Assistant Professor of Finance
University of Southern California
Marshall School of Business
3670 Trousdale Parkway
Bridge Hall 308
Los Angeles, CA 90089-0804
Telephone: (213) 740-7677
Ph.D., M.A., Economics, Harvard University
M.S., Economics, Catholic University - Rio (PUC-Rio)
B.S., Mathematics, Catholic University - Rio (PUC-Rio)
Published and Forthcoming Papers
The Real Effects of Government-Owned Banks, Journal of Finance, forthcoming
Abstract: Government ownership of banks is widespread around the world. Using plant-level data for Brazilian manufacturing firms, this paper provides evidence that government control over banks leads to significant political influence over the real decisions of firms. I find that firms eligible for government bank lending expand employment in politically attractive regions near elections. These expansions are associated with additional (favorable) borrowing from government banks. Also, the expansions are persistent, take place just before elections, only before competitive elections, and are associated with lower future employment growth by firms in other regions. I find no effects for firms that are ineligible for government bank lending. The analysis suggests that politicians in Brazil use bank lending to shift employment towards politically attractive regions and away from unattractive regions, creating a direct link between the political process and firms’ real behavior.
Abstract: This paper studies the effects of industry peers’ financial conditions on firms during industry downturns. I develop an approach to isolate sharp differences in the timing of firms’ long-term debt maturity across close but different years. The analysis provides direct evidence that common industry fundamentals are not important for explaining these differences and uses them to predict arguably exogenous variation in peers’ financial conditions at the time of downturns. I find that firms experience significantly greater valuation losses during industry downturns when their peers have their long-term debt largely maturing at the exact time of downturns. These effects are only important in industries with industry-specific assets, for firms with significant amounts of their own debt maturing soon and are offset in concentrated industries. I find no effects of peers’ financial positions outside common industry downturns and implement several robustness checks. Overall, the results suggest that externalities imposed by financially constrained firms on industry peers can significantly amplify the effects of industry downturns in an important set of industries.
Joint with Lori Santikian
Abstract: This paper studies the debt maturity decisions of firms and provides evidence suggesting that firms in an industry manage their liquidity in an interdependent way. We find that higher industry cash flow volatility is associated with a smaller likelihood that firms have their long-term debt largely maturing at the same time as their industry peers. We provide evidence that this captures how firms time their debt maturity, as opposed to systematic differences in debt maturity structure. This effect is only important when peers’ debt level is significant, in industries with both specialized assets and greater competition, and is robust to identification based on cash flow correlations within an industry. Overall, our analysis suggests that, while choosing financial policies in an important set of industries, firms attempt to have greater liquidity in states of the world where industry peers are financially weaker.
Joint with Miguel Ferreira and Pedro Matos
Abstract: We study the role of lending relationships in the transmission of bank distress to nonfinancial firms using the 2007-2008 financial crisis and a sample of publicly traded firms from 34 countries. We examine the effect of both bank-specific shocks (announcements of bank asset write-downs) and systemic shocks (the failure of Bear Stearns and Lehman Brothers) that produced heterogeneous effects across banks. We find that bank distress is associated with equity valuation losses to borrower firms that have lending relationships with banks. The effect is concentrated in firms with the strongest lending relationships, with the greatest information asymmetry problems, and with the weakest financial position at the time of the shock. Additionally, the effect of relationship bank distress is not offset by borrowers’ access to public debt markets. Overall, our findings suggest that the strength of firms’ lending ties with banks is important to explain differences across firms in the effects of bank distress.
Supply-Side Effects and Industry Financing Cycles
Joint with Lori Santikian
Abstract: This paper studies the importance and determinants of industry-wide cycles in the role of equity versus debt as a source of new capital for firms. We use changes over time in the composition of industry peers’ net issues, conditional on their total net issues, to capture industry-wide shifts in the composition of external financing. We find that typical shifts in industry financing conditions predict significant and sharp cycles in firms’ own composition of net issues. These industry financing conditions are not correlated with changes in firms’ investment or cash flows, nor do they predict future cash flows, cash flow volatility or investment. In contrast, industry shifts towards equity financing and away from debt financing are associated with temporarily higher stock prices and more positive long-term equity analyst forecasts. At the same time, these shifts are associated with temporarily higher spreads on bank loans. All these effects are concentrated in the most competitive industries. Overall, our analysis suggests that changes in supply-side conditions of capital markets often lead the pricing of equity and debt issues in an industry to temporarily move in opposite directions, and that firms respond to these movements when choosing to issue equity or debt.