting depends on the aggregate economic conditions. The main prediction of the model is that a shock to the stability of the economy leads the lender to prefer shorter maturities on new debt contracts. I test this prediction empirically using over twenty years of data on bank and public debt issuances and document a persistent negative relationship between aggregate economic riskiness and maturity of new debt contracts. Furthermore, shortening contract maturities result in significant changes of the financial structure of nonfinancial corporations.