Research

Working Papers

1.   Does financial distress affect emerging risk taking?

Presentations: Bertram Scholar Dinner; Canadian Sustainable Finance Network Conference; Federal Reserve Board; FMA Doctoral Student Consortium Workshop; Queen's University; UQAM; University of St. Gallen; University of Toronto empirical microeconomics seminar; University of Toronto financial economics seminar; University of Toronto Rotman finance seminar

Abstract: As economic damages from hurricanes rise due to climate change, banks will need to invest internally to update their risk management framework. This paper tests whether financial distress affects a bank's ability to adapt to emerging risks. Empirically, distressed banks take on relatively more emerging risk; they are 15 percentage points less likely to securitize loans that are exposed to hurricane risk and charge 88 basis points less for risky loans. Results are stronger for financially-constrained banks and are likely due to under-investing in risk management. Results are unlikely due to moral hazard, since distressed banks reduce borrower income risk.

2. Outside stakeholder governance with Tanja Artiga González and Paul Calluzzo

Presentations: Canadian Sustainable Finance Network, CLEA*, Climate Finance and Sustainability Conference, GREFA, Queen's University, Rotman Climate Finance Week

*Presented by co-author

Abstract: We determine the optimal firm response to stakeholder pressure on corporate externalities using a model that we validate empirically. Outside stakeholders use both regulation and litigation to govern firms, which require a different strategic response. With litigation, stakeholders cannot afford to sue all firms, so they concentrate on high impact lawsuits against the “largest offenders”. Litigation fosters competition among firms to proactively reduce their externality to avoid being the largest target - a mechanism that is not present with regulation. Further, regulation and litigation constrain capital markets which crowd out the impact of socially-responsible investing.

3. Local information decay (Draft Available Upon Request) with Peter Cziraki, Jasmin Gider and Jordi Mondria

Presentations: Texas A&M University*

*Presented by co-author

Abstract: We study what happens to local investing when local information disappears. Using county-level newspaper closures as shocks to the supply of local information, we analyze trading and portfolio data of households, judges, and mutual funds spanning three decades. Our triple difference design compares local and nonlocal stock trading before and after a closure by investors in the same county vs. investors that did not experience a newspaper closure. Consistently across all three investor groups, performance deteriorates when buying local stocks after a newspaper closes. The performance loss is 0.13-0.3 percentage points per month for mutual funds, and substantially larger, 0.5-2 percentage points per month for judges and 1.2-2.6 for households. Surprisingly, however, investors do not significantly reduce their local holdings: Local performance deteriorates, but local portfolios do not adjust. This performance-portfolio disconnect suggests that local journalism improves local investors’ stock selection, while local portfolio tilts survive the loss of local information.

Works in Progress

1. Are banks accounting for biodiversity risk in their lending? with Claudio Rizzi

2. What is the aggregate investor response to climate litigation risk?

Presentations: AFA Poster Presentation; Bank of Canada Graduate Student Paper Award Workshop; Canadian Sustainable Finance Network; CIREQ Interdisciplinary PhD Symposium on Climate Change; EFA Doctoral Tutorial; UCLA Climate Adaptation Research Symposium; UT Austin PhD Symposium; University of Toronto financial economics seminar