Stock Comovement and Financial Flexibility with Teng Huang, Anil Kumar, and Carles Vergara-Alert

Journal of Financial and Quantitative Analysis, Forthcoming

Journal Link  |  SSRN Link

Abstract: We develop a dynamic model of corporate investment and financing, in which shocks to the value of collateralizable assets generate variation in firms’ debt capacity. We show that the degree of similarity among firms’ financial flexibility forecasts cross-sectional variation in return correlation. We test the implications of the model with firm-level data in two empirical analyses using i) an instrumental variable approach based on shocks to the value of collateralizable corporate assets and ii) the outbreak of the COVID-19 crisis as an event study. We find that firms in the same percentile of the cross-sectional distribution of financial flexibility have 62% higher correlation in stock-return residuals than firms 50 percentiles apart.


Merger Activity in Industry Equilibrium with Theodosios Dimopoulos

Journal of Financial Economics, 126(1), 2017, 200-226

Journal Link  |  SSRN Link

Abstract: We quantify the impact of merger activity on productive efficiency. We develop and calibrate a dynamic industry-equilibrium model that features mergers, entry, and exit by heterogeneous firms. Mergers affect productivity directly through realized synergies, and indirectly through firms’ incentives to enter or exit the industry. Merger activity increases average firm productivity by 4.8%, of which 4.1% reflects the accumulation of synergies, and 0.7% the interaction between merger options and firms’ entry and exit decisions. We show that ignoring the implications of merger activity for public policies that promote entry can reverse the expected impact of these policies on productivity.

Technological Heterogeneity and Corporate Investment with Theodosios Dimopoulos

Journal of Economic Dynamics and Control, 66, 2016, 20-35

Journal Link  |  SSRN Link

Abstract: We propose an importance-sampling procedure to improve the computational performance of the simulated method of moments (SMM) for the estimation of structural models with fixed parameter heterogeneity. The main advantage of the procedure is that it does not require to simulate observations every time that the structural parameters change during the minimization of the SMM criterion function. We illustrate the use of our method by estimating a neoclassical model of investment for a sample of US manufacturing companies, allowing the technological parameters to vary across firms.

Preemptive Bidding, Target Resistance, and Takeover Premiums with Theodosios Dimopoulos

Journal of Financial Economics, 114(3), 2014, 444-470

Journal Link  |  SSRN Link

Abstract: We evaluate empirically two sources of large takeover premiums: preemptive bidding and target resistance. We develop an auction model that features costly sequential entry of bidders in takeover contests and encompasses both explanations. We estimate the model parameters by simulated method of moments for a sample of US takeovers. Our estimates imply that target resistance explains the entire magnitude of the premium in 74% of successful single-bidder contests. Simulation experiments show that initial bidders have, on average, a higher valuation for the target than rival bidders, so that a relatively low initial bid is sufficient to deter a rival from entry.

Working Papers

Bonding with Risk: Corporate Investment and Savings in Risky Financial Assets with Teng Huang  | SSRN Link

The Tortoise and the Snail: Reconciling the Evidence on Capital Structure Stability with Filippo Ippolito and Roberto Steri  | SSRN Link

How Costly Are External Financing and Agency for Private Firms? with Nan Xiong

Heterogeneity in Corporate Investment and Financing Policies with Theodosios Dimopoulos

Predicting Merger Targets and Acquirers from Text with Bryan R. Routledge and Noah H. Smith


Other Publications

Taste or Reputation: What Drives Market Prices in the Wine Industry? Estimation of a Hedonic Model for Italian Premium Wines with Luigi Benfratello and Massimiliano Piacenza

Applied Economics, 41(17), 2009, 2197-2209

Journal Link