Academic Appointments

July 2018 -

Assistant Professor of Finance, Liew Family Junior Faculty Fellow, and Fama Faculty Fellow, The University of Chicago Booth School of Business

Working Papers

Selfish Corporations (with Niels Gormsen and Tim McQuade) [Revise and Resubmit at the Review of Economic Studies]

[+] Abstract

Motivated by the public debate regarding corporate responsibility, we construct a memory-based cognitive model of decision making to illustrate how corporate and political communication can impact policy preferences. We test the predictions of our model in a new large-scale experimental survey of U.S. citizens on their support for economic policies such as corporate bailouts. We first establish that the public demands corporations to behave better within society, a sentiment we label “big business discontent.” Then, using random variation in the order of survey sections and in the exposure to animated videos, we confirm two key predictions of our model. First, messages, or cues, that prime respondents to think about policy through the lens of corporate responsibility make people more averse to bailouts. Second, attempts to paint a positive public image of big business can actually backfire, as they focus attention on an aspect of the policy decision on which the public has well-established negative views.

[Control Video] [T-Economy Video] [T-Bad Video] [T-Good Video]

Investing with the Government: A Field Experiment in China (with Bo Li and Ernest Liu)

[+] Abstract

We study the demand for government participation in the venture capital and private equity market in China. We design a non-deceptive field experiment in collaboration with the leading industry organization, through which we conduct 1,000 experimental surveys of both sides of the market: the capital investors (LPs) and the private firms (GPs) that manage the invested capital by deploying it to high-growth companies. Our respondents together account for nearly $1 trillion in assets under management. Each respondent evaluates hypothetical profiles of potential investment partners, whose characteristics we randomize, under the real-stakes incentive that they will be introduced to real partners matching their preferences. We document that the average GP dislikes LPs with government ties, indicating that the benefits of political connections are small compared to the cons of having the government as an investor. We show that such dislike is not present for government-owned GPs. Additional surveys of our respondents suggest interference in decision-making is a leading mechanism why government capital is unattractive to private firms. On the other hand, we find that the average LP prefers GPs that have a government-related LP as an investor. Through a model of two-sided search, we combine our experimental estimates with administrative data, discuss the equilibrium effects of government participation, and conduct simple policy counterfactuals.

Politics at Work (with Valdemar Pinho Neto and Edoardo Teso)

[+] Abstract

We study the role of politics in the labor market using new data on the political affiliation of the near-universe of private sector workers and business owners in Brazil over the 2002-2019 period. We document a large degree of assortative matching along political lines between employers and their workers: business owners are significantly more likely to employ workers who share their same partisan affiliation. We show that this stems both from a higher likelihood that a business owner hires copartisan workers, and from a lower probability that these workers leave the firm upon being hired. We establish this fact using multiple estimation strategies, which allow us to control for other assortative criteria that are correlated with political affiliation. We show that the degree of political assortative matching between workers and employers is larger than assortative matching along gender and racial lines. Using a novel survey of Brazilian workers and business owners, we elicit their opinions on the most likely mechanisms behind our findings: both business owners and workers believe that employers’ preferences for hiring copartisans—either because of taste-based discrimination or because of productivity considerations—is the primary driver of our findings, while they believe that pressures from local parties to find jobs for their affiliates and workers’ preferences for a copartisan employer are less relevant mechanisms. We rely on the richness of our micro-data data to show that several empirical patterns are in line with the views expressed in the survey.

Life After Death: A Field Experiment with Small Businesses on Information Frictions, Stigma, and Bankruptcy (with Shai Bernstein, Mitch Hoffman, and Benjamin Iverson)

[+] Abstract

In an RCT with US small businesses, we document that a large share of firms are not well-informed about bankruptcy. Many assume that bankruptcy necessarily entails the death of a business and do not know about Chapter 11 bankruptcy, where debts are renegotiated so that the business can continue operating. Small businesses are also unaware of a recent major reform that lowered the costs of bankruptcy procedures to enhance their protection. Firms also exhibit large degrees of stigma, believing that bankruptcy is embarrassing, a sign of failure, and a negative signal to employees and customers. Randomly providing short educational videos that address information or stigma gaps leads to increased firm knowledge about bankruptcy and decreases perceptions of stigma, both immediately and durably over 4 months. The videos also increase reported interest in using Chapter 11 bankruptcy and increase firms’ intended debt and investment.

[Control Video] [Information Video] [Information+Stigma Video]

Publications

Revealing Corruption: Firm and Worker Level Evidence from Brazil (with Spyridon Lagaras, Jacopo Ponticelli, Mounu Prem and Margarita Tsoutsoura) [Journal of Financial Economics, 143, No. 3, March 2022: 1097-1119]

[+] Abstract

We study how the disclosure of corrupt practices affects the growth of firms involved in illegal interactions with the government using randomized audits of public procurement in Brazil. On average, firms exposed by the anti-corruption program grow larger after the audits, despite experiencing a decrease in procurement contracts. We manually collect new data on the details of thousands of corruption cases, through which we uncover a large heterogeneity in our firm-level effects depending on the degree of involvement in corruption. Using investment-, loan-, and worker- level data, we show that the average exposed firms adapt to the loss of government contracts by changing their investment strategy. They increase capital investment and borrow more to finance such investment, while there is no change in their internal organization. We provide qualitative support to our results by conducting new face-to-face surveys with business owners of government-dependent firms.

Corruption and Firms (with Mounu Prem) [Review of Economic Studies, 89, No. 2, March 2022: 695-732]

[+] Abstract

We estimate the causal real economic effects of a randomized anti-corruption crackdown on local governments in Brazil using rich micro-data on corruption and firms. After anti-corruption audits, municipalities experience an increase in the number of firms concentrated in sectors most dependent on government relationships. Through the estimation of geographic spillovers and additional tests, we show that audits operate via both a direct detection effect as well as through indirect deterrence channels. Politically connected firms suffer after the audits. Our estimates indicate the anti-corruption program generates significant local multipliers which are consistent with the presence of a large corruption tax on government-dependent firms.

Who Creates New Firms When Local Opportunities Arise? (with Shai Bernstein, Davide Malacrino, and Tim McQuade) [Journal of Financial Economics, 143, No. 1, January 2022: 107-130]

[+] Abstract

We examine the characteristics of the individuals who become entrepreneurs when local opportunities arise. We identify local demand shocks by linking fluctuations in global commodity prices to municipality-level agricultural endowments in Brazil. We find that the firm creation response is mostly driven by young and skilled individuals. The characteristics of these responsive entrepreneurs are significantly different from those of average entrepreneurs in the economy. By structurally estimating a novel two-sector model of a local economy, we highlight how the demographic composition of the local population can significantly affect the entrepreneurial responsiveness of the economy.

Patronage and Selection in Public Sector Organizations (with Mounu Prem and Edoardo Teso) [American Economic Review, 110, No. 10, October 2020: 3071-99]

[+] Abstract

In all modern bureaucracies, politicians retain some discretion in public employment decisions, which may lead to frictions in the selection process if political connections substitute for individual competence. Relying on detailed matched employer-employee data on the universe of public employees in Brazil over 1997–2014, and on a regression discontinuity design in close electoral races, we establish three main findings. First, political connections are a key and quantitatively large determinant of employment in public organizations, for both bureaucrats and frontline providers. Second, patronage is an important mechanism behind this result. Third, political considerations lead to the selection of less competent individuals.

Bankruptcy Spillovers (with Shai Bernstein, Xavier Giroud, and Benjamin Iverson) [Journal of Financial Economics, 133, No. 3, September 2019: 608-633]

[+] Abstract

How do different bankruptcy approaches affect the local economy? Using US Census microdata, we explore the spillover effects of reorganization and liquidation on geographically proximate firms. We exploit the random assignment of bankruptcy judges as a source of exogenous variation in the probability of liquidation. We find that employment declines substantially in the immediate neighborhood of the liquidated establishments, relative to reorganized establishments. The spillover effects are highly localized and concentrate in nontradable and service sectors, consistent with a reduction in local consumer traffic and a decline in knowledge spillovers between firms. The evidence highlights the externalities that bankruptcy design can impose on nonbankrupt firms.

Asset Allocation in Bankruptcy (with Shai Bernstein and Benjamin Iverson) [Journal of Finance, Lead Article, 74, No. 1, February 2019: 5-53]

[+] Abstract

This paper investigates the consequences of liquidation and reorganization on the allocation and subsequent utilization of assets in bankruptcy. We identify 129,000 bankrupt establishments and construct a novel dataset that tracks the occupancy and employment at real estate assets over time. Using the random assignment of judges to bankruptcy cases as a natural experiment that forces some firms into liquidation, we find that even after accounting for reallocation, the long-run utilization of assets of liquidated firms is lower relative to assets of reorganized firms. These effects are concentrated in thin markets with few potential users and in areas with low access to finance. These findings suggest that when search frictions are large, liquidation can lead to an inefficient allocation of assets in bankruptcy.

Short Papers and Book Chapters

What Predicts Corruption? (with Mounu Prem and Jorge Gallego) [A Modern Guide to the Economics of Crime, Forthcoming, Eds P. Buonanno, P. Vanin, and J. F. Vargas]

Construction and Public Procurement in Uganda (with Nicole Ntungire) [Mining for Change: Natural Resources and Industry in Africa, March 2020, Oxford University Press, Eds J. Page and F. Tarp ]

A Cross-Country Comparison of Dynamics in the Large Firm Wage Premium (with Joacim Tag, Michael Webb, and Stefanie Wolter) [AEA: Papers and Proceedings, May 2018: 108: 323–27]