My research spans contract theory, financial intermediation, and international finance. The corresponding papers are published in top general interest journals (Econometrica and Review of Economic Studies) and top field journals such as the Journal of Economic Theory, the Journal of Finance, the Journal of Financial Economics, the Journal of International Economics and the Review of Financial Studies. My most recent research agenda (joint with Martin Oehmke) analyzes the economics of socially responsible investment (EFA 2020 best paper prize in responsible finance) and how to integrate climate change into financial regulation. I have served as a board member of the Finance Theory Group from 2016 to 2018 and am an editor of the Review of Finance since 2023. The paper “Target revaluation after failed takeover attempts - Cash versus stock” won the 2016 Jensen prize for the best paper published in the Journal of Financial Economics in the areas of corporate finance and organizations (first place). Moreover, I have been awarded the 2017 Poets and Quants “Top 40 under 40” award for professors of world-wide business schools, the Bessel award of the Alexander-von-Humboldt Foundation (~EUR 45k) as well as numerous project grants
Published and forthcoming papers:
(10) “The economics of deferral and clawback requirements,” 2022, joint with Florian Hoffmann and Roman Inderst, Journal of Finance), 77, 2423-2470. Non-technical insights in Harvard Law School Forum on Corporate Governance.
Main insight: Heuristic arguments in favor of interfering in bankers' compensation via deferral and clawback requirements suffer from the Lucas critique. Our positive analysis shows that sufficiently stringent deferral requirements always backfire. Our normative analysis characterizes whether and how deferral and clawback requirements should supplement capital regulation as part of the optimal policy mix.
(9) “Regulatory forbearance in the U.S. insurance industry: The effects of removing capital requirements for an asset class,” 2021, joint with Bo Becker and Farzad Saidi (Forthcoming in Review of Financial Studies). Online Appendix.
Main insight: We uncover that a reform of capital regulation for U.S. insurance companies effectively eliminates capital requirements for holdings of mortgage-backed securities but not for other fixed-income assets. We analyze the effect of this reform across asset classes and document increased risk-taking, especially by financially constrained (life) insurers.
(8) “Only time will tell: a theory of deferred compensation,” 2021, joint with Florian Hoffmann and Roman Inderst, Review of Economic Studies, 88, 1253-1278. Online Appendix.
Main insight: This paper characterizes optimal compensation contracts in principal-agent settings in which the consequences of the agent's action are only observed over time.
(7) “Target Revaluation after Failed Takeover Attempts - Cash versus Stock,” 2016, joint with Ulrike Malmendier & Farzad Saidi, Journal of Financial Economics, 119, 92-106. Winner of 2016 Jensen Prize for the best Corporate Finance paper published in the Journal of Financial Economics. Online Appendix
Main insight: Capital markets interpret a cash offer as a economically large and positive signal about the fundamental value of target resources (in contrast to a stock offer). We expose a significant look-ahead bias affecting the previous literature on this topic.
Main insight: We study the dynamics of contracts in repeated principal-agent relationships with an impatient agent. Despite the absence of exogenous uncertainty, Pareto-optimal dynamic contracts generically oscillate between favoring the principal and favoring the agent.
(5) “Markup cycles, dynamic misallocation, and amplification,” 2014, joint with Christine Parlour & Johan Walden, Journal of Economic Theory, 154, 126-161.
(4) “Rating agencies in the face of regulation,” 2013, joint with Christian C. Opp & Milton Harris, Journal of Financial Economics, 108, 46-61. Winner of the 2016 Emerald Citation Award.
(3) “Expropriation risk and technology,” 2012, Journal of Financial Economics, 103, 113-129. Winner of the 2008 John Leusner Award for the best dissertation at the University of Chicago in the field of Finance.
(2) “Tariff wars in a Ricardian model with a continuum of goods,” 2010, Journal of International
Economics, 80, 212-225.
(1) “Rybczynski's theorem in the Heckscher-Ohlin world - anything goes,” 2009, joint with Hugo
Sonnenschein & Christis Tombazos, Journal of International Economics, 79, 137-142.
Completed working papers:
(11) “The aggregate demand for bank capital,” 2020, joint with Milton Harris and Christian Opp.
Abstract: We propose a novel conceptual approach to transparently characterizing credit market outcomes in economies with multi-dimensional borrower heterogeneity. Based on characterizations of securities' implicit demand for bank equity capital, we obtain closed-form expressions for the composition of credit, including a sufficient statistic for the provision of bank loans, and a novel cross-sectional asset pricing relation for securities held by regulated levered institutions. Our framework sheds light on the compositional shifts in credit prior to the 07/08 financial crisis and the European debt crisis, and can provide guidance on the allocative effects of shocks affecting both banks and the cross-sectional distribution of borrowers.
(12) “A theory of socially responsible investment,” 2022, joint with Martin Oehmke (revise and resubmit at Review of Economic Studies). Winner of EFA 2020 best paper prize in responsible finance.
Abstract: We characterize the conditions under which a socially responsible (SR) fund induces firms to reduce externalities, even when profit-seeking capital is in perfectly elastic supply. Such impact requires that the SR fund's mandate permits the fund to trade off reduced financial performance against reductions in social costs---relative to the counterfactual in which the fund does not invest in a given firm. Based on such an impact mandate, we derive a micro-founded investment criterion, the social profitability index (SPI), which characterizes the optimal ranking of impact investments when SR capital is scarce. If firms face binding financial constraints, the optimal way to achieve impact is by enabling a scale increase for clean production. In this case, SR and profit-seeking capital are complementary: Surplus is higher when both investor types are present.
(13) “Green capital requirements,” 2022, joint with Martin Oehmke.
Abstract: We study bank capital requirements as a tool to address financial risks and externalities caused by carbon emissions. Capital regulation can effectively address climate-related financial risks but doing so does not necessarily reduce emissions. For example, higher capital requirements for carbon-intensive loans exposed to transition risk may crowd out lending to clean firms. When it comes to affecting carbon externalities, capital requirements are inferior to carbon taxes: Reducing carbon emissions via capital requirements may require sacrificing financial stability or may be altogether infeasible. However, if the government is unable to commit to future environmental policies, capital requirements can make higher carbon taxes credible by ensuring banks have sufficient capital to absorb losses from stranded asset risk.
(14) “A Taxonomy for ESG Investments,” 2023, joint with Roman Inderst.
Abstract: Our paper analyzes whether a planner should design a taxonomy for sustainable investment products marketed to retail investors, in the presence of traditional tools for environmental regulation. We first show that the private market provision of funds with a ESG label involves greenwashing: All firms are marketed as sustainable. A mandatory taxonomy prevents greenwashing and is, thus, necessary to ensure real effects of sustainable financing provided by small retail investors. However, the introduction of such a taxonomy cannot improve welfare on top of optimal environmental regulation unless financial constraints prevent firms from supplying the socially optimal quantity of output. Then the planner can exploit warm-glow sustainability preferences by retail investors to subsidize firms' sustainability investments, thereby relaxing firms' financial constraints.
Work in progress:
(15) “Stranded Assets," 2022, joint with Martin Oehmke and Jan Starmans.
WEB DESIGN by Natalia Kovrijnykh: November 24, 2023