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 (Draft Available Upon Request) with Tanja Artiga González and Paul Calluzzo

Abstract: Outside stakeholders are increasingly conscious of firm externalities, such as greenhouse gas emissions. We develop a model that shows how stakeholders influence firms to internalize externalities, and how firms should optimally respond. The firm response depends on whether the issue is polarized among its outside stakeholders. With low polarization, stakeholders enact regulation and the firm is exogeneously subjected to a constraint that limits the externality. With high polarization, stakeholders cannot agree on regulation, so individual stakeholders may try to influence firms through litigation. Stakeholders sue the "largest offender", so there is a competitive force among firms to decrease their externality, even with just the threat of litigation. It is optimal for firms to proactively reduce the externality until it is not beneficial for stakeholders to sue.

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: This paper studies the dynamics of local investors’ information advantage using local newspaper closures and the trades of local and nonlocal investors. Following the closure of a newspaper, investors are 10 percentage points less likely than nonlocals to trade the shares of firms in the same zip-code, and reduce the share of their local holdings by 8 percentage points, or 50% relative to the average. Local investors also make lower risk-adjusted returns on their stock purchases and sales up to 6 months following a local newspaper closure. The differences are larger for investors who trade frequently and live outside of large cities. Our results suggest that local journalism is an important source of local investors’ information advantage, and, therefore, the home bias phenomenon.

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